During last years the daily deal business has caused quite a controversy around the market, first forming the most rapidly growing business in the world and then, after the Groupon IPO on June 2011, the business model being widely speculated.
As the news of the new business phenomena started spreading, more and more eager entrepreneurs followed the gold rush. And now the competition’s getting tenser with the big players such as Groupon and LivingSocial making considerable profits and the hyper local microbusinesses dying off.
Characteristic for the market is and has been the extremely low entry barrier. Businesses exist at cyberspace – site development and hosting costs are low, social media creates a free marketing channel and it really isn’t too hard to persuade local entrepreneurs to give out tempting deals. For advertisers the CPA based business model feels tempting – and no wonder, worst come worst advertiser’s business gets an ad with a superbly low CPM.
So. Easy to set up, almost free to market and even the good deals are not too hard to get. What’s the deal?
Quite simply the consumer is the King. Daily deal business relies almost totally on the consumer mail database and its performance, with other channels forming a marginal revenue stream. And the cost of acquiring subscribers who redeem a daily deal has skyrocketed during the past two years. Wall Street Journal mentions at the latest article that ‘Groupon, the daily-deals market leader, spent about $7.99 to acquire each subscriber who actually redeemed a daily deal in the first quarter of 2010. By the second quarter of 2011, that figure had nearly tripled to $23.46.’
Of course this is yesterday’s news for any email marketer. You buy 100.000 marketing contacts for 0,09 €/contact, send the mail to them with a conversion of 0,2% leading to purchase and registration – congratulations you’ve just received 200 new customers for the price of 9 000 €, which makes a modest 45 € / customer. And if the leads are eventually good you can expect a reoccurring purchase on every 3rd week, but realistically thinking it’s probably not going to be quite so regular.
What’s this got do with classifieds? Well. As far as I can see, the business model is still highly profitable. And as the classifieds are moving online, this certainly is one product to consider having on our portfolio. Why? Quite simply, most of us already have the subscribers = we have the database = we have the consumers.
Of course this doesn’t solely make or break the business, but it gives us a head start compared to the market. It also helps us to widen our product range with a relatively low cost.
So. How to enter the daily deal market as a late comer? How to compete with the existing giants? Targeting by sub segmenting might be one answer, selected niche segments, restaurants, construction, b2b, sweet sixteens, exclusivity. And what if they’ve been done well already? You simply have to do it better (or acquire one of the competitors). And reach a wider audience.
So. Could it be done by classifieds? Absolutely. Should it be done by classifieds? Well. What’s the deal for you?