The daily deals industry has seen plenty of action, though not all of it positive as Facebook shuts down its Deals feature and Groupon delays its IPO. However, these signs aren't indicative of a maturing industry but of one that's undergoing a paradigm shift as market players realize this space may not be entirely profitable for everyone.
The news is the latest among other reports including Facebook's announcement to end its foray into the daily deals space after just four months, and Yelp's move to slash its daily deals staff count by half.
Meanwhile, Groupon rival LivingSocial, is continuing its international expansion, most recently with an acquisition of a South Korean daily deal provider.
According to Sucharita Mulpuru, vice president and principal analyst at Forrester Research, news that Facebook and Yelp had pared back their daily deal offerings were not indicative of a maturing market but of a market that "isn't that profitable and not worth pursing in a major way".
She noted that daily deals have been around for a while, and fundamentally can be a small profitable business for anyone. Nonetheless, Groupon's IPO delay shows "how difficult it is to make money even when you throw a lot of money in this space" and stay sustainable or grow, Mulpuru said in an e-mail interview.
Moaiyad Taher Hoosenally, Asia-Pacific industry principal for ICT practice at Frost & Sullivan, also did not think the daily deal industry was maturing.
"This industry is going through a paradigm shift which is the result of macro and micro economic factors," he explained. Relatively high level of financial market volatility and current fears of a possible economic downturn could have delayed Groupon's IPO, Hoosenally noted. On the micro side, there is intense market competition in the daily deals space due to low barriers of entry and the lack of market participants with distinct uniqueness, he told ZDNet Asia in an e-mail.
Daily deals business still viable
Brendan Lewis, corporate communications director at Washington, D.C.-based LivingSocial, noted that despite the "media focus on recent retrenchments" in the daily deals market, the industry remains viable.
Gregory Costamagna, co-founder and general manager of Streetdeal in Singapore, added: "The market hasn't changed. Customers are still looking for great discounts to discover new things to do in their cities, and merchants are still looking for effective ways of attracting new customers.
"What has changed is the understanding of the industry by potential new players which, at the end, doesn't affect the viability of this business model too much," he said via e-mail.
Hoosenally concurred, noting that the daily deal market is "very viable now" and will continue to remain relevant. Consumers' buying behavior and lifestyles have changed considerably over the years, and the daily deal market is attempting to address this evolution and advancement, he added.
Although the daily deals market has yet to mature, it has nonetheless evolved to reach a state where only "the sharpest and cleverest", with deep and thorough understanding of the industry and its characteristics, will achieve sustainable success and growth, the analyst said.
"This market offers potential, but one must appreciate and realize that the deals market has its own distinctiveness and individuality which cannot be compared to a traditional line of business," he explained.
Market players also noted that the industry is maturing in terms of the number of players entering and leaving the space, and how each player has reshaped their own business model to varying degrees of success.
Streetdeal's Costamagna said companies increasingly are trying out the group-buying business, and have either succeeded or failed to further pursue it as they realize the challenges of scalability the industry presents.
"The market remains quite young in Asia, and this phenomenon will definitely change the game as we will probably see fewer and fewer players trying their luck with no real value proposition for the market or the customers," he said.
Olivier Michel, Streetdeal's co-founder and general manager, added that some daily deal sites, for instance, had chosen to specialize in niche fields such as food or travel, but noted that it is too soon to determine if this strategy would be successful in the long run.
LivingSocial's Lewis also observed there had been scores of new market entrants within the last two years, ranging from small providers that were highly focused on local markets, to globally-known entities.
He said the industry will continue to evolve as customers and merchants become savvier and demand better products and offer terms. "It's then up to the providers to evolve in their business models," he said.
Forrester's Mulpuru added that daily deals would "likely be a flash in the pan", and the remaining surviving market players would likely change their revenue models to remain viable.