The Daily Deal Phenomenon: A Year in Review

March 2011

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.. 8 Deal Duration: You Snooze.. 7 Multi-Voucher Purchases: Sometimes You Can’t Eat Just One ............................ 8 Market Growth: Now Coming to a Hamlet Near You ........................................... 6 Category Trends: From Burgers to Botox....................................................................................... 5 Deal Flow: “One Deal a Day” a Distant Memory ..........Local Offer Network The Daily Deal Phenomenon: A Year in Review 3 Contents Executive Summary ....................................... 10 Conclusion: Business Models Will Evolve................. Sort Of...................... Inc........ 7 Discounts: Merchants Invest............. 10 Copyright © Local Offer Network......................... Momentum Will Continue .......................................... (LON) Not for reproduction or distribution without express written permission of LON www............. and Everything in Between ................ You Lose................................................... 5 Site Introductions and Expansion: The Land Grab.............................................................................................................. Consumers Win Big................ 6 Prices: Rising Along with Category Diversification .................................................................................................................................com ................. 4 Industry Revenue: A Staggering Growth Story ................... ..........localoffernetwork.......................................................

Local Offer Network is a leading provider of technology and services to the fast-growing market for group buying services. No matter which term or variation is used.localoffernetwork. spa and health-related deals still abound. the UK and Australia  National “private sale” sites For more information. with deal sites now in 80 markets across the country compared to just 48 in 1Q 2010. Inc. new entrants from luxury and higher priced categories are moving average transactions higher in step.  As a wider variety of merchants join the group buying movement.Local Offer Network The Daily Deal Phenomenon: A Year in Review 4 Executive Summary Social commerce.com . Yet to date there have been few comprehensive reports of the detailed dynamics of the market in 2010 and expectations for 2011.000 offers collected and classified via the LON Deal Engine actual consumer purchases recorded across a broad spectrum of LON partner sites financial data provided by group buying sites Specifically excluded from this report are:  Sites monitored by LON in Canada.. (LON) Not for reproduction or distribution without express written permission of LON www.  Geographic expansion has been a major growth driver. flash sales. Copyright © Local Offer Network. daily deals. the daily deal market is one of the most intriguing and dynamic segments online. As one of the first and only companies to monitor nearly every deal across the web. group buying now cuts across nearly every consumer category. Key findings from the report include:  The group buying industry will expand by 138% to $2. The Local Offer Nework Deal Engine™ aggregates more than 2. Groupon’s success – highlighted by its spurning a rumored $6B acquisition offer from Google and its expected IPO – is well-publicized. LivingSocial.000 group buying offers per day from websites in 97 markets worldwide.66B in 2011  More than 63. the trend triggered by Groupon. Gilt Groupe and hundreds of other sites is unrivaled in its meteoric growth. Driven by a dramatic increase in both the number of deal services. group buying.000 in Q12011 alone. Methodological note: The results in this report cover activity from January 2010 through March 2011. Local Offer Network has unmatched insight into how this market is evolving and key trends that will shape its future.000 deals were published in 2010. While dining. and incorporate analysis and projections based upon:    a database of more than 90. and nearly 40. the volume of new offers hitting the market and consumers’ insatiable demand for quality products and services and great prices. please contact Local Offer Network via research@localoffernetwork.com.

com .localoffernetwork. This 138% growth expectation underscores the exceptional consumer appeal of this phenomenon – and explains the rush of competition behind it. US Group Buying/Daily Deal Market New Deal Sites Tracked 322 Source: Local Offer Network New Cumulative 97 61 61 36 2Q10 25 3Q10 122 83 205 117 1Q10 4Q10 1Q11 The average US deal site operates in more than 10 markets. approximately 70 sites in the US exclusively offer national daily deals. the 24% of sites that operate in 3 or more markets provide deals to an average of 19 markets per site.Local Offer Network The Daily Deal Phenomenon: A Year in Review 5 Industry Revenue: A Staggering Growth Story Local Offer Network estimates that groupbuying industry revenue totaled $1. (LON) Not for reproduction or distribution without express written permission of LON www. The past six months in particular have seen a major surge. US Group Buying/Daily Deal Market Industry Revenue (Gross) Source: Local Offer Network Estimates $2. and projects that the market will grow to approximately $2. To date. vertical market specialists and legacy publisher-branded products. driven partially by acquisitions but moreso due to business failure or unexplained dormancy. LON has monitored more than 320 sites offering local daily deals in the US.67B $1. they are in line with expected overall failure rates for startup businesses. as sites that were in planning and development earlier in the year made their debut.67B in 2011. Inc. LON has observed site churn of approximately 25%. however. with well-funded national brands joined by local market entries.12B in 2010. This is driven by both expansion of well-funded sites with local presence and several sites that publish national or broad multi-market deals Copyright © Local Offer Network. In addition. While such losses are unfortunate.12B 2010 2011 Site Introductions and Expansion: The Land Grab The past year has brought an influx of deal providers.

and Everything in Between Food and Drink offers have always been the leader in this market. US Group Buying/Daily Deal Market Offer Distribution by Category Source: Local Offer Network 20101Q 1 2 3 4 5 6 7 8 9 10 Food & Drink Beauty. US Group Buying/Daily Deal Market Total Offers Published Source: Local Offer Network 39.000+ offers were published in Canada. (LON) Not for reproduction or distribution without express written permission of LON www.g.993 22. softening growth in the category.676 14. driven by new deal brands and an increasing number of sites publishing multiple offers per day.com .000 offers were published in the US in 2010 (N. though the category’s lead is slipping as more diverse categories enter the mix.Local Offer Network The Daily Deal Phenomenon: A Year in Review 6 Deal Flow: “One Deal a Day” a Distant Memory A total of more than 63. Angie’s List) and Clothing and Accessories – categories that a year ago might not have been considered a natural fit – are gaining importance. Spa & Massage Fitness & Nutrition Sports & Recreation Home Products & Services Health.462 6.localoffernetwork.163 19.000 offers in 1Q 2011 alone.B.895 2010-1Q 2010-2Q 2010-3Q 2010-4Q 2011-1Q (E) Category Trends: From Burgers to Botox. Note that home products and services (e. Note slower growth during the holiday season. the UK and Australia). Medical & Dental Clothing & Accessories Arts & Entertainment Photography & Photo Services Kids All Other 31% 20% 6% 11% 2% 3% 2% 5% 2% 1% 16% 20102Q 29% 19% 7% 9% 2% 3% 2% 4% 2% 1% 20% 20103Q 28% 20% 7% 9% 3% 3% 2% 3% 2% 2% 21% 20104Q 26% 20% 7% 5% 6% 5% 4% 3% 4% 2% 17% 20111Q 24% 19% 7% 4% 8% 4% 6% 3% 4% 4% 18% Grand Total 27% 19% 7% 7% 5% 4% 4% 3% 3% 2% 18% Copyright © Local Offer Network. in December consumers still spent on traditional gifts. Inc. The industry growth explosion will have Americans see an estimated 40. An additional 15.

stated value of services) has stayed relatively steady over the past year at 53%.70 $35. Spa & Massage Clothing & Accessories No question consumers win in this business.67 $48. Medical & Dental Photography & Photo Services Home Products & Services Fitness & Nutrition Beauty.78 $48.76B in forfeit revenue (net of discounts and deal site revenue share).86 Fitness & Nutrition All-Category Average Kids Sports & Recreation Clothing & Accessories Arts & Entertainment Food & Drink 2010-1Q 2010-2Q 2010-3Q 2010-4Q 2011-1Q Discounts: Merchants Invest.61 $39.All Categories -53% heavily to bring about this outcome with $1. Arts & Entertainment -53% Food & Drink saving an estimated $1.15 $25. underscoring the need for legacy companies in local advertising to determine how they will play in this market if they have not already set a strategy.34 $36.45 Health.Local Offer Network The Daily Deal Phenomenon: A Year in Review 7 Prices: Rising Along with Category Diversification Prices began edging up noticeably later in the year. US Group Buying/Daily Deal Market Average Reported Discount per Offer Source: Local Offer Network -62% -61% -58% -58% -55% -53% Health. Copyright © Local Offer Network.86 $37. home products/services and photo offers provided the greatest relative discounts. It stands to reason that other local advertising and promotion methods will in turn pay a price.26B over the course of -52% Kids 2010 and looking forward to $3. Inc.38 $38. in order to come within reach of the broadest range of consumers. Consumers Win Big The average discount per offer (price of voucher vs.By Category Source: Local Offer Network US Group Buying/Daily Deal Market Average Price per Deal Voucher All Categories Source: Local Offer Network $42.14 $31. (LON) Not for reproduction or distribution without express written permission of LON www. The flip side: merchants have invested Total .localoffernetwork.04 $36. Higher-priced services such as medical/dental.81 $36. coincident with increased competitive activity in the aforementioned luxury and higher-priced categories.64 $34. US Group Buying/Daily Deal Market Average Price per Deal Voucher .41 $52.0B in savings in -52% Sports & Recreation -50% 2011.com . Medical & Dental Home Products & Services Beauty. Spa & Massage Photography & Photo Services $60.72 $38.

There is still huge headroom in untapped markets. However. compared to just 48 in 1Q 2010. multiple uses or just on irresistible impulse. US Group Buying/Daily Deal Market % Offers Published by Market Source: Local Offer Network Chicago New York City San Francisco Boston Los Angeles San Diego Washington DC Atlanta Minneapolis Austin Seattle 7% 5% 5% 4% 4% 3% 3% 3% 2% 2% 2% 8% 6% 4% 2% 0% US Group Buying/Daily Deal Market % Offers Published by Market Source: Local Offer Network Copyright © Local Offer Network.Local Offer Network The Daily Deal Phenomenon: A Year in Review 8 Multi-Voucher Purchases: Sometimes You Can’t Eat Just One Whether because of purchasing as gifts. (LON) Not for reproduction or distribution without express written permission of LON www. Inc. truly local offers. US Group Buying/Daily Deal Market Average Vouchers Per Purchase Source: Dealradar. Note: LON research shows that smaller markets have a disproportionate skew toward online retail offers.com .localoffernetwork. This means that smaller markets can expect sites to provide deals with longer duration and/or national offers such as for online retailers.com/Local Offer Network 3 or more: 4% 2: 10% 1: 86% Market Growth: Now Coming to a Hamlet Near You Chicago remains the birthplace and still the leader in the group buying phenomenon. though a market must have critical mass of buyers in order to sustain a site that offers frequent. there are now deal sites in 80 markets across the country. 10% included 2 vouchers and 4% included 3 or more. 14% of transactions included multiple vouchers for the same deal. highlighting the challenge of building a deal business in such markets.

com .localoffernetwork. (LON) Not for reproduction or distribution without express written permission of LON www.Local Offer Network The Daily Deal Phenomenon: A Year in Review 9 Copyright © Local Offer Network. Inc.

and cia convenient tools such as deal aggregators and personalized deal feeds. the tradeoff in urgency is balanced by scarcity – e. The concept of “one deal.com . Increasingly. Yet group buying concepts long predate the current wave of deal sites and even the digital age. Gilt City which offers unusual products and experiences in limited quantity but for more than one day. Momentum Will Continue Followers of the group buying industry often ask “is this evolution or revolution?” The market trends highlighted in this report indicate that both are occurring.9 2.1 1. bought directly from sites of all sizes. In turn:   Consumers will enjoy access to thousands of deals a day. that window of opportunity for savings has jumped to more than three days. Multi-channel and online publishers of all sizes will be driven to participate in this market – if they are not already – to protect and grow their advertising revenue. You Lose. driven by some offers that remain active for as long as a week or more. merchants who want more time to get in on the action.g.8 1. to the benefit of consumers and.9 2010-1Q 2010-2Q 2010-3Q 2010-4Q 2011-1Q Conclusion: Business Models Will Evolve. and a wider range of sites publishers will deliver promotions to their audiences. and new deal site models continue to evolve. Local Offer Network predicts that the overall number of competitors will continue to grow.2 1. the number and variety of deals offered will increase significantly. Inc. more than $2. Copyright © Local Offer Network. While market consolidation and attrition will occur.Local Offer Network The Daily Deal Phenomenon: A Year in Review 10 Deal Duration: You Snooze. (LON) Not for reproduction or distribution without express written permission of LON  www. one day” has long since gone by the wayside.localoffernetwork. and will optimize their spending accordingly. Legacy advertising methods will feel the pinch. As the market continues to expand. these companies will create and sell their own branded deal products and channels to preserve their market relevance. While the average offer was available for less than two days a year ago. US Group Buying/Daily Deal Market Average Offer Duration (Days) Source: Local Offer Network 3. A critical mass of online shoppers – who are online virtually 24/7 – created a perfect storm to connect online and offline commerce in a revolutionary way.5 billion in transactions will occur via group buying sites in the US alone – a striking level of volume for a group of websites that did not exist only three years ago. Merchants will be better-equipped than ever to measure the relative cost of consumer acquisition from various channels. Sort Of. Local Offer Network projects that in 2011. In some cases. in some cases.

Canada. This will in turn force smaller sites to differentiate their products and find creative and cost-effective ways to create scale. And consumers will continue to win. top-tier deal providers will continue to increase the cost of competitive entry by driving up cost of consumer acquisition. national online retailers may enjoy the greatest advantage in smaller cities and towns because of the challenge of gaining critical mass in these markets. a web-wide distribution network that allows group buying sites to achieve instant audience scale and publishers to tap new revenue streams by syndicating offers from those sites.localoffernetwork. a convenient deal-shopping tool for consumers in the US. Launched in early 2010. Geographic expansion will continue.com . VoucherPro™. Somewhat ironically. For the foreseeable future. the LON Deal Engine™ aggregates more than 2. the group buying movement will continue to grow unabated. Copyright © Local Offer Network. LON products and services include the LON Deal Wire™. services and experiences that may not otherwise have been within reach. and Dealradar. (LON) Not for reproduction or distribution without express written permission of LON www. an offer creation platform that enables the creation new daily deal advertising products. UK and Australia.com.Local Offer Network The Daily Deal Phenomenon: A Year in Review 11   Well-funded. About Local Offer Network Local Offer Network (LON) is a leading provider of technology and services to the fast-growing market for group buying services.000 group buying offers per day from group buying websites in 97 markets worldwide. through access to products. Inc.

Local Offer Network The Daily Deal Phenomenon: A Year in Review 12 Copyright © Local Offer Network. (LON) Not for reproduction or distribution without express written permission of LON www. Inc.localoffernetwork.com .