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Local Offer Network daily deals industry report
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Local Offer Network daily deals industry report

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This is a report on the Daily Deal industry as provided by Local Offer Network. It shows the year in review for 2010. It was released in March 2011.

This is a report on the Daily Deal industry as provided by Local Offer Network. It shows the year in review for 2010. It was released in March 2011.

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Local Offer Network daily deals industry report Local Offer Network daily deals industry report Document Transcript

  • The Daily Deal Phenomenon: A Year in Review March 2011 Local Offer Network, Inc. research@localoffernetwork.com 200 West Madison Street – Suite 700/770 Chicago, IL 60606 v: 312.445.9090 f: 773.922.1990 Copyright © Local Offer Network Not for reproduction or distribution without permission
  • Local Offer Network The Daily Deal Phenomenon: A Year in Review 2 www.localoffernetwork.com Copyright © Local Offer Network, Inc. (LON)Not for reproduction or distribution without express written permission of LON www.localoffernetwork.com
  • Local Offer Network The Daily Deal Phenomenon: A Year in Review 3Contents Executive Summary ............................................................................................................................ 4 Industry Revenue: A Staggering Growth Story .............................................................................. 5 Site Introductions and Expansion: The Land Grab......................................................................... 5 Deal Flow: “One Deal a Day” a Distant Memory ........................................................................... 6 Category Trends: From Burgers to Botox, and Everything in Between ...................................... 6 Prices: Rising Along with Category Diversification ....................................................................... 7 Discounts: Merchants Invest, Consumers Win Big......................................................................... 7 Multi-Voucher Purchases: Sometimes You Can’t Eat Just One .................................................... 8 Market Growth: Now Coming to a Hamlet Near You ................................................................... 8 Deal Duration: You Snooze, You Lose. Sort Of. ............................................................................ 10 Conclusion: Business Models Will Evolve, Momentum Will Continue .................................... 10 Copyright © Local Offer Network, Inc. (LON) Not for reproduction or distribution without express written permission of LON www.localoffernetwork.com
  • Local Offer Network The Daily Deal Phenomenon: A Year in Review 4Executive SummarySocial commerce, group buying, daily deals, flash sales. No matter which term or variation isused, the trend triggered by Groupon, LivingSocial, Gilt Groupe and hundreds of other sites isunrivaled in its meteoric growth. Driven by a dramatic increase in both the number of dealservices, the volume of new offers hitting the market and consumers’ insatiable demand forquality products and services and great prices, the daily deal market is one of the mostintriguing and dynamic segments online.Groupon’s success – highlighted by its spurning a rumored $6B acquisition offer from Googleand its expected IPO – is well-publicized. Yet to date there have been few comprehensivereports of the detailed dynamics of the market in 2010 and expectations for 2011.Local Offer Network is a leading provider of technology and services to the fast-growingmarket for group buying services., The Local Offer Nework Deal Engine™ aggregates morethan 2,000 group buying offers per day from websites in 97 markets worldwide. As one of thefirst and only companies to monitor nearly every deal across the web, Local Offer Network hasunmatched insight into how this market is evolving and key trends that will shape its future.Key findings from the report include:  The group buying industry will expand by 138% to $2.66B in 2011  More than 63,000 deals were published in 2010, and nearly 40,000 in Q12011 alone.  As a wider variety of merchants join the group buying movement, new entrants from luxury and higher priced categories are moving average transactions higher in step. While dining, spa and health-related deals still abound, group buying now cuts across nearly every consumer category.  Geographic expansion has been a major growth driver, with deal sites now in 80 markets across the country compared to just 48 in 1Q 2010.Methodological note: The results in this report cover activity from January 2010 through March2011, and incorporate analysis and projections based upon:  a database of more than 90,000 offers collected and classified via the LON Deal Engine  actual consumer purchases recorded across a broad spectrum of LON partner sites  financial data provided by group buying sitesSpecifically excluded from this report are:  Sites monitored by LON in Canada, the UK and Australia  National “private sale” sitesFor more information, please contact Local Offer Network via research@localoffernetwork.com. Copyright © Local Offer Network, Inc. (LON) Not for reproduction or distribution without express written permission of LON www.localoffernetwork.com
  • Local Offer Network The Daily Deal Phenomenon: A Year in Review 5Industry Revenue: A Staggering Growth Story US Group Buying/Daily Deal MarketLocal Offer Network estimates that group- Industry Revenue (Gross)buying industry revenue totaled $1.12B in 2010, Source: Local Offer Network Estimatesand projects that the market will grow toapproximately $2.67B in 2011. This 138% growth $2.67Bexpectation underscores the exceptionalconsumer appeal of this phenomenon – and $1.12Bexplains the rush of competition behind it. 2010 2011Site Introductions and Expansion: The Land GrabThe past year has brought an influx of deal providers, with well-funded national brands joinedby local market entries, vertical market specialists and legacy publisher-branded products. Thepast six months in particular have seen a major surge, as sites that were in planning anddevelopment earlier in the year made their debut.To date, LON has monitored more than 320 sites US Group Buying/Daily Deal Marketoffering local daily deals in the US. In addition, New Deal Sites Tracked 322 Source: Local Offer Networkapproximately 70 sites in the US exclusivelyoffer national daily deals. New 205 CumulativeLON has observed site churn of approximately 122 11725%, driven partially by acquisitions but moreso 97 83due to business failure or unexplained 61 61 36 25dormancy. While such losses are unfortunate,they are in line with expected overall failure 1Q10 2Q10 3Q10 4Q10 1Q11rates for startup businesses.The average US deal site operates in more than 10 markets; however, the 24% of sites thatoperate in 3 or more markets provide deals to an average of 19 markets per site. This is drivenby both expansion of well-funded sites with local presence and several sites that publishnational or broad multi-market deals Copyright © Local Offer Network, Inc. (LON) Not for reproduction or distribution without express written permission of LON www.localoffernetwork.com
  • Local Offer Network The Daily Deal Phenomenon: A Year in Review 6Deal Flow: “One Deal a Day” a Distant MemoryA total of more than 63,000 offers were published inthe US in 2010 (N.B. An additional 15,000+ offers US Group Buying/Daily Deal Market Total Offers Publishedwere published in Canada, the UK and Australia). Source: Local Offer Network 39,993The industry growth explosion will have Americanssee an estimated 40,000 offers in 1Q 2011 alone,driven by new deal brands and an increasing 22,163 19,676number of sites publishing multiple offers per day. 14,462Note slower growth during the holiday season; in 6,895December consumers still spent on traditional gifts,softening growth in the category. 2010-1Q 2010-2Q 2010-3Q 2010-4Q 2011-1Q (E)Category Trends: From Burgers to Botox, and Everything in BetweenFood and Drink offers have always been the leader in this market, though the category’s lead isslipping as more diverse categories enter the mix. Note that home products and services (e.g.Angie’s List) and Clothing and Accessories – categories that a year ago might not have beenconsidered a natural fit – are gaining importance. US Group Buying/Daily Deal Market Offer Distribution by Category Source: Local Offer Network 2010- 2010- 2010- 2010- 2011- Grand 1Q 2Q 3Q 4Q 1Q Total 1 Food & Drink 31% 29% 28% 26% 24% 27% 2 Beauty, Spa & Massage 20% 19% 20% 20% 19% 19% 3 Fitness & Nutrition 6% 7% 7% 7% 7% 7% 4 Sports & Recreation 11% 9% 9% 5% 4% 7% 5 Home Products & Services 2% 2% 3% 6% 8% 5% 6 Health, Medical & Dental 3% 3% 3% 5% 4% 4% 7 Clothing & Accessories 2% 2% 2% 4% 6% 4% 8 Arts & Entertainment 5% 4% 3% 3% 3% 3% 9 Photography & Photo Services 2% 2% 2% 4% 4% 3% 10 Kids 1% 1% 2% 2% 4% 2% All Other 16% 20% 21% 17% 18% 18% Copyright © Local Offer Network, Inc. (LON) Not for reproduction or distribution without express written permission of LON www.localoffernetwork.com
  • Local Offer Network The Daily Deal Phenomenon: A Year in Review 7Prices: Rising Along with Category DiversificationPrices began edging up noticeably later in the year, coincident with increased competitiveactivity in the aforementioned luxury and higher-priced categories. US Group Buying/Daily Deal Market US Group Buying/Daily Deal Market Average Price per Deal Voucher Average Price per Deal Voucher - By Category Source: Local Offer Network All Categories Source: Local Offer Network $42.45 Health, Medical & Dental $60.41 Home Products & Services $52.78 Beauty, Spa & Massage $48.67 Photography & Photo Services $48.61 $38.04 Fitness & Nutrition $39.38 $37.34 All-Category Average $38.81 $36.86 $36.86 Kids $36.70 Sports & Recreation $35.64 Clothing & Accessories $34.14 Arts & Entertainment $31.15 2010-1Q 2010-2Q 2010-3Q 2010-4Q 2011-1Q Food & Drink $25.72Discounts: Merchants Invest, Consumers Win BigThe average discount per offer (price of US Group Buying/Daily Deal Marketvoucher vs. stated value of services) has stayed Average Reported Discount per Offerrelatively steady over the past year at 53%. Source: Local Offer NetworkHigher-priced services such as medical/dental, -62% Health, Medical & Dentalhome products/services and photo offers -61% Photography & Photo Servicesprovided the greatest relative discounts, in -58% Home Products & Servicesorder to come within reach of the broadest -58% Fitness & Nutritionrange of consumers. -55% Beauty, Spa & Massage -53% Clothing & AccessoriesNo question consumers win in this business, -53% Arts & Entertainmentsaving an estimated $1.26B over the course of -52% Food & Drink2010 and looking forward to $3.0B in savings in -52% Kids2011. The flip side: merchants have invested -50% Sports & Recreationheavily to bring about this outcome with -53% Total - All Categories$1.76B in forfeit revenue (net of discounts anddeal site revenue share). It stands to reason that other local advertising and promotion methodswill in turn pay a price, underscoring the need for legacy companies in local advertising todetermine how they will play in this market if they have not already set a strategy. Copyright © Local Offer Network, Inc. (LON) Not for reproduction or distribution without express written permission of LON www.localoffernetwork.com
  • Local Offer Network The Daily Deal Phenomenon: A Year in Review 8Multi-Voucher Purchases: Sometimes You Can’t Eat Just OneWhether because of purchasing as gifts, US Group Buying/Daily Deal Marketmultiple uses or just on irresistible impulse, Average Vouchers Per Purchase14% of transactions included multiple Source: Dealradar.com/Local Offer Networkvouchers for the same deal; 10% included 2 3 or more:vouchers and 4% included 3 or more. 4% 1: 2: 10% 86%Market Growth: Now Coming to a Hamlet Near YouChicago remains the birthplace and still theleader in the group buying phenomenon. US Group Buying/Daily Deal MarketHowever, there are now deal sites in 80 % Offers Published by Market Source: Local Offer Networkmarkets across the country, compared to just48 in 1Q 2010. There is still huge headroom in Chicago 7%untapped markets, though a market must New York City 5%have critical mass of buyers in order to San Francisco 5%sustain a site that offers frequent, truly local Boston 4%offers. This means that smaller markets can Los Angeles 4%expect sites to provide deals with longer San Diego 3%duration and/or national offers such as for Washington DC 3%online retailers. Note: LON research shows Atlanta 3%that smaller markets have a disproportionate Minneapolis 2%skew toward online retail offers, highlighting Austin 2%the challenge of building a deal business in Seattle 2%such markets. US Group Buying/Daily Deal Market 8% % Offers Published by Market Source: Local Offer Network 6% 4% 2% 0% Copyright © Local Offer Network, Inc. (LON) Not for reproduction or distribution without express written permission of LON www.localoffernetwork.com
  • Local Offer Network The Daily Deal Phenomenon: A Year in Review 9 Copyright © Local Offer Network, Inc. (LON)Not for reproduction or distribution without express written permission of LON www.localoffernetwork.com
  • Local Offer Network The Daily Deal Phenomenon: A Year in Review 10Deal Duration: You Snooze, You Lose. Sort Of.The concept of “one deal, one day” has long sincegone by the wayside, to the benefit of consumers US Group Buying/Daily Deal Marketand, in some cases, merchants who want more Average Offer Duration (Days) Source: Local Offer Networktime to get in on the action. While the average 3.1offer was available for less than two days a year 2.2ago, that window of opportunity for savings has 1.9 1.9 1.8jumped to more than three days, driven by someoffers that remain active for as long as a week ormore. In some cases, the tradeoff in urgency isbalanced by scarcity – e.g. Gilt City which offersunusual products and experiences in limited 2010-1Q 2010-2Q 2010-3Q 2010-4Q 2011-1Qquantity but for more than one day.Conclusion: Business Models Will Evolve, Momentum Will ContinueFollowers of the group buying industry often ask “is this evolution or revolution?” The markettrends highlighted in this report indicate that both are occurring. A critical mass of onlineshoppers – who are online virtually 24/7 – created a perfect storm to connect online and offlinecommerce in a revolutionary way. Yet group buying concepts long predate the current wave ofdeal sites and even the digital age, and new deal site models continue to evolve.Local Offer Network projects that in 2011, more than $2.5 billion in transactions will occur viagroup buying sites in the US alone – a striking level of volume for a group of websites that didnot exist only three years ago. As the market continues to expand, the number and variety ofdeals offered will increase significantly, and a wider range of sites publishers will deliverpromotions to their audiences.While market consolidation and attrition will occur, Local Offer Network predicts that theoverall number of competitors will continue to grow. In turn:  Consumers will enjoy access to thousands of deals a day, bought directly from sites of all sizes, and cia convenient tools such as deal aggregators and personalized deal feeds.  Merchants will be better-equipped than ever to measure the relative cost of consumer acquisition from various channels, and will optimize their spending accordingly. Legacy advertising methods will feel the pinch.  Multi-channel and online publishers of all sizes will be driven to participate in this market – if they are not already – to protect and grow their advertising revenue. Increasingly, these companies will create and sell their own branded deal products and channels to preserve their market relevance. Copyright © Local Offer Network, Inc. (LON) Not for reproduction or distribution without express written permission of LON www.localoffernetwork.com
  • Local Offer Network The Daily Deal Phenomenon: A Year in Review 11  Well-funded, top-tier deal providers will continue to increase the cost of competitive entry by driving up cost of consumer acquisition. This will in turn force smaller sites to differentiate their products and find creative and cost-effective ways to create scale.  Geographic expansion will continue. Somewhat ironically, national online retailers may enjoy the greatest advantage in smaller cities and towns because of the challenge of gaining critical mass in these markets.For the foreseeable future, the group buying movement will continue to grow unabated. Andconsumers will continue to win, through access to products, services and experiences that maynot otherwise have been within reach.About Local Offer NetworkLocal Offer Network (LON) is a leading provider of technology and services to the fast-growingmarket for group buying services. Launched in early 2010, the LON Deal Engine™ aggregatesmore than 2,000 group buying offers per day from group buying websites in 97 marketsworldwide.LON products and services include the LON Deal Wire™, a web-wide distribution networkthat allows group buying sites to achieve instant audience scale and publishers to tap newrevenue streams by syndicating offers from those sites; VoucherPro™, an offer creationplatform that enables the creation new daily deal advertising products; and Dealradar.com, aconvenient deal-shopping tool for consumers in the US, Canada, UK and Australia. Copyright © Local Offer Network, Inc. (LON) Not for reproduction or distribution without express written permission of LON www.localoffernetwork.com
  • Local Offer Network The Daily Deal Phenomenon: A Year in Review 12 Copyright © Local Offer Network, Inc. (LON)Not for reproduction or distribution without express written permission of LON www.localoffernetwork.com