Daily Deal Summit: Are Deals Becoming Bubblicious?

From Jed Williams for kelseygroup.com

As it turns out, the daily deals landscape is more sophisticated that many first thought. New contours are emerging, each replete with opportunity and threat. Bluntly branding the space as “the next big thing” or a “can’t-miss opportunity” lacks the necessary strategic discernment in an industry replete with competitors and fortressed with high barriers to scale. Similarly, the question of whether the deals explosion is leading Silicon Valley toward the brink of tech bubble 2.0 requires more than a “yes” or “no” answer. “It depends” is more like it.

A stage-full of bankers and investors debated this topic at the recent Daily Deals Summit in New York without reaching much consensus.

On the one hand, leading group buying brands such as Groupon and LivingSocial are radically altering local advertising and marketing by touching local merchants with a direct, trackable customer acquisition tool that verifies ROI…all without the burden of upfront costs. There are merchants aplenty yearning to draw new business without the traditional media headaches of lofty price points and fuzzy metrics.

BIA/Kelsey approximates that there are at least 10 million SMBs in the addressable advertising pool. James Min, head of media banking at Montgomery & Co., noted that even if Groupon and LivingSocial are building sales armies, that still leaves “a lot of greenfield opportunity” for other originators and media companies to participate.

Then there are the actual revenues that these still relatively young market leaders are already driving. Groupon’s 2011 revenue could reach $3-4 billion, prompting reports of a desired IPO at a $25 billion valuation. The business models and sudden returns weren’t as evident a decade ago. Real money is changing hands…quickly and compellingly. Instant, personalized and geo-targeted deals surface more inventory to meet crushing demand. New revenue streams are continually opening.

On the other hand, what’s good for a few isn’t necessarily good for all. The network effects that early movers create can become bubble effects for clones and stragglers. As the market fragments and verticlaizes,  Ben Choi of Maveron sees entrants that want to specialize as, say, “the Groupon for yogurt.” Only a couple, however, get the requisite funding to grow at scale.

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