Siftie Quoted by the BBC on the Paypal Entry to the Daily Deal Market

With the news that Paypal is entering the Daily Deals marketplace, the BBC came to Sift.ie founder Shane Hayes for some analysis.

See the article here. My comments are below.

“Daily deals are hard to do – the key to success is flawless execution of the sales process,” said Shane Hayes, founder of the deal aggregator service Siftie.

“Groupon has proved it can do this and its barrier to entry is more than 5,000 local sales people knocking around doors of businesses around the world.

“What we will probably see is next is ‘Daily deals 2.0′ where things like better targeting, using consumer data, will be used to change consumers’ experience of the phenomenon. This may give Paypal an opportunity.”

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Storm in a Cup Cake: Channel 4 Reaches out to Sift.ie for Comment

When Groupon got pilloried for running a Cup Cake promotion that went awry, Channel 4 reached out to Shane Hayes for some perspective.

See the article here. My comments are below.

Shane Hayes founder of daily deal aggregator Siftie.co.uk, said the advantage to a business of a service like Groupon is that it costs nothing up front because Groupon covers all the publicity.

After that the success of the promotion is down to the business.

“It’s your job to convert these into repeat customers,” he said.

Mr Hayes said that Groupon works best when a business can use a deal to persuade customers to buy more than they normally would.

He added that they work well when the extra demand would not significantly increase your overheads.

Mr Hayes said businesses could get round the problems faced by Mrs Brown by putting a cap on a deal, but added that Groupon is often reluctant to add a cap, unlike rival sites.

But he said that in this case, it was probably just the wrong type of product for this particular marketing tool: “With the greatest respect to the lady, it is probably the worst thing you could sell on Groupon.”

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Analyst Firm Blogger, Barstool and Blather have one Aspect of Groupon’s Business Model Dead Wrong

A version of this article originally appeared on Daily Deal Media.

Let me ask you a question. If you got an email offering you a $2,000 high end Memory Foam mattress for $400, would you buy it? If the email asked you to go online and give over your credit card details so that an unknown company could ship you your mattress would you put your number in? I suspect not. You might though continue to read the email to see if there was a Nigerian Princess in distress somewhere. And just how she was going to use the mattresses to escape from whatever tower she was in, in order free up the $12 million dollars that some nasty government official had appropriated. (Perhaps jumping out of the tower onto the mattresses might be the plan.)

But if that email came from Groupon. Same details, including shipping from a company you never heard of called Clouds Memory Foam, what would you do? Well in the UK happy consumers forked over $2 million dollars to buy nearly 6,000 of them, all in the space of 4 days. This particular deal even got a mention in Groupon’s infamous leaked internal memo, where it was used to illustrate Groupon’s move into products.

The next time someone from that well known analyst firm Blogger, Barstool and Blather (BB&B), opines from their lofty perch (atop a barstool) that Groupon’s business model is fundamentally flawed because there are no barriers to entry, think about this email.

And if you are a bit of a masochist, like me, take a look at Groupon’s S-1 – their prospectus for potential investors. As in all of these documents, there is a large section entitled risks and it could have been written by BB&B. A prominent risk outlined was that there were no barriers to entry into the daily deals space and more specifically, there was a risk of competition from a) large, well funded and established internet companies and b) large, well funded and established traditional media companies.

Let’s look at what happened in early September. Two large, well funded internet companies with established brands, both of whom are active in the hyper local space, pulled out of the daily deals business. I am of course talking about Yelp and Facebook. (Okay Yelp are spinning that they are only pulling back.)

Why? Could it be that this is a bubble that is about to burst – just like Blogger, Barstool and Blather have been saying – and that these guys got out just in time. Or could it be because making a success of a daily deal business is hard. Could it be that there is in fact a wide moat around Groupon and that even large well funded and established internet players cannot cross it?

Think about the mattress email though. There are a number of things operating here that will be studied for some time to come both at the Harvard Business School and in various university psychology departments.

The first is just how much people trust Groupon. People will buy anything from them. What other company can shift millions of dollars worth of fish pedicures as well as thousands of laptops in the space of a few days. (In July in the UK, Groupon had two laptop deals that sold almost another $1.9 million dollars between them.) Think about this in the context of the value of the Groupon brand.

The second facet to think about is the opportunity for a business to piggyback on Groupon’s brand. Clouds Memory Foam would never have shifted that kind of inventory by themselves in a million years. However, this particular deal has got their product and name into thousands of homes with all the attendant word of mouth that that entails.

If you are launching a new business and you want to get instant market exposure, it strikes me that there is no better way to get your name out than an attractive Groupon offer.

So to get back to the rhetorical question posed by Blogger, Barstool and Blather.

Is Groupon’s business model fundamentally flawed because there are no barriers to entry?

Lets look at the four major internet companies who decided to take on Groupon at the start of this year, namely Yelp, Facebook, Amazon and Google. Two didn’t last six months. Yelp’s retreat was simply due to lack of sales as dicussed in this Yipit Blog Post. Facebook’s retreat has been spun as a desire not to compete with major advertisers, but if it was an easy way to make pots of money I think you could be sure that they would have hung in there. Amazon is hedging their bets by investing in LivingSocial. And Google. Well they are still there, but to look at the way they have been shooting dead horses, such as Slide, recently, one has to wonder how long they will last.

So that brings us to the second major threat identified by Groupon in their S-1; established traditional media companies. By this they mean the major newspaper and TV companies and their well known and established brands. Now many of them have established daily deal offerings, but the results are in and none of them have achieved any sort of scale. Yipit released their US July market data and it showed Groupon at 47% and Livingsocial at 23% for a combined total of 70%. The next biggest player was Travelzoo, way behind on 3%. There was ne’er a sight of an established media brand.

Our own data from the UK paints a similar picture with Groupon on 77% market share. In the UK, Groupon is the daily deals market.

So where does this leave us. Thoughtful analysts will continue to point out the many risks and challenges facing the company ranging from running out of cash and difficulties in China and Korea to all the red ink that they are generating each quarter.

But the data is in. In most mature markets, Groupon is achieving market shares of nearly 50%. This is because running a daily deals business is hard and Groupon and its management team have shown that they can consistently out execute their competitors, be they start-ups or well funded internet or traditional media players. They have also established a global and trusted brand.

My conclusion is that the Blogger, Barstool and Blather analysis that maintains that there are no barriers to entry into this business has been disproven.

Shane Hayes is the founder of Siftie.co.uk, a Daily Deal Aggregator that provides Data Analysis services to industry players.