The Wall Street Journal recently announced, the king of Daily Deal websites Groupon hit $760 Million in revenue in 2010, up from $33 Million in 2009, and a mere three years after inception. CEO Andrew Mason hopes to achieve ‘billions in revenue’ in 2011 – I’m sure he would!
I’ve been keeping an eye on daily deal sites as more and more of them keep sprouting up, trying to catch the wave of success like Groupon. I was approached by one such daily deal website, eager to get into the market for a piece of the pie. They were looking for marketing talent to join their team. After taking a look at their business model, I wrote down some thoughts, which I’d like to share on my blog.
The daily deal website business model works on the premise that there is sufficient marketing investment in driving up the number of quality subscribers, sales investment in getting relevant deals from consumers, a minimum number of subscribers to buy into the daily deal, and revenue from the subscriber purchase cost and directly from the consumer. Some of the key business/marketing drivers are:
(i) Critical mass of relevant subscribers who will activate the deal, and of relevant consumer products/services to drive subscriptions;
(ii) Size and quality of the subscriber/consumer lists, cost of acquisition, conversion and retention rates;
(iii) Economically viable equation for subscribers (value for money) and consumers (profit on one-off deal, new client acquisition, repeat business);
(iv) Authentic marketing message, community connection, and value proposition.
The most imminent business success driver is reaching critical mass quickly in order to secure top spot in this space, in a market that is naturally monopolistic (think eBay) where there is little room for being #2. Subscribers will frequent the website with the most relevant deals to them and in their local area, and consumers want to advertise to their target market in their geographical space. Once critical mass is reached, other success drivers for long-term business sustainability include:
(i) Scalability – sales (split by geography and/or industry), marketing (online vs. offline tactics and how to lead/motivate the team), and technology (building a world class, stable platform rolled out across multiple geographies);
(ii) Efficiency – sales (what deals work and when, by industry), marketing (sophisticated subscriber profiling including buying preferences, geography), and technology (how to deliver the deals in a more interesting/appealing way).
Essentially working within a limitless market, I would place immediate focus on the ‘low hanging fruit’, perhaps targeting several niche markets simultaneously to start building momentum with subscribers and consumers. A critical component to overall success is for the sales and marketing teams to work in tandem, building on the same customer profile with a unified message. This will (a) instill confidence in the sales team that the consumer deals they close will get activated, (b) get consumers bought into the premise that your daily deal site delivers cost effective, targeted and immediate promotions that work, and (c) fulfill subscriber expectations and building connection to the brand.
I do not believe the company with the deepest pocket in this space of daily deal sites will necessarily win. It does provide a good internal advantage; however, I do believe that having a solid understanding of the business model and key drivers, having the right strategy, structure, and resources in place are all crucial. In addition to that, having passion, enthusiasm and the ability to learn, adapt, and be agile as you grow, will lead to overall success.
It will be interesting to see how the daily deal market consolidates over the next few years, as it invariably will.
Read more: Groupon Revenue Hit $760 Million, CEO Memo Shows