Issue of the week: The death of daily deals?

This is a “winter of discontent” for daily deal companies Groupon and LivingSocial.

This is a “winter of discontent” for daily deal companies Groupon and LivingSocial, said Julianne Pepitone in Groupon, which was lauded as the fastest-growing company ever before it went public last year, has watched its stock tumble more than 80 percent since its IPO, and CEO Andrew Mason narrowly avoided losing his job last week at the hands of an angry board of directors. Its rival LivingSocial just announced 400 layoffs, about 9 percent of its global workforce, after reporting a major loss in the third quarter. It isn’t just the biggest daily deal sites that have seen earnings dwindle, said Erik Sherman in “Only a few years into its existence, the entire online coupon business is struggling.” In the last half of 2011 alone, nearly 800 daily coupon companies went out of business. Whatever their size, these fledging firms appear “only as good as their last deal.”

That’s because coupon companies are best understood as an “odd, short-lived fad,” said Brad Tuttle in Now it seems blindingly obvious that selling “$10 off coupons for restaurant meals, manicures, and maid service” isn’t exactly a smart business model. The small businesses offering the discounts have soured on them, since the coupons eat into their profits, alienate long-standing clientele, and don’t attract repeat customers willing to pay full price. For consumers, too, there’s little thrill left in scoring a one-off discount on products and services they might not otherwise have bought. If the market for daily deal sites looked bright, the holidays would be a “heyday” for them. But in fact, daily coupons are expected to be just a tiny fraction of overall holiday sales.

Things are only going to get worse for the sector, said Dan Mitchell in Just a few years ago, Groupon and LivingSocial attracted “incredible hype and vast piles of investor cash,” but since there aren’t many barriers to entry in the daily deals space, no company can ever truly “have any real market power.” And with the economy improving, the sector’s appeal may dim even further, said Matthew Zeitlin in Coupon sites may simply be better suited to a recession than to an increasingly vibrant economy. Perhaps the next Groupon deal will be an offer of some of its own stock at a steep discount. Unfortunately, “the company’s shareholders might just prefer a massage.”

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.


Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

Continue reading for free

We hope you're enjoying The Week's refreshingly open-minded journalism.

Subscribed to The Week? Register your account with the same email as your subscription.