David Cummings on Startups

SweetJack Daily Deals Site – Bubble Sign?

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David Cummings

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Tonight as I was turning on to Peachtree Rd at West Paces Ferry I noticed a large billboard at the intersection that simply said SweetJack.com. Being the startup junkie that I am, I wondered what it was and made a note to check it out later. Well, I pulled up the site and, you guessed it, it’s another daily deal site like Groupon, Living Social, Scoutmob, and Half Off Depot.

The most interesting thing about SweetJack is that it is part of the large Cumulus Broadcasting company. One of the questions about the daily deals market has always been what’s blocking others from entering the market? A media company, that has a significant sales team and existing relationships with a variety of businesses, is uniquely suited to start a daily deals site due to the clear economies of scale from existing infrastructure.

Now, is yet another deal site (YADS) a sign of a bubble? I do think there are signs of a bubble but I have no concerns of a bankruptcy-induced crash. See, the big difference with this market, compared to the dot-com hey day of the late 1990s, is that this is a viable economic model whereby vendors split revenue with marketers that drive business to their store. It is grounded in real dollars with real consumers. Will there be significant consolidation, pricing pressure, and daily deal sites that don’t make it? Yes, just like any market that is at the will of the invisible hand.

What else? Do you think there’s a bubble with daily deal sites?

Comments

6 responses to “SweetJack Daily Deals Site – Bubble Sign?”

  1. Ray Abram Avatar
    Ray Abram

    David. I have to agree with you. My hope is that there are lessons learned from the 90’s, including the fact that making a profit is not a bad thing.

    Reply
  2. Mike Schinkel Avatar
    Mike Schinkel

    Bubble? Do bears … in the woods?

    Unless every business is already operating at 300+% margin, the daily deal trend is just a great way to devalue a brand and drive small businesses that are not already running excellently into the ground. I only hope that it does not do too much damage as it ravages the small business ecosystem.

    But I digress…

    Reply
    1. David Cummings Avatar
      David Cummings

      I agree that the current model doesn’t work with many small businesses. The revenue splits, as they currently exist, won’t last. For businesses with nearly no marginal cost, like a museum or park, the model will always work.

      Reply
  3. Stephen Reid Avatar
    Stephen Reid

    The thing about coupons is that they work best when consumer spending needs encouragement – which is very true in a recessionary environment.

    Unfortunately, we won’t always be in a recession and consumer spending will return to levels where consumers are exploring some on their own.

    http://smileysteve.net/2010/11/04/worries-about-the-coupon-craze/

    Reply
  4. Adam Avatar
    Adam

    Daily deals are a new form of advertising and customer acquisition. I don’t see why any existing business that has large distribution and can connect businesses with consumers wouldn’t want to offer daily deals. It’s simply a new ad unit – just as classified ads, commercials and print ads were before it.

    For pure-play deals sites, there are some barriers and network effects, so I do believe the market will only be able to support a handful of “Groupon clones.”

    Reply
    1. Mike Schinkel Avatar
      Mike Schinkel

      Daily deals train consumers to wait for the discounted items. If I knew that Apple would sell me a MacBook Pro for 30% off (like I know that Dell will do for a Windows Laptop) I would wait to buy a new MacBook Pro for when it is discounted. Since Apple (almost) never discounts, I go ahead and buy it at full price because that’s the best I can (typically) do.

      I ran a catalog retailer for 12 years. My VP of Sales started discounting to drive sales and it trained our customer base to wait for the discounts. It took a while to erode our position in the market but after a while when we didn’t have a really good sale, we had very few little revenue. And we didn’t have enough margin to keep the doors open for when we sold at sale prices.

      I learned the hard way.

      Daily deals are the Meth of business customer acquisition. Don’t start because if you do you’ll probably never be able to recover.

      Reply

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