As their email inboxes filled with daily deal offers from websites like Groupon, Lea Pische and Edwin Hermawan, a pizzeria waitress and a former lawyer living on Manhattan’s Lower East Side, finally decided to buy one: a discounted Skillshare class on how to start a business.
Their business plan? It was a service that would unsubscribe people from all those daily deal emails.
Three months after its introduction, Unsubscribe Deals.com has 7,800 unsubscribers, a number that nearly doubled in the last month. Pische and Hermawan tapped into deal fatigue, a malady that has been afflicting the small businesses that offer daily deals and is now hitting consumers too.
Daily deal services — like Groupon, LivingSocial and Google Offers — took off because they seemed to offer something for everyone: Small businesses got a novel way to bring new customers in the door, shoppers got a discount, and the deal providers got a large cut of every sale.
But signs of deal fatigue are everywhere, raising questions about whether Groupon and its competitors can continue their hyper-growth.
In the last six months of 2011, 798 daily deal sites shut down, according to Daily Deal Media, which researches the industry.
When Groupon reported its second-quarter results this week, it said that active customers — defined as people who purchased a Groupon deal in the last year — grew just 1.1 percentage points, a significant slowdown from customer growth rates in previous quarters. While traffic to Groupon was higher at the beginning of 2012 than last year, it was down almost 10 percent in May and June from the same months in 2011, according to comScore.
Shares of Groupon have fallen 82 percent since it went public in November, and the company is now worth just $3 billion, half of what Google offered to buy it for in 2010.
Gilt City, a daily deal service owned by Gilt Groupe, laid off employees and closed offices in six cities earlier this year. Google Offers, whose membership has plateaued in some cities, has had to partner with 35 other deal providers to supplement its own selection and help other companies reach customers. Facebook and Yelp were quick to jump on the fad but backed off last year. Groupon is searching for alternative ways to make money, like buying movie tickets, watches and other goods and selling them to shoppers.
“Many of the other competitors have retreated or scaled down ambitions,” said Jordan Rohan, an analyst with Stifel Nicolaus. “There are no real barriers to entry, but there are fairly significant barriers to success.”
One of those barriers is keeping merchants happy. Although small businesses were excited at first about a new way to attract customers in a post-Yellow Pages world, many soon soured on the daily deals. Customers who bought deals overwhelmed the businesses, spent the bare minimum and never returned.
Groupon has added tools to help merchants with some of their most common complaints, like a scheduler so they can avoid an overwhelming rush of customers. The company said that in the last two quarters, half of its offers were from businesses that had previously used Groupon.