More Red Flags for the Daily Deals Market, Survey Finds

Groupon is already getting a bruising about the prospects for its business, and now a new study reveals a few troubling points about the daily deals market as well.

The study conducted by Rice University found that while more than half of the merchants believe they made money from deals, merchants report that a relatively low numbers of buyers spend beyond the deal value.

The report, conducted by Utpal Dholakia, surveyed 324 businesses that conducted deals between August 2009 and March 2011 in 23 U.S. markets from five major providers — Groupon, LivingSocial, OpenTable, Travelzoo and BuyWithMe.

The business reported that 55.5 percent of the time they made money, 26.6 percent lost money and 17.9 percent broke even.

Moreover, the study concluded that over the next few years, it is likely that daily deal sites will have to settle for lower revenue shares because it will be harder and more expensive for them to find viable candidates to fill their pipeline.

The four major red flags:

  • A low percentages of deal users spend beyond the deal value (35.9 percent) and return for a full-price purchase (19.9 percent).
  • Less than half of the businesses indicated enthusiasm about running another daily deal in the future.
  • About 70 percent indicated openness to considering a different daily deal site.
  • And only 35.9 percent of restaurants and bars and 41.5 percent of salons and spas said they would run another promotion in the future.

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Just as the atom bomb was the weapon that was supposed to render war obsolete, the Internet seems like capitalism’s ultimate feat of self-destructive genius, an economic doomsday device rendering it impossible for anyone to ever make a profit off anything again. It’s especially hopeless for those whose work is easily digitized and accessed free of charge.

— Author Tim Kreider on not getting paid for one’s work