ILM East: Yipit’s James Moran Talks Group Buying by the Numbers

23 Mar ILM East: Yipit’s James Moran Talks Group Buying by the Numbers

Here are some highlights from James Moran’s interesting talk at ILM East. It started with a few of Bobbi Loy-Luster’s Deal-a-Day predictions:

Sales volume will increase, but this will be matched by a slowing growth rate. Over $873M was generated in daily deal revenues, and from that, their conservative revenue prediction for 2015 stands at $2B, with the possibility of going as high as $6B.

Yipit is a site that aggregates daily deals from a wide range of providers that started selling their data about a month ago. They’ve has discovered more than 400 daily deal sites, significantly lowering the entry barriers. Public companies like TravelZoo and OpenTable have had their market caps go up significantly in part due to their daily deal initiatives. High barriers to scale do exist. With a bigger list, merchants can sell more deals, yielding a bigger marketing and sales budget, which allows for even more deals sold, and so on. The biggest opportunity, according to Moran, is probably in Merchant Services.

February 2011’s Top 20 Markets were: Groupon was at the top, making $39,007,032 in revenue with 2116 offered deals and 730 sold for an average of $18,584 per deal, and was followed in at second place by LivingSocial. The top offer for February came from DealFind in Toronto, with The Butchers offering 69% off, selling 11,404 and netting DealFind $600,000 in revenue.

Revenue generation was led by the hair removal category, followed by Food and Grocery.

The most frequent offers tend to generate less income, since they attract the least amount of consumer interest.

The offers put up by major players emphasize either volume or revenue. For instance an offer of a movie ticket for a dollar each won’t bring in much revenue, but generates plenty of volume.

The breakage rate is pegged at less than or equal to 20%. As more days pass and the promotion time gets longer, more deals are redeemed, with breakage being initially about 45%.

Profitability is achieved when retention is at about 19%.

Yipit’s summer 2010 phone survey of 80 merchants revealed that 93% of them would do another daily deal, with 43% of them shifting ad spending to daily deals as opposed to current channels.

The big surprise from the talk is that Groupon’s top spot is being threatened by LivingSocial, with other new players coming into the market and doing quite nicely for themselves as well.

Location was identified as the major factor of retention, such that retention increases as personalization of services increases with deals customized to a certain locale. Services used everyday such as hair salons stand to benefit from such a trend.