The online business of serving up daily deals has attracted millions of dollars in venture capital and spurred dozens of clones of market leaders Groupon Inc. and LivingSocial Inc. Now the industry is starting to shake out.
Nearly one-third of all daily-deal sites nationwide—or 170 of 530—have shut down or been sold so far this year, according to daily-deal-site aggregator Yipit.com, including sites with names such as Scoop St. and RelishNYC. Even big operations such as Facebook Inc. and Yelp Inc. that could capitalize on their large audiences to build a daily-deals business have recently pulled back on the service.
The daily-deals business has turned into an “arms race,” with competitors spending money to attract subscribers and hundreds of employees and making it more difficult for other sites to keep up, said David Ambrose, the 26-year-old co-founder of Salesscoop LLC’s Scoop St., which was sold last month to rival BuyWithMe Inc. for an undisclosed sum.
At the heart of the winnowing is the shifting economics of the daily-deals business. Setting up a daily-deals site—in which the site takes a cut of the online coupons it offers consumers—requires just a website, some emails and local merchants willing to offer a discount. But as the industry has started maturing, the costs of running such a business have soared.
In particular, the cost of acquiring subscribers who redeem a daily deal has skyrocketed during the past two years, said executives at daily-deal websites. While snagging early adopters who were curious about daily deals initially required little marketing, it now takes more spending to get to remaining consumers and to cut through the noise created by so many competitors.