Why Daily Deal Sites Are Here to Stay [OPINION]

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If something is too good to be true, then it probably is. But once in a generation, an idea (or in this case, a business model) comes along that is so disruptive that the old the adage is proven wrong.

That disruptive business model is Groupon and the daily deal industry. There’s a lot of noise coming from skeptics and naysayers who look at the legitimacy, longevity and viability of the model. However, those critics are also overlooking the fundamentals of why daily deals are here to stay.

On a high level, daily deals are an ecommerce business with relatively low overhead, no inventory, an enormous amount of consumer appeal and rock solid concepts. When the daily deal model is properly executed, it serves everyone: Businesses, consumers and, obviously, the daily deal sites themselves.

While it’s the nature of haters to hate on a business model that creates so much wealth for two young entrepreneurs in two very short years, the reality is that we should be congratulating Groupon's creators for helping shape a paradigm shift in ecommerce.

1. Consumers Will Always Want a Deal

One of the most popular arguments against daily deals is that the economy is rebounding and the need (or interest) in local ecommerce deals will wane. However, the success and sustainability of daily deals is in no way contingent upon the economy.

Buyers have wanted deals since the dawn of trade, and finding ways to save money is hardly a new concept. eMarketer predicts that by 2013, 96.8 million adults will redeem an online coupon.

Will the demand for better coupons evolve? Will merchants demand a better return on their daily deal investment? Yes. But the fundamental desire to save money and find a good deal is not going anywhere. One might argue that the majority of online businesses are not at full capacity -- meaning, there are virtually no businesses that couldn’t use more customers. That is fundamentally what daily deal sites offer any business: new customers.

Once the economy does fully “rebound,” it is going to look a little different. Thanks to the recession, businesses have learned to trim the fat, create efficiencies and become more nimble and resourceful. Local businesses may not have the same customer base and thrive as they once did in the past. The recession has taught everyone to create efficiencies and save money. That mentality isn’t going anywhere either.

2. Smart Businesses Will Reap Rewards, Despite Losing Money on Deals

There are of course some Groupon horror stories. No one wants to see local business falter and it’s unfortunate that many businesses haven’t been able to capitalize on their daily deal partnership and reap some nice, long-term benefits.

Every business has the capacity to run a successful daily deal, but business owners must be smart about what kind of campaign they’re executing. Regardless of the medium, a poorly run advertising campaign is a poorly run advertising campaign.

Daily deals are one of the most disruptive local marketing tools since online search. The goal of daily deal providers is to drive customer acquisition. As a business owner, you need to be strategic about the type of deal you run and carefully craft deals that either drive new users or create opportunities to upsell. For example, search engine marketing (SEM) is by no means a simple, straightforward model for a local business, but is generally heralded as an effective way to get new customers online.

Groupon and other daily deal sites are essentially doing the same thing while also guaranteeing some revenue.

Let's do some math comparing Groupon to Google in terms of customer acquisition:

To simply acquire a new email address, it usually costs me about $7 via a Google AdWords campaign.

If 10% of these users then buy something, that means we need to spend $77 to acquire a new paying customer.

If that business were to instead run a campaign on Groupon offering $50 gift cards for $25, they are spending $37.50 ($25 to customer, $12.5 to Groupon) to acquire the same customers you're spending $77 for on Google.

Not only did that customer just walk in the door, but the business is getting paid $12 for them to do so. Now does it make sense that Google offered $6 billion for Groupon's business?

3. The Market Is Still Maturing

Consumers feel good when they save money. As the daily deal industry matures, both merchants and daily deal sites will need to refine their strategy. Two things are certain: 1. Businesses will always have excess capacity/room for growth, and 2. Small/local businesses will always need marketing channels.

Just a short year ago, a handful of players controlled 90% of the market in the daily deals space. While it’s estimated some 200 daily deal sites exist, a handful of players still control that same share of the space.

When compared to other markets, daily deals are no more saturated than search engines, and certainly not as saturated as publishing, broadcast television, radio or direct mail. On one level, daily deal channels are essentially ad networks for small and local businesses, giving them the opportunity to directly drive revenue, grow exposure and expand a highly targeted customer base.

The addition of more daily deal sites to the market is resulting in deals that are not as appealing to as wide a user base, but this is actually a positive thing for consumers and merchants. The more direct an offering and the more targeted the customer, the more a customer who buys a deal will be a repeat customer. The market may be saturated, but then isn't that a sure sign of market buoyancy?