Daily Deals

David Wolfe – COO – BuyWithMe david@buywithme.com
DMCNY Breakfast Series 5/5/2012 1

Table of Contents
• The Market • Consumers • Merchants

• Deals
• Groupon’s S1 • Future
DMCNY Breakfast Series 5/5/2012 2

Local businesses use the platforms to acquire new consumers on a performance basis. and share them with their friends. A daily deal is an online CPA based marketing campaign for a local business DMCNY Breakfast Series 5/5/2012 3 . Consumers use the platforms to discover new local businesses . get deep discounts.The Market – “Daily Deals” defined “Daily Deal” platforms provide a way for local businesses to connect with local customers.

The Market .History DMCNY Breakfast Series – [source Yipit] 5/5/2012 4 .

The Market – Industry Structure Daily Deal Sites M C Vertical Deal Sites White Label Exchange s E R C H A N T S Merchant Agencies SOON… Merchant Services O N Publisher s S U M E R Data Consumer Services Aggregators S DMCNY Breakfast Series – [source Yipit] 5/5/2012 5 .

The Market – Traffic & Audience • Buyers predominantly female • Affluent • 25 – 40 year olds dominate DMCNY Breakfast Series – [source Yipit] 5/5/2012 6 .

655 million These projections are already too conservative DMCNY Breakfast Series [source: Silicon Alley Insider & EMarketer] 5/5/2012 7 .The Market – Revenue Groupon’s 1st quarter 2011 revenue .

The Market – Barriers to Scale • The Virtuous Cycle of Daily Deals More Cities More Sales More Conversions More Deals More Deal Personalization More Salespeople Improved Media Buying More Subscribers DMCNY Breakfast Series [source: Needham & Company LLC via Yipit] 5/5/2012 8 .

loyalty programs . Branding Convert • Web site.New customers .Better inventory management .New merchant discovery . Boost Your Biz .The Market – Key Value Streams Consumer/viral referrals Consumer life-cycle Marketing Cost Acquire •Ads.New business Convert •Sales. Social.Positive experience Deal life-cycle Production Cost Offer Deal Purchase Deal Redemption Match & value creation Revenues Merchant life-cycle Sales Cost Acquire •Merchandising. Editorial Retain •Account Management Merchant referrals DMCNY Breakfast Series 5/5/2012 9 . deal presentation Retain • email.

Consumers – Basic experience consumer consumer consumer consumer & merchant Discovers deal Participates in group buy Retrieves voucher Redeems Merchandize d deal delivered through notification or app Payment authorized & cc stored Deal activated & payments captured Voucher’s activated for print or mobile access redemption processed [mobile or bulk process] Daily Deal Systems payment processor DMCNY Breakfast Series 5/5/2012 10 .

Consumers – Benefits Key Benefits New experiences Local experiences Key Risks/Liabilities Printed voucher Deals not always relevant Significant discounts Easy to share and take advantage with friends Too many emails already Pre-payment required Discovery experience User – Anonymous [unknown] Passive [not searching] Active or intentdriven [searching] User – Identified [segment known. behavior known] DMCNY Breakfast Series 5/5/2012 11 .

Consumers – Acquisition • • • • • • Groupon’s 1st quarter marketing spend 250 million Industry eCPL’s : 5 – 10 $ range Industry CAC : 10 – 45$ range Industry LTV : 30 . deal specific 5/5/2012 12 DMCNY Breakfast Series . Bored).60$ range [annualized] Industry Buyer/Subscriber ratios ~ 20% Creative themes – general service value prop & business category based (Hungry.

Can email remain the primary driver of engagement? Inbox collisions and email fatigue seem likely Little product and user experience differentiation Archaic redemption methods Adoption of mobile services remains under 20% across industry DMCNY Breakfast Series 5/5/2012 13 .Consumers – Challenges Over 50% of all revenue producing Daily Deal transactions are the direct result of an email.

bulk voucher] Campaign stats in merchant portal. Check sent Daily Deal Systems DMCNY Breakfast Series 5/5/2012 14 .Merchants – Basic experience merchant merchant merchant consumer consumer & merchant merchant Signs-up Co-creates deal Deal is scheduled Deal runs Consumers redeem Retrieves $$ & statistics Merchant identity & attributes stored Deal created & editorial and image assets stored Deal inserted into production schedule Deal merchandiz ed to consumers & vouchers sold Redemption processed [real-time mobile.

Merchants – Benefits Key Benefits Acquire new customers Ultimate performance based advertising model (only pay if they transact) Move distressed inventory Build brand awareness with local community Key Risks/Liabilities Management of multiple paper vouchers Cant track repeat behavior of new customers. Questionable ROI Some customers discount hunters Cant manage flow & timing of new customers Increase up-front cash flows Leverage social networks for promotion Cant always maintain positive margins with discounts Sometimes cannibalize existing users Redemption method limiting DMCNY Breakfast Series 5/5/2012 15 .

250-750$ eCPL for small businesses with assisted model Large. DMCNY Breakfast Series 5/5/2012 16 . Groupon’s self-service initiative not very successful to date. inside/outside sales force requirement for performance at scale. Sales.Merchandising. Effective merchant acquisition and retention require investment in specific organizational structures .Merchants – Acquisition Local businesses are “sold” deals. trained. & Account Management teams Deal /campaign creation requires significant hand-holding. they don’t “buy” them.

2 $7.0 5.1 3.7 ($0.5% $2.8 $7.9) $13.5 25% Gross Profit / Voucher Existing Customers Revenue from Groupon Revenue from Overage Revenue from Existing Customers Less: COGS Less: Cannabalized GP GP from Existing Customers GP from Breakage 20% 20% 60% New Customers Revenue from Groupon Revenue from Overage Revenue from Existing Customers Less: COGS GP from Existing Customers New Repeat Customers Revenue from Repeat Customers Less: COGS GP from Existing Customers Incremental GP / Voucher DMCNY Breakfast Series [source: Yipit] 1 1 $50 50% $25 14% 40% 40% 2.2 3.2 1.0) $2.6 4.Merchants – Profitability Merchant Profitability Per Voucher Drivers Deal Assumptions Deal Value Deal Discount Deal Price Overage % Commission % Cost of Goods Sold % Credit Card Fee % Buyer Mix Assumptions Unredeemed (Breakage) % Current Customer % New Customer % Repeat Visitor Assumptions Conversion to Repeat % 23 Repeat Visits Vouchers per Customer Current Customers Already Going % 19% 3 1.9 5/5/2012 17 .9 $8.4 1.8 ($2.8 13.2 12.

DMCNY Breakfast Series 5/5/2012 18 . Beginning to see innovation around POS and payment systems integration. Repeat visitor percentages sufficient for positive ROI not always met. Fractured technologies for managing redemption vouchers & smartphones.Merchant – Challenges Daily deals are an effective customer acquisition vehicle. but are less useful for retention and win back The only basis of platform differentiation from a merchant perspective are volume and quality of consumer’s delivered Return on marketing investment a hotly debated topic.

Deals – Categories DMCNY Breakfast Series [source: Yipit] 5/5/2012 19 .

Deals – Revenue/Volume DMCNY Breakfast Series [source: Yipit] 5/5/2012 20 .

66. 2.3M (2010). 0.7K (2009) • Groupons sold: 28. 9.e.8K (Q1 2011).1B (Q1 2011 annualized) • Gross Profit Margins: 42% (Q1 2011). the company currently keeps $0.6B (Q1 2011 annualized) • Revenue Growth: 2241% YoY (2010 vs 2009).4M (2009) • Featured merchants (may not have tipped): 56.42 in net revenue and passes $0.Groupon’s S 1– Key Statistics Financial Snapshot: • 2010 Revenue: $713M • Run Rate Revenue: $2. 1. 36% (2009) --> i. 1. 39% (2010). 1357% YOY (Q1 2011 vs Q1 2010) • 2010 Gross Profit: $280M • Run Rate Gross Profit: $1. for every $1 of Groupons sold. 30.58 to the merchant • 2010 Net Income: -$389M (net loss) User & Merchant Statistics: • Subscribers (end of period): 83.2M (2009) DMCNY Breakfast Series 5/5/2012 21 .3K (2010).0M (2010).8M (Q1 2011).1M (Q1 2011).6M (2010). 50.8M (2009) • Cumulative customers (unique buyers of Groupons): 15.1M (Q1 2011).

Groupon’s S 1– Media Interpretation Techcrunch .“Why Groupon is Poised for Collapse” .“The Reports of Groupon’s Death Are Greatly Exaggerated” DMCNY Breakfast Series 5/5/2012 22 .“Groupon Was The Single Worst Decision I Have Ever Made As A Business Owner” Concerns • Traffic is not necessarily profitable • Are margins sustainable • Will businesses still need to mortgage profits in the name of cash flow • What percentage of merchants repeat • Fraudulent merchants • Dependence on lengthy merchant payment cycles Not all press is negative – Yipit .

location based services arena? What kind of product innovations will occur to simplify redemption and create real track-ability? Will the capital markets continue to fund “less than profitable” growth? How will deal types evolve? DMCNY Breakfast Series 5/5/2012 23 .Questions How many competitors can the market support at scale? How will Facebook and Google fair? When will the competition for qualified consumer’s abate? Will email remain king? What kinds of product innovations and partnerships will occur in the mobile.The Future .

com DMCNY Breakfast Series 5/5/2012 24 .Thank You David Wolfe – COO – BuyWithMe david@buywithme.

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