Deals 3D: The Deals Horizon — What’s Next?

In true McLaughlin Group style, Greg Sterling moderated the final session at Deals 3D — “Deals: The Next Stage” — more as a rapid-fire roundtable than a traditional panel. He dished, they debated. So, consistent to the theme, here are samples of how Closely’s Perry Evans, Wantsa’s David Strebinger and Deal Current’s Jimmy Hendricks see the next 12 to 18 months in deals shaping up.

Where are deal provider/merchant margins headed? Is compression inevitable?

Evans: “Deals, offers and specials are on a collision course, morphing into a seamless stream of promotions. Merchants won’t pay 50 percent to get people to walk across the street.” Margins will only remain at a reasonable ratio for deal providers that create a solution that “businesses feel can become an everyday tool.” The numbers: 15 percent to 20 percent to market to your own network; 25 percent to 30 percent for high-quality lead generation.

Hendricks: The bigger question is “what else can we offer so that we’re not relying on one leg?” This could include email management and other marketing platforms, both of which could move group buying companies from touting a one-off trick to taking a more central position in the merchant CRM dashboard. The number: Presuming this occurs, then 20 percent to 25 percent is fair.

Strebinger: Speaking of bigger questions, Strebinger asked “20 percent of what? The market can’t work off of percentages the way it has. It has to move toward a marketplace where publishers get paid based on the actual result for the merchant [a.k.a. cost per acquisition, varying by business segment].” Call this the “fair market value,” or true performance, model.

What, if anything, creates merchant loyalty to deals providers?

Evans: “At the end of the day, it’s the merchant’s proposition that breaks through.” In other words, the fight to be affiliated with better brands is raging.

Hendricks: “Loyalty is to the merchant, not the deals company.” This is especially so with big-box deals companies — Groupon, LivingSocial, et al, that are marketing across multiple industries with little perceptible differentiation. The brands that break through will be those that “offer integrated services — two or three different products and analytics that convert customers into repeat visitors.” The outlook could be better for niche sites with targeted audiences that trust in the value they deliver.

Groupon’s Forecast — Sunny or Stormy?

Strebinger: Stormy. “It’s very difficult for any first mover to pick the exact perfect platform. Groupon doesn’t think the way that LivingSocial or Google thinks in terms of how to make things more relevant or social.” It’s the fundamental difference between “innovation and replication.” He thinks Groupon is doing the latter.

Evans: Potentially sunny, with this disclaimer/recommendation: “Groupon post-IPO should buy OpenTable, Yelp and Foursquare so it’s not just a one-trick pony.” Its “huge checkbook” will open doors to strategic acquisitions that could diversify the brand.

There are 500+ deals sites (and that may be conservative). When will we see consolidation, and how much?

Hendricks: Consolidation will also mean diversification. Larger players “won’t just buy deals site for email lists, but will look for content buys and lifestyle buys.” With that being said, “lots of small-to-medium players that serve a purpose in small, niche markets will do very well.”

Strebinger: “Private equity firms, venture capital groups and public companies are all looking at roll-ups. The number will be “cut in half in the next 18 months.”

Evans: Don’t forget about the potential consolidation of the enormous group buying sales engine. “There’s a whole new sales force being created on the back of this industry.”

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