ReachLocal has announced that it will be shutting down its Daily Deals site DealOn, which the company acquired for $10 million in February. According to the company’s email announcement to its subscribers on the closure, the company said:
“We regret to inform you that Monday, December 19, 2011, will be the LAST day offers will run, and the last day you will receive Daily Deal emails from [Dealon.com]. Any certificates you have purchased up to that date will be honored through their expiration date.
The staff would like to thank you for support. We have enjoyed bringing you great offers from the best local merchants.
If you have any questions, you can reach us at firstname.lastname@example.org.”
This comes as no big surprise as there has been a massive shake-out in the Daily Deals space as the gold rush wanes and reality begins to bite. According to daily deals site aggregator Yipit, close to a third of all daily deals websites in the US have shut down or been sold off. This trend is expected to continue as daily deals consumers experience deal fatigue from all the daily deals offerings in the market.
With most daily deals websites reporting that fewer people are actually taking up the daily deals sent to them, the cost of new client acquisition has sky-rocketed over the past year. Daily Deals giant Groupon, which recently had a successful IPO, has seen its marketing and operating costs go up three-fold over the last year.
One year ago the deal site had only 201 sales associates but now that number has jumped to 990. Number two social daily deals site LivingSocial has seen their sales work force jump from 191 to 700 in a similar period. Marketing budgets have also zipped up with the cost of acquiring a new customer going up from $7.99 in 2010 to $23.46 in 2011.
All these factors have seen players with limited funding and smaller war chests falling off the bandwagon as big players such as Google and Facebook quietly shutting down their Daily Deals initiatives. With this sort of heat it is easy to see why ReachLocal opted to jump ship before things got really sticky.
However, ReachLocal, through their director of corporate communications, said they were not jumping ship but merely aligning their purchase with their core business, which is providing SMB’s with business tools. Here’s an excerpt of what ReachLocal said when they bought DealOn and what they said when they shut it down:
“The rapid growth in the local deals space further demonstrates the magnitude of the shift of dollars from offline to online. We believe that local deals are here to stay, will become ubiquitous, and will become an important way for publishers to monetize local users online,” said Zorik Gordon, Co-Founder and CEO of ReachLocal. “However, we believe the challenges of deal sourcing is the biggest gating factor limiting entry and success of additional players in this market. Much in the same way we bring SMBs’ Search, Display and Social Media spend to online publishers, we see a large opportunity to play the same, central role in the deals ecosystem by becoming the premier source of deals from local merchants to publishers.”
As we have mentioned previously, ReachLocal’s acquisition of DealOn was primarily for its technology platform, not the DealOn.com consumer site. It was never our strategy to try to build a consumer deals of the day business and compete head-to-head with companies like Groupon and Living Social, but instead to leverage the DealOn technology platform to enable us to provide local commerce solutions to our SMB customers, who tend to focus on different more needs-based verticals. The DealOn.com site is not part of that ongoing strategy, and, as such, we are closing that portion of the business.
It’s clear from the two communications that ReachLocal jumped onto the Daily Deals gold rush band wagon but have realized the difficulty in procuring these deals and have had to pivot to avoid massive losses. This trend is probably going to continue until the only deals sites left are those with a critical mass of customers and sufficient funding. These few remaining sites will have to however contend with significantly reduced uptake/ traction of daily deals, both from small businesses and consumers.