The Decline of Coupon Sites like Groupon and LivingSocial

Joseph Stubblebine
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Within the past five years, web-based coupon sites emerged as triumphant Internet startups servicing a limitless customer base hungry for deals. A second look now, however, shows a slow but steady decline for the leaders in the market, Groupon and LivingSocial, as the ever-changing landscape of e-commerce surpasses them. These daily-deal sites struggle to remain relevant as they strategize for growth and survival amidst increasing competition.

 

Groupon appeared in a fledgling market, serving as inspiration for thousands of similar coupons sites to come. The coupon site's value has experienced an 86 percent decline since it went public in 2011, with the value of its shares plunging to $2.76 from the initial twenty-dollar offering. LivingSocial, whose investors include Amazon, isn't doing much better, with a reported 2012 net loss of $650 million and revenue of just $536 million. 

 

A number of factors contributed to the decline of daily-deal sites. Thankfully, expert opinions are plentiful and offer a world of insight into the specific failings of Living Social, and in particular, Groupon. In the recent AdWeek article, "It's Adapt-or-Die Time for Daily Deals Firms," Forrest Researcher analyst Sucharita Mulpuru-Kodali is quoted as saying, "The daily deals space is saturated, and it never provided tremendous value to merchants. And that was the fundamental flaw in the business model. They've survived over the last few years even when theses truth were obvious because they've reduced the margins they ask of merchants, they extend the length of offers, and they make more offers available at any time."

 

A recent TechCrunch article acknowledges that while mismanagement may have set the motion for Groupon's misfortunes, another theory worth considering is the decline in consumer demand for coupon sites and their services. This notion of "daily deal fatigue" contributed to a stagnant market Groupon and LivingSocial are scrambling to revive.

 

Alongside customers, coupon sites are noticing a decline in their client base, as businesses increasingly express concerns about the viability of translating a short-term burst of interest into long-lasting success. Small merchants on the cusp of financial disaster are especially vulnerable. When the stakes involve depleting resources to accommodate thousands of one-time visitors and conducting damage control on a rash of bad online reviews, it's no surprise that merchants have begun to cast a wary eye on coupon sites.

 

To combat its tenuous position, Groupon is strategizing for growth, ushering in a new CEO, fine-tuning its international divisions, targeting small local merchants, and implementing a credit-card payments service, among other ecommerce initiatives. Its efforts haven't always been successful, which Melissa Kennedy details in the Nexxt article, "Why Groupon is Failing in China." They may pay off in the long run, however, according to some of AdWeek's interviewees, who project a positive outlook for Groupon. LivingSocial is not so lucky with knowledgeable sources foreseeing the coupon site's sale or liquidation by 2014.

 

Both companies face stiff competition from household brands such as Facebook, Bank Of America, and Apple, to name a few. The evolving landscape of coupon sites spells uncertainty, and only time will tell if Living Social and Groupon are successful in staving off ruin. 

 

Image courtesy of MorgueFile.

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