Groupon Clones: Still viable or dead on arrival?

With Groupon clones lining the digital streets like “GIRLS GIRLS GIRLS” signs in the seedy parts of Reno, you’d think the model was an easy one to replicate.

Facebook did it; Yelp did it; now Google is doing it. But when big names start pulling out, we have to ask: is this business harder than it looks?

There are a couple of ways to operate a deals site. First, you can offer deals you have worked out yourself. In simplest of terms, a company operating under this model directly contacts a targeted business, decides on the revenue share and pushes out that deal to its userbase. Groupon operates under this approach.

Second, you can aggregate deals from other deals sites and publish them on your own website. Facebook started its deals program out using this model; later, it switched to Groupon’s formula.

In theory, these deals are a mutualism: free marketing and new customers for a share of the profit. Daily deals have made companies like Groupon successful enough to file for an initial public offering.

But as with most transactions, there’s a hidden cost. Facebook felt it with the recent decision to drop out of the deals scene. Yelp took a step back on its deals program as well. Does Google Offers, the search behemoth’s own daily deals offering, stand a chance?

Greg Sterling, the founding principal of Sterling Market Intelligence, sees the challenges as two-fold: competition and business structure.

“Groupon and LivingSocial blazed the trail,” Sterling told VentureBeat in an interview. “And then all these clones would use as a sales tool lists of businesses that use Groupon deals.”

Then they call these businesses and then ask them to run a deal with them.”

In essence, the deals ecosystem is plagued with vultures. Smaller, competing daily deals sights scrape Groupon’s client list for poaching opportunities because these businesses have already shown interest in using the deals model. It eliminates the grunt work of finding those willing and able to support a deal.

And the competitor landscape isn’t getting any smaller. It feels like a new deals site, broad or niche-focused, appears every day. There are deals sites for moms, dogs, cats, gay people, green people, Jewish people and a slew of geo-specific communities. It’s enough to make you reminisce about those late nights waiting for your midnight Woot.

As for the structure of deals, as Yelp chief executive Jeremy Stoppelman said in a blog post on the subject, “It hasn’t been all rainbows and unicorns.” High revenue shares, such as Groupon’s 50/50, leave small businesses with a chunk of change missing while product flies out the door. So why agree to the deal in the first place?

The high influx of new customers should bring repeat customers, but not every business is experiencing new business with the increased exposure. A 2010 study of 150 merchants, performed by Jesse H. Jones Graduate School of Business at Rice University, showed that 32 percent of these Groupon clients were unsatisfied and unprofitable.

Lacking repeat business may be due to the fact that deal seekers are deal seekers. They may have never considered a water polo class or trendy restaurant if the deal wasn’t available.

So what of the big companies like Facebook, Yelp and Google that have opened (and closed) their own Groupon competiors?

Yelp

Yelp launched its deals program last year and announced in a blog post yesterday that it is cutting its deals staff in half from 30 to 15.

“Over the course of the last year, we have tested several iterations of the daily deal,” said a Yelp spokesperson in an email to VentureBeat. “[We] have recognized that small businesses want to participate in sustainable marketing campaigns that give them exposure to new consumers who will likely become loyal or repeat customers. Yelp Deals is one offering in our portfolio of ad products that we present to small businesses; it is not our core product.”

Perhaps herein lies the problem. Finding businesses, copy writing offers, fielding customer service inquiries, managing revenue share and more all add up. Running a deals site is a business in and of itself.  According to the same blog by Stoppelman, Yelp cut its deals division in half because the employees were focusing on both deals and local ads. This may have been an effort to streamline and cut distractions.

Facebook

Facebook started their deals program in April 2011, only to shut its doors five months later.

The social network told VentureBeat in an e-mail last week, “After testing Deals for four months, we’ve decided to end our Deals product in the coming weeks. We think there is a lot of power in a social approach to driving people into local businesses. We’ve learned a lot from our test and we’ll continue to evaluate how to best serve local businesses.” But deals just wasn’t able to make the cut.

Sterling , like most, didn’t see the sudden departure coming.

“I was surprised, frankly, that Facebook pulled back and Yelp after that,” he said, referencing Yelp’s recent announcement to cut its deals team in half. “Because the minute Groupon showed up on the scene I thought, ‘This is exactly what Facebook could do… and [do it] more successfully.’”

Facebook had the audience and marketing capabilities to take some market share away from Groupon, but it pulled back.

“It was almost as thought they had some initial data from the market and then they [started the program], looked around and decided, ‘This isn’t for us,’” said Sterling.

Google

Google Offers went live in June and is still in a beta testing phase, only available in Portland, the San Francisco Bay Area and New York City. Despite its competitors backing down, the company seems to be pushing on.

“This beta is just the beginning,” a Google spokesperson told VentureBeat.

On Wednesday, Google showcased one of its deals on its front page, spurring talks that the search company may be trying to take on Groupon, the company Google tried to acquire for $6 billion in 2010.

According to Sterling, Google needs to really focus in order to survive up against a mushrooming competitor landscape and challenges of the business itself.

“I think that Google, if it got the resolve, could be one of the leading players in the space. It’s a question of how much commitment they’re going to make,” he said. “There’s a question around their commitment to building a sales force to scale.”

Google may already have a leg up, however. “Google may be taking less of a margin than competitors and subsidizing like they did early on with AdSense.” Sterling did specify this was a rumor.

“This is a very competitive market,” the Google spokesperson added, “For businesses, an important distinction from other local deals providers is that the revenue from pre-paid Google Offers comes to them within a week. We deliver 80 percent of the revenue from running a Google Offer to the business within 4 days and the remaining 20 percent less refunds within 90 days.”

Still viable or dead on arrival ?

According to Larry Handen, investor in European deals site Groupalia and managing director at Insight Venture Partners, there is a certain discipline needed to make a deals site succeed. Speaking of Groupalia’s senior leadership, he told VentureBeat, “They’re thinking in terms of quarters and years, but they are acting in terms of campaigns and hours and days. In this market, that’s exactly what you need.”

What he is saying is simple. You need a broad outlook, with the dedication to handle day-to-day challenges to succeed. With distractions surrounding big companies like Yelp, Facebook and Google, it may be hard to stay focused. Keeping a trained eye, however, could lead to the deals win.

“It’s a bit overwhelming,” Sterling said,  “But it can work very well for certain kinds of businesses.”

[First image via Gunnar Pippel/Shutterstock]

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Tags: coupons, daily deals

Companies: Facebook, Google, Groupon, Yelp

People: Greg Sterling, Jeremy Stoppelman

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Facebook Page for Jesus, With Highly Active Fans

The doctor, Aaron Tabor, 41, grew up watching his father preach at churches in Alabama and North Carolina, and his Facebook creation is called the Jesus Daily. He started it in April 2009, he said, as a hobby shortly after he began using Facebook to market his diet book and online diet business that includes selling soy shakes, protein bars and supplements.

For the last three months, more people have “Liked,” commented and shared content on the Jesus Daily than on any other Facebook page, including Justin Bieber’s page, according to a weekly analysis by AllFacebook.com, an industry blog. “I wanted to provide people with encouragement,” said Dr. Tabor, who keeps his diet business on a separate Facebook page. “And I thought I would give it a news spin by calling it daily.”

Facebook and other social media tools have changed the way people communicate, work, find each other and fall in love. While it’s too early to say that social media have transformed the way people practice religion, the number of people discussing faith on Facebook has significantly increased in the last year, according to company officials.

Over all, 31 percent of Facebook users in the United States list a religion in their profile, and 24 percent of users outside the United States do, Facebook says. More than 43 million people on Facebook are fans of at least one page categorized as religious.

Much of the conversation on social platforms is fostered by religious leaders, churches, synagogues and other religious institutions turning to Facebook, Twitter and YouTube to attract followers and strengthen connections with members. What is new is that millions of people are also turning to Facebook pages, like the Jesus Daily, created by people unaffiliated with a religious leader or a specific house of worship. With 8.2 million fans, the Jesus Daily counted 3.4 million interactions last week, compared with about 630,000 interactions among Justin Bieber’s 35 million fans, the AllFacebook.com analysis shows. The Bible Facebook page, run by the United Bible Societies in Reading, England, has eight million fans and also beat Mr. Bieber with about a million interactions.

Amid pages for Lady Gaga, Texas Hold’em Poker and Manchester United, Joyce Meyer Ministries is in the top 20, along with another page devoted to Jesus Christ, and the Spanish-language page Dios Es Bueno, or God Is Great. And Facebook got its first Bible-themed game recently, the Journey of Moses.

But the increase in the number of people finding faith communities via social media platforms provokes the question of what constitutes religious experience and whether “friending” a church online is at all similar to worshiping at one.

Although Pope Benedict acknowledged in a recent statement that social networks offered “a great opportunity,” he warned Roman Catholics that “virtual contact cannot and must not take the place of direct human contact with people at every level of our lives.”

The Rev. Henry G. Brinton, senior pastor of the Fairfax Presbyterian Church in Fairfax, Va., who writes a blog and whose church uses Facebook, said that it was important for people to gather to “experience the physical sensation of water in Baptism, the chance to hold hands in a service of worship or greet one another in the passing of the peace.”

That’s not possible through online worship alone, he said. “I am not saying there isn’t value to the connections that get made through social networking. But they can never replace the importance of people being together physically in the service of worship.”

Perhaps the biggest opportunity for religious leaders and institutions is finding and keeping new members, according to the Rev. Kenneth Lillard, author of “Social Media and Ministry: Sharing the Gospel in the Digital Age.” He said Facebook and other social media tools, including Google Plus, YouTube and Twitter, represented the best chance for religious leaders to expand their congregations since the printing press helped Martin Luther usher in the Protestant Reformation.

“I am looking at social media doing the same thing for today’s church,” said Mr. Lillard, a Baptist minister from Maryland.

Since making a focused effort to use social media three years ago, Rabbi Laura Baum, of the Congregation Beth Adam in Cincinnati, said the synagogue had reached thousands of people around the world and significantly expanded the number of people participating in Shabbat services on Friday evenings. They offer readings and services via live videos on Facebook, allowing Jews from all over the world to join in prayer and in conversation on Facebook, Twitter or Livestream.

“There are some people who will always prefer the in-person, face-to-face experience, who love being in a room with other Jews and smelling the freshly baked challah. And some people will prefer being online,” said Rabbi Baum, 31, who is one of the leaders of OurJewishCommunity.org. “There are those people who prefer to check out our tweets on their phone or listen to our podcast. I don’t think the use of technology needs to be for everybody. But we have found a community online. Many of them have never felt a connection to Judaism before.”

For some, the Jesus Daily has become a faith community online, where people share their troubles and provide and receive words of support. “Jesus Daily reminds me every day that I am not alone,” said Kristin Davis-Ford, a single mother and full-time student in Houston. “Every single prayer request I have posted has been answered,” she said, “and I know it is the power of God’s children, coming together and standing in agreement.”

Dr. Tabor, a medical researcher, drafts most of the posts himself, using some marketing techniques learned from his successful diet business, which he now pitches on QVC. He recently posted photographs of baby animals, asking people to name “God’s Little Helpers.” By noon, more than 147,000 people had “Liked” the post. And names for the baby animals were among the more than 7,000 comments, including this one from Steve Karimi, writing from Nakuru, the provincial capital of Kenya’s Rift Valley province: “I love Jesus Daily. Truly inspirational.”

Dr. Tabor is not sure what the future holds for the page, he said, mentioning an online television global ministry. For now, it is still his hobby.

“I want it to be about encouragement,” he said. “There are so many people battling cancer, fighting to keep their marriages together, struggling to restore relationships with their children,” he said. “There are people out of work, at the end of the line and I just want the Jesus Daily to be a central place where they find encouragement, no matter what battle they are fighting.”

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