Firms are capitalizing on penny pinchers, but the recovery will limit growth
Los Angeles, CA (PRWEB) February 28, 2012
Born from the depths of the recession, the Daily Deals Sites industry has experienced extremely fast growth in the five years to 2012, with IBISWorld estimating revenue to rise at an annualized rate of 304.2% to $1.7 billion. Industry operators have benefited from a customer base that is short on disposable income and a large number of retailers trying to get customers in their recession-battered doors. Daily deal sites have also taken advantage of the increasingly connected population, with the number of mobile internet connections growing 57.6% in the five years to 2012. While industry revenue is expected to grow 16.6% in 2012, some problems have come up along the way. According to IBISWorld industry analyst Kevin Culbert, “a number of companies entered the industry as a wave of publicity swept the media and excitement gripped the cash-strapped public.” In the five years to 2012, IBISWorld estimates that the number of industry firms will increase at an average of 175.3% annually to 632. However, the industry has already started to experience consolidation. Low barriers to entry, high marketing costs and steep competition have prohibited most companies from gaining a foothold in the industry. These factors have caused many companies to experience a net loss since the industry's inception.
With a large number of players flooding the Daily Deals Sites industry and significant marketing costs, some operators have seemingly entered the industry and left the industry at the same time. Furthermore, the industry's largest players continue to operate at a loss in a bid to gain subscribers and market supremacy. The top two firms, Groupon and LivingSocial, were among the first to enter the market and were able to scale and export their business models to additional markets much faster than competitors. Culbert says, “their strong brand recognition and institutional investor backing has enabled them to grow their subscriber and merchant bases worldwide.” Groupon and LivingSocial benefit from scale, as they are able to offer a higher volume of relevant deals to larger subscriber bases, generating higher purchase rates than the industry average. However, while Groupon and LivingSocial have been able to capture significant market share, they operate in a highly competitive industry with a large number of firms that have copycat business models.
In the five years to 2017, IBISWorld projects that industry revenue will increase, though at a slower pace than the previous period. Revenue growth is expected to slow considerably from the previous five years, as per capita disposable income rises and consumer spending normalizes. Industry operators will also have an increasingly difficult time finding new subscribers. This factor will lead companies to focus on the bottom line rather than growth.
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This industry includes operators that offer discounts on goods and services for a given time only (typically 24 to 36 hours). Goods sold by the website are given as vouchers, which a consumer can redeem at local merchants for the physical good or service. The industry's revenue includes the price paid by the customer for the voucher or the coupon; profit is earned after paying an agreed-upon percentage of the purchase price to the featured business.
IBISWorld industry Report Key Topics
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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