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Groupon grew 6% in November, outpacing the broader North American Daily Deal industry

Groupon benefited from record performance in its travel and consumer products segments early in November, while LivingSocial saw a 5% decline during the month

The Thanksgiving Holiday led to significant declines for all major players towards the end of November

Thanksgiving Holiday Slows Industry Growth

November’s Yipit Data Report reveals the North American Daily Deal industry, adversely affected by seasonal factors related to the Thanksgiving holiday, experienced marginal growth in November – industry gross billings grew an estimated 2% from October. 

Groupon Outperforms Broader Daily Deal Industry

Groupon outpaced the industry in November, growing 6% during the month. Groupon generated $154 million in North American gross billings in November, up from $145 million in October.

Groupon experienced significant weakness due to the Thanksgiving holiday – it was down 46% in gross billings during the fourth week of November, relative to the month’s third week.

Despite this decline, Groupon’s heavy holiday deals push through “Grouponicus,” the company’s holiday deals segment, fueled strong performance earlier in the month. Groupon Getaways, the company’s travel product, and Groupon Goods, the company’s consumer goods product, both increased more than 50% in gross billings in November, each benefiting from its deals being featured through “Grouponicus.”

LivingSocial Declines 5% in November

LivingSocial experienced an estimated 5% decline in North American gross billings in November, dropping from $54 million to $52 million. LivingSocial too saw a double-digit dip during the month’s fourth week, relative to the third week of the month; however, LivingSocial did not see the same level of performance as Groupon did earlier in the month.

Email data@yipit.com to Subscribe to The Yipit Data Report

The Yipit Data Report is provided to subscribers following the end of each month. An excerpt of the November Data Report is provided below. The full report was provided to subscribers in early December and also contains:

• Groupon performance by product (Local Deals, Getaways, Goods, Live, Now!)
• Market share breakdown of the major players
• Detailed performance data for each of the key players, including LivingSocial, AmazonLocal, Travelzoo, Google Offers, and Gilt City
• Key performance indicators, such as number of deals and revenue per deal, for each of the key players
• Industry trends by category and deal price point

Follow @YipitData on Twitter for the latest industry trends and analysis by the Yipit Team.

Unaiz Kabani is an analyst for Yipit Data, which provides estimates of Daily Deal Industry performance based on proprietary deal-tracking technology, rigorous testing of historical data, and industry insight. This analysis does not contain information related to mobile-based deals (i.e. Groupon Now! or LivingSocial Instant).

Note: This post was updated on 12/12/2011. Please see the bottom of this post for more information.

While Groupon’s stock surged over 50% post-IPO, it has been stumbling as of late – currently, it is off nearly 15% from its IPO price of $20. Since its IPO, Groupon has experienced flattening gross billings growth in North America.

October’s Yipit Data Report reveals Groupon grew 2% in the first month of its fourth quarter. Groupon’s growth was driven by the company’s travel product, Groupon Getaways, which saw nearly 60% of gross billings growth.

Groupon generated $147 million in North American gross billings in October, up from $144 million in September. Getaways now constitues more than 9% of Groupon’s North American business.

Impacted by Groupon’s performance, the overall North American Daily Deal industry showed less than 1% growth in gross billings and 18% in the number of deals offered from September.

LivingSocial’s gross billings declined 8% to $55 million in the month. However, after excluding its Whole Foods deal in September, which generated $10 million of gross billings, LivingSocial’s gross billings would have grown 11% in October.

AmazonLocal jumps to become a top-three player with $6 million in gross billings in October, while Google Offers still represents less than 1% of the overall industry.

Get Access to Yipit’s Proprietary Data

An excerpt of the October Data Report is provided below. The full Monthly Data Report also contains:

• Groupon performance by product (Local Deals, Getaways, Goods, Live, Now!)
• Market share breakdown of the major players
• Detailed performance data for each of the key players, including LivingSocial, AmazonLocal, Travelzoo, Google Offers, and Gilt City
• Key performance indicators, such as number of deals and revenue per deal, for each of the key players
• Industry trends by category and deal price point

To subscribe, please visit yipit.com/data and contact the Yipit Data team at at data@yipit.com.

This post was revised based on new information related to Groupon’s purchase count reporting. For any questions, please reach out to the Yipit Data team at data@yipit.com.

Follow @YipitData on Twitter for the latest industry trends and analysis by the Yipit Team.

Unaiz Kabani is an analyst for Yipit’s Data Product, which provides past offer detail and competitive intelligence to the Daily Deal Industry.

When we first launched Yipit a year and half ago, people always asked us if we had a mobile app.

But, at the time, there were only five active deals in New York. A mobile app for five deals seemed like overkill.

Times have certainly changed for the deal industry and for us at Yipit in the last year and a half.

We recently found our 1 millionth deal, aggregated our 750th deal service and expanded to our 100th city.

In New York, for example, there are currently 203 active deals from 46 sources. You can do almost anything:

• Go out to dinner? 33 offers
• Get a massage? 6 offers
• Try Yoga? 5 offers
• Teeth Whitening? 3 offers
• Learn to play guitar, act, or fly a helicopter? There’s an offer for that

With so many offers, you can now shop your city from your desktop.

And, as of today, you can now shop your city from your phone.

Download the free Yipit iPhone app today.

Groupon is now in the second week of its IPO roadshow, where it is pitching prospective investors on the growth of its business.

Groupon’s new products are major components of its growth story. In the third quarter of 2011, Groupon expanded from offering just deals for local services to those for travel, event tickets, and consumer products with the launch of Groupon Getaways, Groupon Live, and Groupon Goods.

Slide from Groupon online roadshow via www.retailroadshow.com

New Products Driving Growth

Although the performance of Groupon Now! has been disappointing, Groupon’s other key products that launched in Q3 have done very well.

• Groupon Getaways: Getaways generated $25 million in gross billings during the quarter, and surpassed LivingSocial Escapes, formerly the leading travel deals product, in just its first full month of operation.
• Groupon Live: Groupon’s partnership with LiveNation to sell event tickets collected $9 million during the quarter.
• Groupon Goods: Groupon quietly launched Goods, offering consumer products, after the success of Groupon Products in several international markets. Goods accumulated over $2 million in gross billings in only one week of operation during the quarter, putting it on pace to be a $100 million business.

In Q3, these products collectively contributed $36 million in gross billings – that is already 9% of Groupon’s total North American gross billings after the products contributed nothing in Q2.

Slide from Groupon online roadshow via www.retailroadshow.com

Groupon highlights the importance of these products in its roadshow presentation. It indicates that while Getaways, Live, and Goods will continue to grow, so will the core local deals product.

Masking Decline in Core Local Deals

However, Groupon’s core local deals business declined in the most recent quarter. Groupon grew 8% in North American from Q2 to Q3 because of these new products, but its core local deals business actually dropped 3%. 

 If Groupon’s growing subscriber base is taken into account, the recent decline of its local deals business is even more troubling. Gross billings per subscriber for the overall business declined 14% during the quarter, while gross billings per subscriber for the core local deals business declined 22%. 

Why is Groupon’s Core Local Deal Business Declining?

There are a few reasons.

• Cannibalization: The new products are often being featured in the same emails and Groupon pages that previously only displayed local deals. There is likely an impact from the new products simply cannibalizing sales from the core local deals product.
• Seasonality: Q3 coincides with the slow summer months, when many potential customers are on vacation and less likely to be checking their email each morning. Groupon’s drop in North American gross billings in July from June was primarily the result of the July 4^th holiday weekend.
• Competition: Google and Amazon recently introduced their local deals offerings and rapidly expanded in Q3. By September, Amazon had already become the fourth-largest daily deal provider, only trailing Groupon, LivingSocial, and Travelzoo.

Can “Smart Deals” Reverse this Trend?

While Groupon initially experimented with personalization of deals late in 2010, it only recently began implementation of its new “smart deals” initiative, which attempts to better match specific deals to specific subscribers. In recent weeks, Groupon updated its user profile interface to better identify the types and locations of deals that most appeal to each specific customer.

Groupon believes that its recent efforts to better match specific subscribers with the deals they are most likely to buy will increase conversion rates and reverse the trend of declining revenue per subscriber.

The launch of Groupon Reserve, which targets higher-end subscribers by offering premium experiences, will further help Groupon segment its customer base and increase its revenue per user.

Successfully implementing such “Smart Deals” should increase Groupon’s overall share of customer wallet and help reverse the recent decline in its core local deals business.

Implications of Product Expansion

CEO Andrew Mason often points to Groupon’s huge local salesforce as one of the company’s greatest competitive advantages over potential rivals, such as Google and Amazon. As Groupon moves into product categories that do not require such an expansive local salesforce, Groupon may have fewer competitive advantages.

• Fewer competitive advantages: While Groupon dominates the local deals market and is able to use its leading position to extract higher margins, it does not yet dominate travel, tickets or general e-commerce. Groupon faces competition in these segments from successful existing companies, such as Amazon and Priceline. Going forward, it appears that Groupon will be generating an increasing percentage of its revenue from products where it faces more established competition.
• Lower commission rates: By partnering with the likes of Expedia, LiveNation, and a host of e-commerce partners, Groupon receives lower commission rates from these new products than it does from local deals. Essentially, lower-commission sales from these new products are replacing higher-commission local sales, which is why Groupon’s average commission rates are falling.
• Better operating margins: Deals from the new products are generally higher priced and, in the case of Getaways and Goods, can be distributed nationally. Groupon’s average gross billings from a Getaways deal is $95k compared to $11k for its average local deal. Therefore, sales costs as a percentage of gross billings per deal are substantially lower for these deals than for core local deals, potentially counteracting the adverse effect of lower commissions on the bottom line.

Given Groupon’s huge existing subscriber base, product and category expansion represent a great opportunity to better monetize each subscriber and increase share-of-wallet.

While Groupon will likely see continued growth from the addition of new products, prospective investors will be looking to see if increased personalization can reverse the decline in Groupon’s core local deals product.

Get Access to Yipit’s Proprietary Data

Yipit tracks the performance of Groupon, LivingSocial, Travelzoo, Google Offers, Amazon Local and hundreds of other daily deal sites. Yipit licenses its data to leading investors and daily deal companies to provide real-time updates of competitor performance. To access Yipit’s data – including information on Groupon’s October performance, please contact data@yipit.com.

Follow @YipitData on Twitter for the latest industry trends and analysis from the Yipit team. 

Unaiz Kabani is an analyst for Yipit Data, which provides past offer detail and competitive intelligence to the daily deal industry and investors.

One of the biggest complaints users have had about Groupon is that the deals can be of low quality.

Today, they’ve launched a high-end service called Groupon Reserve that should address some of those critics.

An email was sent to select subscribers in New York saying:

As a member of Reserve, you will occasionally receive exclusive offers for premium experiences, like today’s offer to Bice. Hailed by the New York Times as “the handsomest Italian restaurant in town,” Bice serves up urbane Italian cuisine in an elegant dining space.

Their first deal in New York is a $70 three-course tasting menu for two at Bice.

High-End Daily Deals

GiltCity is the largest player offering high-end daily deals. Though, more recently, LivingSocial also launched LivingSocial Gourmet, a new invitation-only, high end service offering select restaurant deals.

It’s a smart move for Groupon to offer high-end deals as a way to further segment their user base and, hopefully, increase the amount of revenue they generate per user.

Don’t Want to Wait for Reserve?

If you weren’t invited, you can actually access the New York deal here.

With Groupon’s IPO roadshow kicking off on Monday, Groupon executives will be spending the next two weeks busily pitching investors on the future prospects of their company.

Groupon recognizes that with the growth of its core daily deals business (Groupon 1.0) already slowing, the company needs a new source of growth to justify its $10bn+ valuation – a Groupon 2.0.

Slide from Groupon online roadshow via www.retailroadshow.com

Groupon Pitching Now! as the Future

Groupon pitches itself to investors as a “local e-commerce marketplace” rather than a daily deals company and as Groupon CEO Andrew Mason clarifies in the company’s roadshow presentation, “Groupon Now! is that marketplace”. Groupon Now! is Groupon 2.0.

Slide from Groupon online roadshow via www.retailroadshow.com

Most importantly, Groupon Now! offers the hope of real barriers to entry.  Groupon’s primary competitive advantage is its sheer scale and Now! turns Groupon’s scale advantage into a powerful network effect. Unlike the traditional daily deal model, Now! has the potential to be highly defensible due to the high density of merchants and users needed for such a product to succeed.

When Now! launched in May, Groupon predicted that mobile deals would represent 50% of Groupon’s sales within two years.  In its pitch to investors, Groupon calls Now! the company’s “most important innovation to date” and claims that Now! represents a larger opportunity than Groupon’s current daily deals business.

Nearly six months after the launch of Now!, Groupon has not provided investors any indication of how Now! is performing.  However, Yipit has been collecting comprehensive data on Now!’s performance since its launch and, so far, Now! has been disappointing.

Disappointing Start

Now! generated just $1 million of gross billings in September, despite being available in 25 markets – only $40k per market.  In other words, the product that Groupon is telling investors to view as the future of the company, still represents less than 1% of Groupon’s total gross billings in North America.

From its launch in May through September 30th, Now! generated only $2.6 million of total gross billings. Given the lower commission rates from Now! deals (15%-20% compared to 40%-50% for regular Groupon deals), this means that Now! has generated less than $1 million of net revenue in the five months since its launch, representing less than 0.5% of North American net revenue for the period.

While the platform is still growing, the rate of growth is slowing considerably – a worrisome sign for such a new product.  After rapid initial growth, gross billings from Now! grew by only 7.6% in September.

Even in its strongest market, Chicago, Now! is on pace to generate less than $1.5 million of gross billings annually.

Groupon is Heavily Promoting Now!

The failure of Now! to gain traction is not due to a lack of marketing effort, as Groupon has promoted the product aggressively.

Groupon regularly emails its massive subscriber base encouraging subscribers to download its mobile app and try out Now!. It has even offered $10 of free credit towards any purchase on Now!.

Now! benefits from the fact that Groupon’s overall iPhone app is incredibly popular. It’s the most downloaded “Lifestyle” app from the iPhone app store and is the 39th most downloaded iPhone app overall (making it more popular than the apps from the likes of Netflix, Yelp, ESPN and Fandango).

However, despite millions of users knowing about Now!, having access to it, and being given free credit, they just aren’t using it.

Is Now! Scaling Back?

Now! expanded rapidly from one market in April (Chicago) to 25 by mid-July, but Now! has not launched in a single new market in over three months.

Also troubling, Groupon recently began reducing the number of merchants and deals on the platform.

For a product whose key competitive advantage is sheer scale, the fact that Groupon is already reducing the size of the platform indicates that Now! is in need of significant improvements before further expansion.

Challenges Facing Now!

While Groupon may argue that it is too early to judge Now!’s success (or lack thereof), this ignores the rapid traction that its other new products have gained. Groupon has launched three other new products this year (Groupon Getaways, Groupon Live and Groupon Goods).  Each of these products reached $2.5 million of gross billings within three weeks of launch – a milestone that took Now! nearly five months.

Clearly, the struggles of Now! represent something more than just the normal growing pains of a new product launch.  Rather, Now! faces several unique hurdles that these other products did not face.

• Pull vs. Push.  Getaways, Live and Goods are, like Groupon’s traditional local deals, examples of “push” products, as Groupon “pushes” these deals to its subscriber base via a daily email.  Now! is a “pull” product, requiring users to proactively open the Groupon app and search for a deal that appeals to them. While Groupon has clearly mastered the ability to create successful “push” products it has yet to prove to investors that it can create equally successful “pull” products.

• Unfavorable Economics: Groupon’s commission rate for Now! deals is typically 15%-20% compared to the 40%-50% commission rates for traditional Groupon deals.   Additionally, each merchant on Now! generates significantly less gross billings.  In September, the average merchant generated approximately $180 – an annual rate of just over $2,000 per merchant (assuming zero merchant churn).  At this rate, Groupon generates less than  10% of the net revenue from a GrouponNow! merchant than it does from its traditional daily deal product.

*Groupon Now! figures represent annualized gross billing and net revenue figures based on September data.  Assumes 45% net revenue margin for Groupon deals and 20% net revenue margin for Groupon Now! deals.

• Self Serve.  Given the much lower net revenue per merchant, Now! will likely only become a profitable product if Groupon can get merchants to create deals in a self-serve manner, rather than relying on its traditional labor-intensive sales process.  While many companies have tried to get local merchants to “self-serve” online marketing products, one of the keys to Groupon’s rapid success was its willingness to invest in a huge salesforce that could assist (and convince) local merchants to create deals that customers would love.  Investors may remember that Groupon’s only other attempt at a “self-serve” product (Groupon Stores) was a complete failure that was shut down within weeks of launch.

• Quality Assurance.  Groupon invests heavily in quality assurance – making sure that the merchants it features and the deals it creates will provide great experiences for its users.  Like the sales process, this has historically been a very labor-intensive process.  Given the significantly lower net revenue per merchant, it will be difficult for Groupon to maintain this rigorous level of quality assurance for each merchant.  In fact, one reason that Now! has failed to gain traction among consumers is the perception that Now! deals are typically lower quality than traditional Groupon deals.  Not only is there likely less effort devoted to making sure that Now! merchants are high-quality, the deals themselves are less appealing to consumers.  While the average Groupon deal has a discount of 55%, the average Now! deal has a discount of only 40%.

Why is Now! Important to Groupon?

Groupon is asking investors to value the currently break-even company at over $10 billion on the promises of significant future growth, despite growth from the core business slowing considerably.

Groupon needs investors to believe that Groupon Now! will transform Groupon from a daily deal company today into a highly defensible “local e-commerce marketplace” of the future. Groupon Now! may have the potential to deliver on that promise. However, several months in, it’s unclear how long delivering on this promise will take.

Get Access to Yipit’s Proprietary Data

Yipit tracks the performance of Groupon, LivingSocial, Travelzoo, Google Offers, Amazon Local and hundreds of other daily deal sites.  Yipit licenses its data to leading investors and daily deal companies to provide real-time updates of competitor performance.  To access Yipit’s data – including information on Groupon’s October performance, please contact data@yipit.com.

Follow @YipitData on Twitter for the latest industry trends and analysis from the Yipit team. 

David Sinsky manages Yipit Data, which provides past offer detail and competitive intelligence to the daily deal industry and investors.

Today, Groupon filed a prospectus to raise funds via a public offering. Over the next week, they will be pitching investors to participate in this offering.

One question these potential investors should make sure to ask: what happened to Groupon’s quarter over quarter growth rate?

Why is the growth rate collapsing?
There are a few potential reasons why their revenue growth could be stalling.

• Reduced marketing spend.  While Groupon was able to break even this quarter, they did so by reducing their marketing spend. Unfortunately, marketing spend also fuels growth by acquiring new subscribers. Groupon grew their subscribe base by 23% this quarter. The previous quarter, they grew by 39%.
• Competition. As competition in the space heats up with Google Offers, Amazon and LivingSocial, Groupon is getting crowded out of the inbox. In Q3, the number of Groupons sold grew just 1% despite Groupon growing their subscribe base 23%.
• Halted Growth in Deals Offered. In previous quarters, Groupon’s growth benefited from the fact that they were featuring more merchants in each city. In Q2, they featured 38% more merchants than in Q1. However, in Q3, they didn’t feature more merchants than Q2 and thus did not benefit from further personalization.

For a business that’s roughly break-even, Groupon will certainly need to justify a valuation over $10 billion via a growth story. Unfortunately, that growth story needs some convincing.

Vinicius Vacant is co-founder and CEO of Yipit, the leading daily deal aggregator. He also shares his thoughts on the daily deal industry via his twitter account: @vacanti. Yipit also offers a data product which provides offer detail and competitive intelligence to the Daily Deal Industry.

September’s Yipit Data Report reveals the overall Daily Deal industry  and each major player experienced significant gross revenue growth in September.

Total industry gross revenue jumped 12%, from an estimated $238 million in August to $267 million in September. The number of deals offered increased by 6%.

Groupon’s gross revenue increased 6% to $143.4 million – this implies a $1.7 billion annual run rate. LivingSocial’s gross revenue grew 32% from $44.9 in August to $59.3 million September – a $708 million annual run rate.

An excerpt of the September Data Report is provided below. To subscribe to full Monthly Data Reports, please visit yipit.com/data and contact the Yipit Data team at at data@yipit.com.

Yipit September 2011 Report_Market Growth Excerpt

Follow @YipitData on Twitter for the latest industry trends and analysis by the Yipit Team.

Unaiz Kabani is an analyst for Yipit’s Data Product, which provides past offer detail and competitive intelligence to the Daily Deal Industry.

I recently spoke at the DailyDealSummit in San Francisco on the topic of how the daily deal offerings of larger companies were performing.

I walked through Google, Amazon, Yelp and TravelZoo‘s performance and then provided suggestions on how they might improve.

During my research, one of the more surprising facts I ran across is that in the top 30 US markets, no company that reports purchase counts outperformed Groupon in August. In fact, in only 5 markets is the second largest competitor even generating 50% of the gross revenue Groupon generates.

Each of the blue dots represents a competitor to Groupon indexed to Groupon’s performance.

The closest a competitor gets is LivingSocial in Raleigh-Durham which generated 69% of the revenue Groupon Raleigh-Durham made.

As you can see no other daily deal sites offers as many deals as Groupon does. LivingSocial comes the closest in some markets offering 70% to 80% of the deals Groupon offers in those respective markets.

On a revenue per deal basis, TravelZoo does perform better than Groupon in a handful of markets like TravelZoo Orange County, but they do offer fewer deals.

One thing to note is that the analysis above is based on companies that report purchase counts. The major players that do not report purchase counts and thus were not included in this analysis are GiltCity and BuyWithMe.

I’ve embedded the full presentation I gave below.

Note that while Google struggled in August, we reported recently that Google was having a banner month in September.

Vinicius Vacant is co-founder and CEO of Yipit, the leading daily deal aggregator. He also shares his thoughts on the daily deal industry via his twitter account: @vacanti. Yipit also offers a data product which provides offer detail and competitive intelligence to the Daily Deal Industry.