The Rise of the Daily Deal: Bargains Drive Revenue for Publishers

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Article ImagePeople love saving money. Sales and coupons are time-honored advertising traditions for a broad field of retail businesses, from supermarkets to office suppliers. The latest manifestation of human beings' long-running obsession with coupons is the daily deal-websites and mobile apps that deliver a selection of daily coupons and deals to savings-hungry consumers.

Companies such as Groupon, Inc. and LivingSocial have made a name for themselves by combining daily coupons, group buying, and local marketing. And the success of these two companies is spawning a thriving ecosystem of businesses, publishers, and deal networks all looking to get a piece of the pie.

A Deal a Day

The basic concept of the daily deal is simple: A business offers a particular discount, such as a dozen donuts or a box of printer paper at a deeply discounted price, and the deal is publicized by a daily deals site, which offers it up to its audience of bargain-hungry buyers. The discounts are generally broken down by market or by location to guarantee that the deal is targeted to people who are actually likely to take part. Interested customers buy the deal through the site itself, then redeem the coupon with the business for the goods or service offered. The proceeds of each sale are then split between the business and the daily deals site.

The particulars of this arrangement can vary from site to site. Groupon, probably the most prominent and well-known name in the burgeoning daily deals market, splits the revenues 50/50 with the participating business. It also requires that a minimum number of users (which varies from deal to deal) prebuy the deal before it becomes "active." In the event that a deal fizzles, the money is returned to the consumers and the deal is canceled.

Most daily deal sites use a model similar to Groupon's. The exact nature of the revenue split can vary from network to network, as can the use of a minimum and maximum number of buy-ins. The control the merchant has over the terms of the deal is another factor that can shift drastically between different sites. Some daily deal services dictate the time and nature of a deal to the business and merely allow the business to accept or reject, while others are more open to suggestions and guidance from the merchants.

The appeal of this arrangement is clear. In an ideal case, every participant gets something to their liking. The consumer gets discounted merchandise or services, the merchant makes up the cost of the discount through sheer volume of sales or by the carry-over sale of additional goods not included in the deal, and the deals site itself is compensated by its cut of the promotion. The revenues might be divided up with additional parties that played a role in the promotion of the deal as well.

However, the deals don't always go as planned. John Blossom, president and senior analyst for Shore Communications, Inc., points out that there are difficulties with the model, especially for merchants. "It certainly is a powerful model, but it certainly is a powerfully hyped model also," says Blossom. "Group offers are one form of marketing, and it turns out that it's a tricky form of marketing for many if not most merchants to manage, both on a procedural level and on an economic level." Some merchants, for instance, might not have the technical expertise to efficiently manage the in-store coupon redemption process.

Blossom also notes that the offers don't always result in repeat customers or up-selling, the outcomes a merchant is looking for. "The feedback seems to be that although it's exciting and it does often result in a lot of foot traffic, it's not necessarily always resulting in profitable foot traffic," he says. Some users simply bounce from deal to deal, Blossom explains, jumping at whatever deal is convenient without ever becoming a repeat customer.

But despite these inherent risks in the daily deal and group purchasing model, the growth of Groupon and its competitors has drawn a great deal of interest from both publishers and merchants. An upcoming initial public offering (IPO) from Groupon, which so far has been unable to turn a profit, will likely attract even more attention.

Enter the Publisher

At first blush, the daily deals mechanic might seem like an ill fit for content publishers. The biggest names in daily deals are managed largely as their own brands, with users getting an email or directly visiting a website or mobile app to view the deals. But while daily deals sites have to build an audience city by city, recruiting businesses and building relationships as they go, local and regional content publishers have a unique advantage: They already have the business contacts, the sales familiarity, and the local audience from their existing models. Many of these same local publishers are seeking new ways to generate advertising money, especially online, so the prospect of daily deals partnerships is an attractive one.

One daily deals site that is working with publishers to more effectively market its deals is RapidBuyr, Inc., a group buying site that targets the small and medium business market. According to Kevin Wells, executive vice president of market development, the site operates similarly to consumer-oriented deals sites, although with a few notable differences. "You don't make a 24-hour decision on which CRM platform you're going to put your company on," says Wells. He adds, however, that a company might decide to purchase office equipment such as a printer or a shredder because it sees a particularly good deal and has an outstanding need for one.

In order to expand the reach of its deals, RapidBuyr formed a partnership with American City Business Journals, Inc. (ACBJ)-which publishes business journals in Boston, Los Angeles, and Philadelphia, among other cities-to market its deals to ACBJ's subscribers. "That gets [our] deals into the local markets that ACBJ serves," says Wells. "We think that the local business markets are really, really interesting."

Wells says RapidBuyr has received a lot of interest from publishers. The company recently announced a partnership with TechTarget, a B2B technology publisher, and is planning on announcing additional publisher partnerships in the near future. "They're very interested in incremental revenue," he says. "[Digital publishers] had, obviously, CPM erosion. There's all kinds of content and websites to choose from, and they've seen erosion in their core revenues. And they're looking for opportunistic ways to get incremental revenues from their subscriber base, but not by actually asking for it."

Wells argues that properly targeted deals can serve as content for a reader, rather than just as more advertising. To this end, he says that RapidBuyr works carefully with publishing partners to determine what sort of deals best serve the audience. "We have the ability to do some pretty good data mining against their audience at a high level to understand how best to market to them," says Wells.

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