Daily Deal Consolidation, coming to a city near you.


Consolidation in the Daily Deal space in Canada? You bet.

Several sites have already closed down this year. Not many, but some.
Over the past month or so the following have merged:

Dealmango has purchased Goyub.
Offeron has purchased Snaggies.

Also, we have receive calls from half dozen aggregator sites letting us know that they want to sell out.

 

There are now just a little over 120 daily deal sites in Canada and about 50 aggregators. A significant adjustment is around the corner. Why?

1. It is expensive to get merchants. If you do not have inventory of deals, you cannot sell. Hiring sales reps is expensive and most smaller sites try and get by without having to hire too many reps.

2. It is very expensive to increase your subscriber base. Some key words are selling for $5-$10 per click. Too expensive for most sites. Only larger sites can afford those clicks. As such, without establishing partnerships or channels of distribution, it becomes a lengthy process to accumulate a good amount of subscribers. What is a good amount? Nowadays, over 50,000 subscribers.

3. Margins are coming down. Not too long ago, 50%/50% was the split. Nowadays that is rare. The average is more along the lines of 35-40%. We believe that this industry will run at a 20-25% take for Daily Deal sites. That is inline with other marketing vehicles.  2 main reasons why margins are coming down:

a. 120 Daily Deal sites in Canada! Many are trying to compete for the merchant’s attention. The easiest way of doing this is to lower the percentage the merchant takes.

b. Merchants are getting more sophisticated with how they negotiate with Daily Deal sites, especially given the amount of choice available.

Additional Risk: What happens when Google decides to lower their take to 15-20% across the board? They can afford to do so, so can Groupon and Living Social. But if this happens, say goodbye to 70% of the daily deal sites online today. They will simply not be able to operate with only 15-20%. There are a few exceptions that can survive or can command a larger percentage (niche sites, sites producing large volumes, etc) but that will be covered in a future post.

More and more entrepreneurs who first got into this space thinking that they can make a go of it are finally realizing that without a significant level of marketing and operational funds, they will not be able to sustain their business. However, those with sizable amounts of investment are actually entering this space every month. Especially if they have the ability of reaching a large audience. They know that whoever has the audience can drive revenue and profits. Now they need to figure out the merchant inventory thing.

In summary, we are finally seeing some Daily Deal sites wanting to get out of the business, being forced out, being bought out or simply giving up.

**On a related topic: Contact us if you are interested in selling your Daily Deal or Aggregator business. We are in constant contact with potential buyers that may be interested in your site, your revenues, your subscribers, your technology or your specific brand or other.

2 Comments
  1. aaron.rowe@websurgeon.ca'

    At CityDealOfTheDay.com, we are still receiving at least one request each week from a new deal of the day website trying to be listed. We prefer to list companies that have been running successfully for a couple of months, but it’s amazing how many sites of this nature are still being created.

    We’ve never considered selling our network, but it would still be interesting to know if any of the other aggregators sell successfully.