Mr. Vacanti. (Twitter)

Concern over the industry's fate has pervaded this week's Daily Deal Summit. But if yesterday’s proceedings seemed a little glum, this morning’s keynote speaker offered a slightly sunnier outlook.

Betabeat reached Yipit cofounder Vin Vacanti’s talk just in time to hear him teasing out one possible positive scenario. He speculated that the shift from local deals to nationally distributed ecommerce might offer traditional media outlets a second chance to capitalize on the daily deals boom. He used GQ as an example: The magazine is constantly recommending products to its readers, so why not create an ecommerce list and make some money? Though granting GQ might consider the idea heresy, he explained: “With ecommerce, it’s 1, 2, 3, 10 products that can be sold anywhere in the country. The selling experience is a lot easier. It makes a lot of sense.”

Mr. Vacanti isn't one to cheerlead without cause, so afterward we caught up with him outside the event for some perspective on the state of the industry. Did he agree with David Tisch’s suggestion that the very term “daily deal” has become practically poisonous? “It’s more of a branding issue,” Mr. Vacanti said. The phrase has gotten a bad rap, he explained, but there’s nothing inherently flawed with the business model. Fab.com, for example, has managed to do quite well for itself selling discounted goods for a limited period of time. The industry “would do itself a service" by adopting the name "flash offers" instead.

Part of the problem: "[Observers] thought of Groupon as this $100 billion company, and they’re now an $8.5 or $8 billion company. So people are sort of disappointed. They think it’s been a bust. Well, on the other hand, Groupon is still worth eight times Instagram--and no one thinks Instagram is a disaster."

To be fair, that likely has something to do with differing user acquisition costs, among other things, but Mr. Vacanti’s point about overinflated expectations is well taken.

While none-too-keen on the prospects for building national businesses on local deals, he also elaborated on the virtues of a broader strategy. Pointing to the success of Fab.com, he said, “I think there’s an opportunity for companies to launch with a curated list of products that are more national distribution, therefore the sales cost isn’t as high and they’re still able to build a huge list.” Plus, local players like city newspapers could still leverage their home-field advantage into a decent (if limited) business.

That's not likely to inspire a mad dash to launch daily deal sites. Then again, that's a healthy development.

You'd be hard pressed to find an aspiring banker or model or writer or actor who would need much convincing to move to New York City. Not so with tech folks. In the face of competition from the Valley and giants like Facebook and Twitter, suddenly in our midst, seven startups have banded together for a campaign called Come Work in New York that promises to ply talented developers, designers, and "business people" with $5,000 to help them move to the city if they're hired.

The list of participating companies, includes some of New York's most high-profile startups: Bit.ly, Yipit, Aviary, Ordr.in, Tutorspree, ChatID, and Dispatch. But just because they're willing to pay up doesn't make them humble. In bold lettering, the website declares, "NEW YORK IS THE GREATEST CITY IN THE WORLD," and then proceeds to list reasons it is "Better" and "Awesomerer" than whenever you're living now:

TRUTH: We have the smartest and best looking people in the world, including Scarlett Johansson.

TRUTH: We have the world's best and most diverse restaurant scene. There are 23,499 here. You can eat at a different restaurant every night for the next 64.38 years.

TRUTH: Our public transit system is better than yours. Six hundred and sixty miles of tracks running 24 hours a day.

TRUTH: Speaking of tracks, you may have heard this little ditty Jay-Z and Alicia Keys wrote about us a few years ago?

You gotta give them credit. Given the desperation for devs we've been hearing about, $5,000 seems like a small-ish signing bonus. But a splashy landing page, some community spirit, and bada bing: new hiring strategy.

Mr. Vacanti

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."

Foursquare's second hackathon.

Foursquare hosted its second hackathon over the weekend at General Assembly, a surprisingly gender-balanced affair at General Assembly fueled by Pepsi products and beer from Sixpoint Craft Ales. Developers in Paris demonstrated more than 20 new foursquare apps; hackers in Japan demo'ed eight or nine. The New York hackathon produced about 25 apps, hacks and mashups.

Let's just say there are a lot of new ways to play foursquare. Hackathon savant and newly-anointed Twilio evangelist Jon Gottfried and his team created Loo Review, a game for photographing and rating the city's public toilets. Betabeat also liked CRawsome, a hack from Yipit's Vinny Vacanti and Steve Pulec that texts venue managers when regulars and "social influencers" check in.

Perhaps 200 attendees were strewn across the floor, couches, and extra tables that had been set up in the main room, but only 50 were checked into General Assembly when Betabeat arrived in the afternoon for demos--probably because hackers had been checking in all day (about eight had stayed overnight to work on their projects). Just ten percent were present at the first foursquare hackathon in February, according to a show of hands.

As we checked in, foursquare asked if we were there for the hackathon. Checking into the event was necessary in order to view the list of presentations and vote. Voting for the global champion will take place over the rest of this week.

The grand prize is the foursquare title belt and dinner with foursquare co-founder Naveen Selvadurai and investor Bryce Roberts.

"Where are you going to take the winner for dinner?" someone in the audience asked.

"I've been thinking about that," said Mr. Selvadurai, a notorious East Village foodie. "I've been writing in my diary. If you have a place you want to go, I'll take you there. But make sure you get dressed up real nice."

The winners of the popular vote in New York? Veteran fourquare hacker Jonathan Wegener and Jason Pope took third place for FacePlace, an app that changes your foursquare profile picture based on the type of venue you've checked in to. Second place went to DigiDJ, a mobile jukebox created by Christine Horvat and Brian Yang, assisted by Venmo employees. DigiDJ, which also won for best use of the Spotify API, lets patrons pay $.99 to add a song to the playlist and $5 to have it play next.

First place went to Yipit employee Tal Safran and former foursquare employee Max Stoller for their Census data hack, "How ____ are you?" Authenticate the app with foursquare and it'll tell you how black, white, Asian, male, female, married, divorced or single you are based on the zip codes you check into.

Hackers also built two scavenger hunts, a Dealburner-esque app that shows when Yipit has tagged a deal at the venue you've checked into, and an app that shows you the most recent New York Times articles that mention the venue you've checked into.

Other hacks of note:

-Bimbimbob: a platform for motivation, the app lets you set a goal-say, get in shape--and have friends pledge money via Venmo. But the pledge doesn't charge until you've checked into the gym 15 times, for example.

-Homefield Advantage: looks at check-ins at baseball stadiums and tallies up where fans are from.

-PickSq: allows users to vote on a venue. For example, where to go for the hackathon afterparty.

-Hoppin or not: Christina Cacioppo of Union Square Ventures presented her first hack, which displays happy or sad bunnies depending on how many people are checked into the venues that surface after a keyword search

-Fourguide: Created by Will Vanderhoef, Josh Ross, Jackie Li, Shaun Bava. "Create a Foursquare list of places along your Runkeeper activity routes; then use your Android device to automatically check in to places on your lists."

There can be only one winner.

Not good for Groupon, but also not good for Yipit and other start-ups tangent to the group buyosphere, which includes aggregators like Yipit and Dealery as well as start-ups like Citypockets, a daily deal organizer and second market. If customers get tired of buying Groupons--which we speculated they might, as customers realized getting value out of coupons takes work and the payoff is countercyclical to the economy--the bloated daily deal industry will considerably shrink.

One bright spot: instant coupons. With partnerships between services like Foursquare and Groupon, merchants can now leverage group buying economics to recruit new customers on the spot--a highly efficient mechanism for bringing thrifty, but lazy customers in exactly at slow times. The instant group buying shift may not help Citypockets, but it's great for Yipit, which in addition to aggregating deals has branched out into providing competitive market research to the daily deal industry.

And the e-coupon craze is far from over. Betabeat just got a note yesterday from Coupons.com, "the leader in digital coupons," which just received $200M in funding in June and is estimated to be worth $1 billion. And no one has really figured out the best way to capitalize on the demand for Seamless promo codes, which is raging. Or maybe that's just us. Yipit?

Additionally, Scoop St. has come up with something new (new to us, at least--commenters?).

Meet Scoop St. Lottery, a fun way to earn more Scoop St. Bucks by snapping a picture of your receipt after you use your scoop. With Lottery, members now have the chance of winning Scoop St. credit every day - in a randomly drawn lottery announcement - just by sharing a picture of your receipt! Winners will get notified right inside the app. Not only that, but Scoop St. merchants will have the most transparent and vital information on Scoop St. customers in New York City.

We're seeing flash deals, crowd-sourced deals, a giant pool of money to turn customers into a salesforce, white label services so that brands can offer their own deals, and now a lottery as daily dealers try to differentiate themselves from the mob of Groupon clones. Daily dealers also have their own trade media as well as secondary market and aggregators. Eventually the entire economy is going to move into the dealosphere.

INSIDE BASEBALL. Business Insider's Alyson Shontell is sticking to her story that Turntable.fm has raised $7.5 million from all its initial StickyBits investors, plus one additional investor, even though Turntable's founders are denying that the round has closed. "Wait three days and see if [co-founder Seth Goldstein] still denies," she told a commenter.

"I know at least one of the major labels has already lawyer'd up for this and would expect them to hammer them with multiple suits shortly," another wrote, suggesting that labels were waiting until the start-up got funded to sue.

Speaking of Turntable, we're hearing buzz about a forthcoming mobile app. The start-up has an iOS developer on staff, but it's unclear when the app will drop--and whether it'll pass legal muster with Apple (and even Android, considering what happened to Grooveshark). "I know they were looking and have been in the process of hiring people, including another back-end dev," said one developer who, at the beginning of Turntable's beta, told Betabeat he'd kill to build their iPhone app.

HACK HACK, BEEP BEEP. This one is from the way back machine, but Betabeat hears that Gilt Groupe’s plan to sell one Volkswagen Jetta a day for three days in mid-December got foiled by hackers. Twice! First by an intrepid iPhone user who set ahead his clock and beat the system, and the second time by a husband-and-wife team. The press release was out before Gilt realized what happened.

SWAGGER? Travel Ad Network raised $15 million, led by StarVest, and hasn't been shy about bragging--but so far no one has picked up the story.

Yipit co-founders Vinicius Vacanti and Jim Moran

Daily deal aggregator Yipit just raised a $6 million B round led by Highland Capital partners with participation from previous backers RRE, DFJ Gotham and IA Ventures.

"We are hoping to expand in three ways," says co-founder Vinicius Vicanti. "One is on the data side, where we will be analyzing and packing all the information we are collecting on the daily deal market." Right now the sale of this data to hedge funds and daily deal sites is generating half of Yipit's revenue.

"The second area is the consumer interface. When we started there were so few services that a daily email made sense as a delivery mechanism. Now we want to create a great set of tools on our site so people can really engage and get custom recommendations."

To do that Yipit is looking to expand the company from 7 to 30, hiring a mix of engineers, developers and product managers. Guess some space will be opening up at General Assembly soon.

The company is currently culling together deals from 335 services in 32 cities. Yipit has grown ten fold in the last year and now reaches 250,000 people each day, and Vicanti says international expansion is next on their list.

This gives Yipit a broad perspective on the industry, and they have not been afraid to point out some of the ugly realities of the daily deal business. After Groupon announced its plans to IPO and released its S-1 to the SEC, Yipit wrote a long post about how Groupon's business is decaying in its established markets.

Groupon's upcoming IPO is perceived by many as a litmus test for the daily deal industry, but Vicanti says its all relative. "If they open as just a $5-1o billion dollar company, that may be perceived as a failure by the public markets. But building a business of that scale in three years is a great accomplishment." The daily deal industry still has room to grow, thinks Yipit, and they want to build the best aggregator with the best consumer interface and data analytics, both in the U.S. and around the world.

The entire piece is worth reading, but for the TL;DR crowd, here is the breakdown. Groupon's costs to acquire customers is skyrocketing, while its revenue per customer is plummeting. Along with shrinking margins and a lower number of Groupon's sold per deal, Yipit sees serious warning signs in the company's financials.

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David Sinsky, Yipit Blog

While no one has ever doubted Groupon’s impressive topline growth – the question has always been around the defensibility of a business that has so few barriers to entry.

In its long awaited S-1, it’s clear that Groupon has impressive topline growth. However, when looking at it’s oldest markets, it appears that their business model is deteriorating.

Groupon’s Network Effect?

Groupon argues it’s reached a virtuous cycle in its public filing: the larger one side of its market grows, the larger the other grows since scale in one provides for scale in the other.

On the consumer side: “Increased relevancy enables us to offer several daily deals, which we believe results in increasing purchases by targeted subscribers, thereby driving greater demand for Groupons.”

On the merchant side: “Increasing our merchant base also increases the number and variety of deals that we offer to consumers, which we believe drives higher subscriber and user traffic, and in turn promotes greater merchant interest in offering deals through our marketplace, creating a network effect.”

However, when looking at the data for their Boston market, it does not appear that that Groupon has achieved this virtuous cycle.

The Boston Case Study

While Groupon is relatively opaque for most of its filing, it provides case studies of four of its major cities. We look at Boston since Chicago, the other US city, is Groupon’s home town.

Despite being one of its oldest markets, Boston had demonstrated impressive growth: revenue, subscribers and customers have all tripled in the past year. This topline growth has been aided by the launch of personalized deals in Boston in Q3 2010: Groupon started running multiple deals per day in Boston through its targeting/personalization initiative.

Deeper analysis of the Boston case study, however, shows that despite impressive topline growth Groupon’s business model peaked around Q3 2010 and has been deteriorating ever since.

Consumers Buying Less Groupons

On the consumer side, we just need to answer one question:

Does Groupon’s ability to send targeted/personalized deals to subscribers (thanks to its large merchant base) drive increased demand for Groupons?

If this were true, it would imply that activity and revenue per subscriber metrics would increase right along with Groupon’s increased deals per day.

Groupon’s business model is predicated on the idea that the company can stomach the ever-increasing customer acquisition costs since once a customer has been acquired they will generate a steady flow of high margin cash.  However, this relies on existing customers purchasing several subsequent deals.  While existing customers are indeed purchasing subsequent deals, they are doing so at a declining rate, despite targeting efforts.

Far more worrisome for Groupon is the fact that its existing customers (those 20% of subscribers who have ever bought a Groupon) are also becoming less engaged. The Boston Case Study reveals purchases made from existing customers by removing the impact of purchases made by new customers each period:

Frequently when you see this deterioration in a company’s existing customer base it is because the average customer is getting “older” and these “older” customers tend to be less active.

However, due to the exponential growth in customers, the average “age” of Groupon’s customer base has been roughly the same since Q1 2010. In other words, the average customer isn’t getting older.

As Groupon begins to reach saturation in Boston and its customer base inevitably ages as a result, reversing the decline in participation from its existing customer base will only become more difficult.

Groupon’s Customer Acquisition Costs are Rising

And of course, right when Groupon’s customers are becoming less engaged, and therefore less profitable – Groupon’s costs to acquire customers are skyrocketing.

Given the recent entrance of well-financed competitors such as Google, Facebook and Microsoft its hard to believe Groupon’s customer acquisition costs will slow anytime soon. Along with declining engagement for existing customers, this does not bode well for the future of Groupon’s margins.

Groupon Selling Less Deals per Merchant

The second question is whether Groupon’s industry-leading subscriber base will attract merchants willing to pay a premium to run with Groupon and preventing other players from effectively driving down gross margins to compete on cost.

According to Groupon, merchants pay a premium for their reach.

However, Groupon’s targeting/personalization strategy is leading to a decline in the number of Groupon’s purchased per deal as the number of deals Groupon is running per city far outpaces the growth in subscribers.

So what is happening in Boston? Groupon’s subscriber base has increased an astonishing 300% in the last year, but the number of deals Groupon ran in the area actually grew faster.  This, along with the declining engagement of its customer base has led to the inevitable conclusion that the number of Groupon’s each deal sells is declining quickly.

Should personalization increase conversion rate per deal, this may offset decline in reach – Groupon could presumably increased total merchant satisfaction by satisfying more merchants more efficiently. However, as the average purchases per customer continues to decline so will overall conversion rates on personalized deals.

Groupon’s decision to rapidly increase the number of deals per metro has allowed competitors to credibly tell merchants that they deliver more customers than Groupon can in major cities such as Boston. Based on the Yipit Data Product, which features nearly 20,000 offers per month across major US metros, both Travelzoo and LivingSocial now average more vouchers sold per merchant than Groupon in Boston and many other major North American cities.

Several other players such as OpenTable, WagJag, DealFind regularly sell as many or more vouchers per deal as Groupon in major markets as well. This calls into question any network effect that Groupon thinks it may have by having the largest subscriber base in the industry.  Merchants won’t pay a premium for total subscribers if Groupon can’t deliver more new customers than the competition.

If Groupon can’t charge a premium for its larger subscriber base, what competitive advantage or network effect does it have on the merchant side of the market?

Groupon Operating Margins Declining

While Groupon is experiencing rapid revenue growth, we believe operating margins are declining because, as we’ve shown above:

• Revenue per Groupon customer is declining

• Cost to acquire those customers are increasing

• Sales costs are increasing as it needs to run smaller deals with more merchants to personalize the experience

While Groupon doesn’t reveal costs in Boston, by taking company-wide customer acquisition costs and SG&A costs (allowing for some opearating leverage) you see significantly declining operating margins.

Why Is This Happening? Competition Has ArrivedA year ago, according to Yipit data, there were 9 daily deal services in Boston offering 15 active deals.

Today, Yipit Boston, shows 23 separate services offering daily deals including new successful entrants like TravelZoo and Yelp. The 23 services are responsible for creating 91 active daily deals. Worse for Groupon, there’s no sign of this ending with Google and Facebook on the horizon. Plus, successful entrants like TravelZoo are still only running two deals a week.

“Groupon Now” May Be the Answer

The silver-lining in all of this is Groupon Now, a new mobile product from Groupon that provides real-time deals to users. With it’s massive salesforce and many merchant relationships, Groupon is possibly the only company capable of having enough deal inventory to make a product like Groupon Now possible. If they are able to make the business model work, then Groupon will have the eventual network effect.

What Does This Mean For the IPO?

As one of Groupon’s oldest markets, Boston offers a glimpse into the future as the rest of Groupon’s business matures. Declining revenue per user, increasing customer acquisition cost, and declining operating margins do not bode well for the company’s core business.  Given all of this, Groupon’s IPO valuation may come down to how investors perceive the prospects of Groupon Now. Since Groupon only recently launched Groupon Now in a few test markets and has not yet provided data on those launches, it’s unclear how investors will value Groupon Now.

Follow @YipitData on Twitter for the latest industry trends and analysis by the Yipit Team.

David Sinsky, Jim Moran and Vinicius Vacanti contributed to this post. David runs Yipit’s Data Product, which provides past offer detail and competitive intelligence to the Daily Deal Industry.

Let's not and say we did

It arrives with the inevitably of a late afternoon trip to the coffee machine. Another company has decided to begin offering daily discounts, via email if you're interested.

The newest entrant is New York Magazine. "It’s incredibly difficult for busy people to know which email is worth opening and which deal is worth buying, particularly when the businesses featured are unfamiliar," Serena Torrey, New York Media’s executive director of digital business development, told Paid Content. "New York Deals aims to solve this problem for users: by subscribing to the New York Deals newsletter, New Yorkers will be receiving a short, weekly list of the deals that are most worthy of their attention, and possibly a slice of their paycheck.

Brilliant! If only some smart tech savvy start-up had thought of this first. With a cool name like Kipit, or Wipit or...

Sorry, hang on one second, I'm getting a phone call. Hello? Oh hi AT&T, haven't heard from you in a while. You're offering deals now too! Terrific, I need an eyebrow wax.

Maybe it's wrong to complain. With unemployment the way it is, any industry that is hiring hand over fist should be applauded.