Where have all the daily deals gone?

Business is slowing down and the major players are pivoting. Where does that leave LivingSocial?

I doubt anyone thought that the frenetic hypergrowth of the daily deal industry circa 2010 was going to last forever.  But who would’ve thought that two years later, the daily deals industry would be a ghost town? 

Our Fearless Leader Bambi Francisco brought this up in a chat with LivingSocial CTO and co-founder Aaron Batalion Tuesday night at Startup Sessions.  Where have all the daily deals gone?  More specifically, where does LivingSocial fit into that?

The long and short of Batalion’s answer is that LivingSocial isn’t just about pushing out deals and making money, but about cultivating relationships with customers and merchants for the long haul.

“I think early on, when we got into the space and when others got into the space, the explosive growth generated a lot of interest. I think a lot of people thought they could spend very little and one day become very large.  Turned out it was easy to launch in one city with a thousand subscribers and make a little revenue, but it was a lot harder to turn that one city into hundreds of cities and several thousand subs.  There were innovations we had to come up with that other folks didn’t.  You have to innovate to grow and execute this business,” said Batalion, adding: “We went from a team of four to 40 to 400 to 4000 in three and a half years.  You need to innovate to grow your business and recruit your team.”

“Do you think that’s why a lot of these companies don’t exist anymore?  Do you think consumers are still interested in daily deals?” Bambi asked.

“The way that I think of daily deals is different from the way most people on the Internet talk about daily deals,” said Batalion.  “I saw the sushi deal and the massage deal…and it was the obvious ‘aha’ moment, because I saw how the consumer could connect with a local business that they hadn’t tried before.  The way I look at the space is we’re in this for the long haul—that data, that customer that we have, that credit card we have on file, that knowledge we have about what they like, the relationships we have with merchants means we can build businesses and innovate.  We were the first to build an adventure and events vertical.  Like, to the customer: I know where you live, I have your credit card on file, I know what you care about, and to the merchants: I know I’m working with you to find ways to drive revenue.”

In other words, LivingSocial doesn’t just focus on getting out good deals, but crunches the data to make sure everyone wins.

Platitudes like “in it for the long haul” are great, but the fact is that a lot of the major players are having to retool their original thesis.  Groupon, the most recognizable name in the daily deals industry, is relying more and more on Groupon Goods, its e-commerce platform for products.  And then you have Gilt Groupe, which made a name for itself in luxury fashion flash sales, focusing more on high end retail and less on deals and steals. 

It all seems to point to one thing: daily deals are no longer profitable.  Whether that’s because the stratospheric growth of daily deals is now coming back to earth, or because customers just aren’t interested in daily deals anymore, is anyone’s guess (my guess is it’s a combination of both).  But where does that leave LivingSocial? 

“I think LivingSocial at its core is just about delivering those experiences to customers,” said Batalion.  “We don’t necessarily have to wear our technology on our sleeve to deliver a great experience to our customers [referring to Groupon Payments and Breadcrumb].  People shouldn’t have to worry about how it works.  If customers continue to work with us and merchants continue to work with us, then we have a big business for the long term.” 

Getting more to the point, Batalion pointed out:  “People have seen our explosive 1000% year-over-year growth and they’ve come to expect it, but if we did that for another two years, that would be like…every man, woman, and child on the planet.  It’s just not possible.  That’s okay, we’re seeing that and reacting.”

So, Batalion seems to be suggesting that it’s just a matter of stabilizing growth.  That might be the case if LivingSocial can continue growing without switching its focus from daily deals to retail.  Otherwise, we might just be seeing LivingSocial’s business shrinking at a slower pace than Groupon’s.

For full video of the Startup Sessions chat, check it out here.