‘Daily deals’ portals face survival of the fittest crunch time

The rise of daily deals aggregator Web sites is helping bargain hunters find sweet deals online, but the outlook for many of those sites will sour over the next year, analysts warn.

Inspired by the massive crop of group buying sites, such as Groupon and LivingSocial, some sites are grouping those daily deals together to offer discount deals on various goods and services ranging from restaurant meals to spa getaways in one place. The deals are usually available for a limited time and are not “unlocked” unless a certain number of consumers signal their intention to buy the item or service at the discounted price. Once the threshold of potential buyers is reached online, the deal is activated and made available to all shoppers who signed up for it.

“Will all of these aggregator sites survive? The answer is no,” says Albert Bitton, a principal and managing partner at Group Buying Canada.

“I’ve already seen the growth stop on the aggregator side and the reason is that they’re not making money,” says Bitton, who provides consulting and analysis to the sector from his Montreal office.

Related Story: Group buying sites mature as huge market size becomes clear

The craze began when Chicago-based Groupon, owned by ThePoint Inc., hit the Web in 2008. With 2010 revenue estimated at up to $350 million and worldwide subscribers expected to hit 100 million this year, Groupon reportedly rebuffed a $6 billion takeover offer from Google last November and is now planning an IPO in the first quarter of next year using the ticker symbol GRPN.

Aggregator sites started popping up last year. They list discount deals from several group buying sites all on one site, acting as online clearing houses to help consumers sift through offers from several discount sites at once.

There are about 60 aggregator sites in Canada today, but that’s just too many to survive in a crowded online marketplace serving Canada’s small population, Bitton predicts.

“(Sixty sites) is ridiculous. There are more here than in the U.S. on a per capita basis,” Bitton says. “The (Canadian) aggregator sites don’t have enough members and traffic to justify building a business model, especially when there’s over 50 of them across the country.”

“The (North American) market could probably support a few dozen of these sites versus hundreds,” says Greg Stirling, senior Internet analyst at Opus Research in San Francisco. “There will be some consolidation. We may see some mergers of smaller sites to combine efforts.”

There are about 400 group buying sites in North America, Stirling says. Bitton estimates the number of Canadian sites at around 120 and says it could hit 200 in the next nine months.

Many actual group buying sites may merge, Bitton says, but he believes with aggregator sites “mergers won’t happen, the sites will just disappear.”

Many aggregator sites don’t have enough dedicated members to survive and aren’t investing enough in branding and marketing to make their site top-of-mind with consumers, Bitton says. Another problem is that most aggregators get only marginal affiliate fees, a commission on each group buying purchase made via an aggregator site.

“You can’t build a business model if you’re only taking 10 to 15 percent off someone else,” Bitton says.

Stirling agrees.

“There’s less revenue there and you have to have a lot of (users) because you’re getting revenue share from other people,” Stirling says.

Another threat to existing aggregators comes from heavyweights like Microsoft Corp.’s Bing and Facebook Inc. entering the space.

“Bing has the money, the power and the presence on your Internet Explorer on the top hand corner of your computer every time you log in. Who can compete with that?” Bitton says.

Bitton says some of the few Canadian aggregators that will likely survive include:

  • Redflagdeals: it’s been around since way before the current aggregator trend started, so already has a large, loyal subscriber base; also enjoys the marketing clout of Yellow Pages Group, which acquired Redflagdeals last year
  • Onespout: its status as the first major Canadian aggregator garnered it lots of media coverage, leading to high name brand recognition with Canadian consumers
  • Dealivery: already owns a big dedicated subscriber base from its sister sites, women’s portal Divine.ca and coupon site Websaver.ca

To ensure their existence, aggregators need to brand themselves well, invest in finding a large audience base or buying an existing one, try to nail down higher affiliate fees from group buying sites, and look for other ways to generate revenue such as page sponsorships or offering discount cards, Bitton says.

What are some Canadian aggregators doing to make sure they survive the initial group buying frenzy phase?

Onespout’s game plan is focused on tailoring its Toronto-based site to each individual user so they don’t just see every deal, they only see the ones that matter most to them.

“To me it’s all about personalization. The ultimate value of this business is being able to provide the consumer with the most relevant deals they will really care about,” says Onespout CEO Antonio Rodriguez. ”

That includes letting Onespout users filter their deals based on category, the size of discount offered, and even their work and home locations instead of just their city. Users can also track group buying deals they bought in the past on Onespout, which has over 100,000 registered e-mail subscribers since it launched in September 2010.

Since Vancouver-based aggregator Cakedeals launched in October 2010, monthly page visits have jumped from 600 to nearly 150,000 and revenue has grown by about 30 per cent month-over-month. The site aggregates deals in 15 Canadian cities and 15 American ones as well as Hong Kong. It’s focused on growing its user base to another 50 cities within the next two months, targeting areas with strong Groupon usage.   

“Lots (of the expansion push) will be in the U.S. space. But we also want to try to enter the European market as well and also Asian cities like Taipei where Groupon is very popular,” said Cakedeals co-founder Simon Wong.

Asia is a good market for aggregator expansion because there are 4,000 group buying sites there and hundreds of millions of consumers, Bitton says.

The number of users at Montreal-based Dealivery has grown by 40 to 50 per cent per month since its January launch.  Over 200,000 people have signed up for the aggregator so far. Although revenue has grown by 25 per cent since the launch, “our goal has not been to worry about the revenue in the first six months. Our number one goal right now is to grow the database and fine tune the technology for a great consumer experience,” says Dealilvery co-founder Chris Emergui.

As Bitton noted, Dealivery’s main advantage is the member base it inherited from its existing sister sites, including Websaver.ca, where users order a staggering 1 million coupons per year. It’s an edge that Dealivery will only try to exploit further.

“Both of our existing sites (Divine.ca and Websaver.ca) have seen such growth this year that we haven’t worn it out yet. We’re still leveraging it. At some point we’ll say we’ve saturated those two audiences but we haven’t done that yet,” Emergui says.

Group buying sites are gaining traction with Canadians. According to a recent survey, 49 per cent of Canadians have visited a group buying site and over two-thirds (68 per cent) of those have started doing so in the past six months. A sizable 91 per cent of those who made a purchase have spent up to $449 on such sites in the past 12 months. The Vision Critical study, released in May, surveyed 1,014 adult Canadians who have visited a group buying site.

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