When we saw Groupon’s amended filing this morning pledging to stop squandering funds on marketing–since, you know, it didn’t actually get them new users anymore–we knew just who to hit up for some perspective: Vinicius Vacanti, co-founder and CEO of Yipit, the daily deals aggregation and recommendation engine, whose company has been supplying the data on the industry trends inside the market. Thankfully the star of the small screen had some time to gChat.
He talked to Betabeat about when the window to profitably acquire new users from online marketing closed, why fears of a daily deals bubble may themselves be inflated, and the key to giving the Internet coupon fad some legs.
Mr. Vacanti said today’s filing was to be expected, as increased competition changed the economics of acquiring customers. “As we’ve written before, per subscriber economics had been deteriorating and the cost to acquire users had been going up. Now their efforts will be focused on re-engaging with their current users and getting their happy users to tell their friends.”
Those diminishing returns from marketing were a long time coming, noted Mr. Vacanti, “The window that appears to have closed is the ability to effectively acquire users via online marketing. That’s how Groupon and LivingSocial grew their business. Honestly, that window had closed for all new daily deal sites 9 months ago. Other than Groupon and LivingSocial, no other daily deal sites had been able to acquire users effectively.”
While amending their IPO filing draws attention to Groupon’s marketing spend, Mr. Vacanti said, “Every daily deal site was probably spending around the same neighborhood to acquire a user. [Groupon] definitely spends more, but probably not on a per-user basis.”
So what would help acquiring customers? “Higher quality deals make a difference,” he said.
As for how the amended filing might affect Groupon’s planned IPO, Mr. Vacanti said the decision not to spend on marketing with diminishing returns would be positive from a short-term profitability standpoint, but noted that long term, “From a revenue growth perspective, it will be negative. But that might not even be fully reflected for a year.”
To those sounding the death knell for the daily deals market, he advises taking another look at the August numbers. It was “a very successful month for the industry,” due to new travels deals like Groupon Getaways and LivingSocial Escapes. In fact, Mr. Vacanti sees this as a maturing industry getting closer to saturation. “Over time, people will get more and more comfortable using daily deals. More people will redeem using their smart phones. Daily deal sites will get smarter about what offers work when.”
Mr. Vacanti also points out that the daily deals space is missing one key ingredient to make a bubble. “VCs have not actually been funding many daily deal sites. Of the 600 daily deal sites that have launched, less than 20 have been VC funded.”
But he did see some flaws with the media companies attempt to pile on. “I do think media companies who launched daily deal services did so without putting as much thought into as they should have.” He pointed to Facebook pulling out of the market and Yelp focusing on fewer, higher quality deals and dedicating an actual sales team to building its product, with 15 people now devoted exclusively to selling daily deals.
Yipit benefits from the proliferation of daily deals sites whether or not the big players succeed. As Mr. Vacanti notes, “What matters to Yipit is that there are many great companies creating interesting offers for consumers. There are over 400 active daily deal sites doing just that and that number keeps going up.”