Has the Daily Deal Bubble Already Burst?


NEW YORK (MainStreet) — How many daily deal sites is too many? Whatever the number is, one new report suggests that we may have passed it earlier this year.

While more and more daily deal sites are being acquired by other companies, the price they sold for has dropped significantly in part because there is an “oversupply” of these sites on the market right now, according to data from CB Insights, a venture capital database.

The price paid for daily deal companies relative to their number of subscribers and vouchers sold declined by more than a third in the third quarter of 2011, after having hit a high point in the first quarter of this year, CB Insights data shows. Much of the reason for this is that daily deal sites have become a dime a dozen.

“Because the daily deal business is a relatively easy one to enter (translation: cheap) due to relatively low technological barriers, there is currently an oversupply of daily deal companies. Many of these companies are at the relatively early stages,” the report says. “As a result, many of these firms look alike and are not significantly differentiated from one another.”

Beyond this, the report also lays some of the blame on Groupon, one of the largest and most well-known deal sites, which filed for public offering this year only to reveal some troubling details about its business model and fiscal health, thereby damaging investor confidence in other deal sites.

Not only has the value of daily deal sites taken a hit, but a separate report from Yipit, a daily deal aggregator, shows that the industry’s revenue dropped from $144 million in June to $134 million in July, the most recent data on record.

To some extent, the new numbers should come as little surprise to anyone. As MainStreet has reported before, experts say there are only so many deal offers that consumers can handle – and only so many websites they can get those offers from - before they start to tune out and lose interest.

While it remains relatively cheap and easy to launch a daily deal site, the new data show that it is becoming less profitable and more risky to do so, which could potentially scare away new startups from entering the market. If so, we may just see a cooling off in the number of new deal sites, at least in the near future.

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