What’s the Daily Deal?

If you listen to the chatter taking place among the various performance marketing groups and forums, you will hear people asking not just about companies with whom to work or if certain companies have offers. In the latter, one type has not had many requests – the daily deal space. Companies aren’t asking for them as much and others aren’t looking for distribution for the ones they have. The question is why? What is holding back the industry? Here are some of the possibilities.

Offer

The vast majority of daily deal offers are at the end of the day email submit offers. They make their money off the transactions that take place post sign-up. They appeal to a broad market which makes them historically great candidates to be an offer. From this perspective, there is nothing wrong with them. It actually makes them appealing. And, when compared to the incentive promotion space, they might actually come out ahead.

Pricing

Email submit offers shouldn’t pay too much. Yet, the incentive promotion space led the way with payouts that at times topped $2 per user. The deal space quickly outspent on a per user, with payouts easily exceeding $4. At two times the payout, at least the same level of conversion, and at least the same level of appeal, you have the makings for a superior offer. For a while it was, but today, it almost seems the other way around, i.e., that the original email submit outdoes the current email submit.

Saturation

Here is were things get interesting. As payouts are based on new registrations, what happens when the market leader has a large share of the users? You have an increase in the scrub rate and a decrease in performance. Plus, while the hook is good (save 90%), it still means spending money versus something "Free." People that should know better will still fill out the forms for the incentive offer, again and again, whereas they might not for the deal offer. Plus, the deal offer has slightly less inventory it can run on as the big spenders are brand sensitive when compared to the incentive promotion guys. Taken together, we have the first real issue facing continued distribution.

Direct Marketing Expertise

Here is perhaps one of the biggest factors to success, not just an attractive offer but understanding what the metrics mean. The incentive promotion guys have done so well because they have a maniacal focus on every touch point, from cost to revenue, and they can tell the profitability of any placement, any user, at any time. They also have lower overhead and can not just tweak monetization on the fly, they can make their money back on the fly. They need less cash on hand, less people and lower margins to sustain the business. You didn’t need that know how initially to enter the deal space. You just needed to have a game plan. It’s no surprise then that you had so many people enter only to later stumble when the emphasis on metrics mattered most.

Budgets

Unlike the incentive promotion space, the vast majority if group buying / daily deal companies raised money to grow their business. If they needed to grow faster, they went back to the doll to buy more and scale the sales force quicker. Not so much today. The ones with the most money are spending less of it and paying less per user. The others don’t have it to spend and aren’t likely to get money to spend. Combine that with entering the space without an insane focus on acquisition and monetization, and you have a whole bunch of companies who all of a sudden might want people but can’t afford them.

Adding it all up

What happens when you take a limited number of companies who know how to buy smartly, because these are the ones who understand their metrics? Combine that with their shrinking budgets on marketing and throw in a healthy dose of saturation from the users perspective? You have an industry that doesn’t have a lot of easy pickings. And, you have many people who were recently buying a decent amount for a decent price per user who all of a sudden no longer are spending. If you are on the receiving end, it will seem sudden and unexplained.

Where is the opportunity?

Deal companies aren’t done spending. Lots of deal companies with lots of money are no longer the case. So who has the money? Those that don’t seem like they do – the end advertisers, or in this case the merchants. Helping them understand the deal model, that’s where the money is. There is a billion dollar plus industry sitting in between those with traffic and those who need the traffic. Every other industry has players in between, except this one. Each deal is worth several thousand dollars at the last, and they run more than once per year. It doesn’t take too many to build an efficient and successful business. It’s a lot easier than chasing after the same number of clients who have no money to spend.