LivingSocial
Groupon is adding 150 employees a month at its U.S. headquarters. The new employees are being trained in a church because the conference rooms at its headquarters aren’t big enough. There is so much electronic equipment crammed into its New York office that the power goes out every day.
And at LivingSocial, well, the living is a little too social. Its third office in Washington, open just two months, ran out of room so fast that employees have to work at narrow desks in the hallway.
Deal-a-day websites blast e-mail offers for deep discounts, sometimes good for only a few hours. And they’re becoming so popular that their offices are starting to look as crowded as their subscribers’ inboxes.
In just three years, the business model has changed local advertising, delivering faster results than other marketing methods. Store owners get immediate revenue and can see exactly how many customers an offer brings in.
The exponential growth of the sites, along with the emergence of hundreds of clones, is reminiscent of tech companies before the dot-com stock bubble burst in 2000. But Lou Kerner, a social media analyst at Wedbush, argues this isn’t a fad: It’s a new category of commerce that has changed how companies from hair salons to sandwich shops market their products.
Groupon, the No. 1 daily-deal site, has swelled from 2 million subscribers to 85 million over the past year and a half, while second-place Living Social went from 120,000 subscribers to 28 million.
The sites are expected to generate $2.7 billion in revenue this year, more than doubling last year’s take, according to Local Offer Network, which collects and distributes deals from hundreds of sites.
The daily-deal market could reach $4 billion by 2015, says Mark Fratrik, vice president at marketing research firm BIA/Kelsey. While that’s a small slice of the $142 billion in online retail sales, daily-deal revenue is growing much faster than overall e-commerce.
The discounts and limited-time offers on daily-deal sites motivate shoppers to splurge on treats such as half-price golf lessons at Miami’s Better Golf Academy or $75 worth of wine for $35.
The sites fall into two categories:
• Group-buying sites, such as Groupon, LivingSocial and BuyWithMe, that partner with small businesses to send subscribers a local offer each day. (Occasionally, they partner with big companies such as Gap to run a national deal.) Subscribers can opt to purchase the voucher, usually good for half off. Then Groupon takes 30 percent to 50 percent of the revenue. So a pizza parlor might take in only $4 on a pizza it can regularly sell for $16. The theory is that bringing in a bunch of new customers will offset the smaller profit and result in repeat business.
• Flash-sale sites, such as Rue La La, Gilt and Hautelook, that host limited- time sales for members only. They feature a different product or designer each day, like Dolce & Gabbana dresses that didn’t sell or Rock & Republic jeans at 60 percent off.
The deals work better for some businesses than others. If you’re running a hotel and some of the rooms were going to sit empty anyway, it makes a lot of sense. For restaurants, where the profit margin is tiny to begin with, it might be less appealing. (Plus, customers tend to tip on the discounted total, making servers grumpy.)
Some merchants don’t do the math before they run an offer and wind up getting burned. Businesses hope shoppers will spend more than the coupon’s face amount. Other companies are prepared to take a loss, seeing it as a marketing cost. Each of the business owners interviewed for this story by The Associated Press decided to run a second or third deal after trying it out.
Bess Wyrick, creative director at Manhattan floral design shop Celadon & Celery, is thrilled with the results of three deals she’s run for flower-arranging courses. The offers brought in more than 1,000 students. But she’s not convinced it’s a long-term advertising strategy. If you continue to run promotions, she says, “How many of your clients are going to want to buy at the regular price?”
Here’s a look at some of the biggest daily-deal sites on the Web:
GROUPON
Headquarters: Chicago
Specialty: General
Sample offer: $40 for $100 worth of photo and video digitization services
Employees: 7,000
Members: 85 million
LIVINGSOCIAL
Headquarters: Washington
Specialty: General
Sample offer: $15 for $35 worth of FTD flowers for Mother’s Day
Employees: 1,300
Members: 28 million
RUE LA LA
Headquarters: Boston
Specialty: Apparel, home, lifestyles
Sample offer: Brooks Brothers gray wool two-button suit for $499, originally $998
Employees: 300
Members: 4 million
IDEELI
Headquarters: New York
Specialty: Fashion
Sample Offer: $75 Calvin Klein trench coats, regularly $148
Employees: 200
Members: 4 million
JETSETTER
Headquarters: New York
Specialty: High-end travel
Sample offer: $560 per night at a secluded resort in Bahamas, regularly $895
Employees: 65
Members: 2.1 million
BUYWITHME
Headquarters: New York
Specialty: General
Sample offer: $22 for five classes at Yo Yoga!, regularly $10 per class
Employees: 140
Members: 1 million
Via Denver Post
