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Crain’s New York Business October 10, 2011 Byline: JUDITH MESSINA Seven weeks ago, with the help of $1.6 million from a star-studded list of investors, including IA Ventures, Google and Qualcomm, Manhattan-based ThinkNear launched a daily deal business.

Given the cutthroat competition in the 3-year-old industry–79 companies offer deals in New York City alone, including 30 based here–and the growing sense of consumer and merchant fatigue, ThinkNear’s launch almost seems an audacious move. The troubles of industry leader Groupon, which has come under fire for its high costs and unorthodox method of counting revenues, has only cast more doubt on the viability of the deals business. site groupon san diego

Not so fast, say executives and investors. The sites that have launched here in the past year aim to establish themselves as companies different from Chicago-based Groupon and Washington, D.C.-based LivingSocial. Rather than competing in the daily deal market, they are targeting narrow, high-value market segments or structuring themselves as solutions for merchants struggling with seasonal and even hourly variability in their businesses.

Nor do the new sites worry that an improving economy will make merchants less enthusiastic about offering discounts. The new sites’ value, they say, is as “yield managers” helping businesses manage normal highs and lows.

Next big thing “[Deals] basically have offered one of most effective promotional vehicles for local businesses,” said Ben Sun, chief executive of Launchtime, an incubator and investor in three daily deal companies, including a version of Groupon based in Korea. “It is going to be so big that you’re going to see a lot of different variations to support this market.” It’s hard to tell just how much trouble the broad-swath companies are in. After a down month in July, Groupon came back in August with a 13% increase in month-to-month revenues, though archrival LivingSocial saw a second down month, with revenues dropping 3%. Industry revenues as a whole were up an estimated 9% over July, according to Yipit, a Manhattan-based daily deal aggregator and research firm, as players moved heavily into new sectors. Travel and tourism, home and auto, nightlife and entertainment as well as deals from dentists and Lasik surgeons are all segments that are seeing rapid growth, according to Yipit.

Still, Groupon’s cancellation of its initial public offering road show, the departure of its second chief operating officer in a year, and the restatement of its revenues rattled would-be investors and showed just how difficult it is to succeed in the business. Few sites are profitable, and a recent report by Manhattan research firm CB Insights that tracked 72 acquisitions of daily-deal companies found valuations dropping between 36% and 40% because of too many look-alike companies, oversupply in general and concerns about the viability of the business model. While Amazon, Google, The New York Times, Hearst, CBS and others have jumped into the space, a third of daily-deal companies nationwide have shut their doors or been acquired, according to Yipit. see here groupon san diego

Facebook has gotten out of the business. Yelp, a San Francisco-based site that reviews local businesses in 42 markets, has cut back on its daily-deal offerings. In New York City, two daily dealers have been acquired since August: Gaggle of Chicks, a site for mothers, sold itself to San Francisco-based Juice in the City, and Scoop City was acquired by another New York daily dealer, BuyWithMe.

“You’re already seeing consolidation,” said Roger Ehrenberg, managing partner of IA Ventures and an investor in ThinkNear and Yipit. “Eventually you’ll see a massive contraction in the number of sites functioning on an independent basis.” Targeted approach Deal aggregator Yipit narrows its market by aggregating offers from 698 daily-deal purveyors in 50 U.S. cities and sending subscribers only the kinds of deals they’ve expressed a preference for. Founded in early 2010, it has 350,000 subscribers. “We make sure every offer is relevant to you,” said co-founder Jim Moran.

“You’re competing for user attention,” said Cassie Lancelotti-Young, marketing vice president of Savored, a restaurant deals site. “It’s very hard to differentiate your brand in the current deal space.” Though they won’t share details, many sites recognize that the business has limitations and are looking to extend their brand outside the daily-deal space. Yipit, for one, has a burgeoning side business in analyzing and selling the massive amounts of data it collects from daily deal sites. Groupon is doing more targeting, and it just launched Groupon Now, which pushes out deals in real time to mobile phones, and Groupon Goods, which offers discounts on furniture, housewares and other goods without daily time limits.

“I don’t think anyone views daily deals as the beginning and end of the business model,” said DoodleDeals’ Ms. Sinclair-Kay. “The remaining players will pivot to where the daily deal will be one marketing tactic in an arsenal of things to offer for local businesses.”