Daily deal sites are losing favor among merchants and customers alike, according to a New York Times report.
The first problem with daily deal coupons is the redemption rate. On one deal profiled in the article, almost 15% of people who bought one particular Groupon deal never used it. Some 60% spent exactly the amount the Groupon was for and not a penny over. Only a tiny fraction went into the merchant and bought more than the face value.
Daily deals are terrible for most businesses.
The second problem is that the whole idea for a merchant is to introduce people to their business, but too often you do your daily deal, customers come in once, and then you never see them again.
Several years ago, I was hot on this business model and thought it was the greatest idea ever. Boy, was I wrong. It doesn’t work. I now believe the next big thing will be whoever can come up with turnkey kind of loyalty programs for small businesses.
But there’s a larger story here. I read in The Wall Street Journal that early Groupon investors who were instrumental in its growth are heading for the hills.
We went through a phase of euphoria with the stocks of social media sites, daily deal sites and all of what are called Web 2.0 stocks — a moniker meant to signal another impending Internet tech stock boom.
The message here is you’ve got to be careful about tech stocks. Sure, Apple is at a career high as the most valuable company of all time according to its stock. But, in general, be careful with any technology company. Don’t be a momentum investor looking for the next thing poised to go sky high.
If you look at certain snapshots in the moment, tech stocks can be great. But if you look over time, they’re a pretty risky deal.