Get Ready for the Daily Deals Bubble Part Deux

Even after the first daily-deals bubble exploded, ending with Groupon's less than stellar IPO, we're seeing a resurgence in the once-trendy Internet money making scheme. 

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Even after the first daily-deals bubble exploded, ending with Groupon's less than stellar IPO, we're seeing a resurgence in the once-trendy Internet money making scheme. This bubble is less of a crazy-bonanza than the first, in which we saw dozens of start-ups begin and end within the span of months. This is more of a smaller, shrewder after-bubble. But, as that first one didn't go so well, mostly because daily deals as a business has many, many flaws, we should be wary of this comeback -- even if these newbs offer a twist on the traditional daily deals model.

After learning about Pirq, the Apple-backed daily-deals experiment, we heard about a new effort by Foursquare to capitalize on its already plugged-in audience, from an interview with Foursquare CEO Dennis Crowley in today's Wall Street Journal. Today's Journal also has a spotlight on the super-hyper local daily deals experimentation happening via "geofencing," in which retailers offer deals to customers via text when they are within a certain range of the store. Each of these depart from the traditional Groupon model. Rather than offer the same flash deals to people in one city, all of these strategies try to localize the process further, hoping to incentivize the potential coupon purchaser with little perks.

Pirq for example, works with the iPhone, using its location based technology, to show users deals in their area, then letting them reserve deals in advance without paying up front. This eliminates a very real user fear that a Groupon might go to waste. Foursquare, on the other hand, plans on using its already popular check-in data to show people deals not just based on their location, but based on their past check-in preferences. "If you open the 'Explore' tab [in the app] right now, what you are going to see is going to be different than what I am going to see," Crowley told The Journal's Spencer E. Ante. "Its one thing to type 'sushi' in a search box and everyone in this room gets exactly the same sushi results because they've been ranked by the community. It's another thing to get individualized search results based on the neighborhoods where we hang out, the types of places we go to," he continued. And geofencing, which some stores have been experimenting with since as early as 2010, as Dana Mattioli and Miguel Bustillo explain, targets loyal customers who are in the area. "The idea behind geofencing is to target consumers when they are nearby—and the promotions can get hyper-local, like beaming a special on umbrellas to people within a 10-mile radius during a rainstorm, or touting a markdown on aisle 6 when a customer is walking down aisle 3," they write.

See, each of these services tries to fix a daily-deals problem, giving the user a reason to buy in. But, none of these address the major problem. "There is little evidence that sort of marketing actually works," write Mattioli and Bustillo. Groupon (and its many clones) sold the idea as cheap marketing for small businesses. But, the new customers these deals bring, don't always stay. And, at times, businesses lose money or credibility as a result of overload from deals. If retailers got burned during the original bubble, why would they sign-up for part deux? Making the deals hyper-local or easier to redeem doesn't solve any of these issues. Even Crowley understands the danger in getting lumped in with this failed business model, as we see with this defensive tweet, after seeing his scheme dubbed part of the "coupon craze".

Coupon, targeted "offer," or whatever you want to call it, it's still a flash daily-deal.

This article is from the archive of our partner The Wire.