I realized recently that my perspective on “what is interesting about daily deal companies” is different than most people, so I wanted to articulate it.
Lot’s of people worry that consumers will suffer daily deal burnout and they say, “these daily deal companies whole businesses are built around email marketing lists, when consumers burn out, they are doomed”. That drives headlines like, “BURNOUT IS HAPPENING”. Don’t get me wrong, that is a concern, but this is not what makes the daily deal companies so interesting to me, and it is precisely what I find interesting about them that makes them so valuable in my opinion.
For a decade, Internet start-ups bemoaned the challenge of penetrating the local market – no one had the sales force. Everyone dreamed of partnering with people like the Yellow Pages that had 10,000 feet on the street. Every start-up had a product that, if they could somehow magically motivate a third party salesforce of thousands of people, they could turn into a mint of money. The problem was, building a sales force was super expensive. Only one company really did it: ReachLocal. They raised huge chunks of money at extraordinary risk and successfully made it happen. But they were the exception, not the rule.
With the advent of the daily deal, several companies have had the chance to build out giant sales forces – Groupon and LivingSocial now have sales organizations that dwarf ReachLocal and they are rapidly going international.
Sure, there is a finite limit to the amount of daily deals a vendor will offer. And a finite limit to the amount of daily deals that consumers will buy. But that is not bad. All they need is more product. LivingSocial and Groupon suffer today because they have this huge sales organization, but they really only have one thing for them to sell. They go to all this trouble to build a relationship with a business, they do a daily deal, and they are done. Can’t really sell them anything else for six months or a year. What they need is MORE STUFF TO SELL THEM.
That is easy. Go buy companies. You have the equity to do it. You have cash in the bank too. I predict that Groupon and LivingSocial will start munching up companies left and right in the next few years. They need more product in the pipeline for their salesforce. And being a salesforce, they will always want something new. Now the ideas will meet distribution in a beautiful marriage and tons of early stage companies will be gobbled up to feed the hungry maw of sales. And many entrepreneurs will get to see their dream fulfilled as their idea is used by thousands of small businesses.
Check Crunchbase out: Groupon has already done 10 acquisitions. LivingSocial has done 7. This is just the beginning.