INFOCUS

6 months in review: Digital's biggest trends

  • Previous
  • 1 of 4
  • View as single page

A six-month snapshot: Social shopping

Yes, ladies and gentlemen, it's that time of year again. That time when we stop for a moment to look back on the last six months of the year and wax philosophical, poetical, nostalgic, or quixotic about those trends that have emerged during the first half of the year that appear poised to dominate the advertising and marketing landscape. Or are they? Following are four of the biggest trends we've seen since the dawn of 2011. We examine what they are, their perceived value, and whether or not they are fads or foundational. So what do you think? Are these emerging trends ripe? Or just hype?

Social shopping
You've heard the big names: Groupon and LivingSocial. How about Half Off Depot, Plum District, Kactoos, Little Birdie, and BuyWithMe? Did you know that sites like Snooth (a wine site) and Yelp (a locally focused review site) also offer crowd-sourced shopping? Have you heard of ShopSocially, Blippy, Yeay.me, and Swipely? Did you know what Google has gotten into the space, with Google Offers, currently in beta?

The proliferation of social shopping sites is testament to the strength of this growing trend. It's kind of like the ad network space not 10 years ago: Every time a truck goes by, another daily deal site is born. It is the online business model du jour.

And there's good reason.

According to BIA/Kelsey research, the estimate is that what was an $873 million market in deal-a-day e-commerce in 2010 will rise to $1.24 billion in 2011 and increase to $3.9 billion in 2015.

It is no wonder there are so many entrants to the field. The challenge is that more cattle in the pasture do not mean more grass. More mouths to feed with the same amount of food can lead to everyone being malnourished.

According to a study from a professor at Rice University's Jones Graduate School of Business, "How Businesses Fare with Daily Deals: A Multi-site Analysis of Groupon, LivingSocial, OpenTable, Travelzoo and BuyWithMe Promotions," a key finding was that the recidivism rate for businesses was too low to allow the industry to sustainably scale in the long run. Other challenges include "the relatively low percentages of deal users spending beyond the deal value (35.9 percent) and returning for a full-price purchase (19.9 percent)" -- which the researcher notes are symptomatic of a structural weakness in the daily deal business model.

Aside from the first real academic study reporting on this, the evidence of social shopping's long-term weakness is borne out in the books of the social shopping businesses themselves. In the wake of Groupon's IPO filing, with a valuation of upwards of $20 billion, a cavalcade of analysts indicated the math for such a valuation simply doesn't hold up.

Groupon lost $102.7 million in the first quarter of this year, on top of nearly $400 million in losses last year, and over a half a billion dollars in losses since its inception. That said, the company has grown its gross revenues from $30 million in 2009 to $713 million last year, and it is looking at $2.6 billion now. Of course, the bulk of this goes back to the merchants. Merchants who, by and large, aren't coming back, and some of whom are losing money.

Prognosis for next six months
The field will continue to crowd exponentially until the smaller cows start to die off (either attrition or acquisition). The market as it stands now doesn't look pretty for the long term. The model is built on the old chestnut that "we lose money on every seat, but make it up in volume." We're likely to see the evolution of a model that is based on crowd-sourced product desire married to suppliers with excess who are willing to offer it at a discount.

 

Comments

Lily Lee
Lily Lee June 28, 2011 at 4:06 AM

Thank you. Good info. Although am yet to use Groupon. And I should do that 'hashtag' on my tweets.

Spencer Broome
Spencer Broome June 27, 2011 at 9:03 AM

Not terribly confident in the future growth of a sector that believes in this: "we lose money on every seat, but make it up in volume." Especially with some of the money small businesses are losing with Groupon: http://techcrunch.com/2011/06/09/groupon-single-worst-decision/