We recently covered the shuttering of Amazon Local, a daily deal service that the e-commerce giant launched, with operations across the Triangle. This news came after other news from the industry: Groupon closing non-American markets, and both Groupon and Living Social laying off their employees.
I caught up with Jim Zidar, co-founder and CEO of popular Raleigh company Stealz, to discuss this latest trend, and to ask how Stealz was considering their model upon hearing all the recent news.
Jason H. Parker (JP): Given the shutdown of AmazonLocal, does this signal the end of the popularity of the “Daily Deal” and companies that operate with that model?
Jim Zidar (JZ): I certainly wouldn’t say Amazon Local shutting down signals the end of Daily Deals. There will always be a market for Daily Deals because business owners are always trying to drive traffic. The Daily Deal is a great incentive for a new potential customer because they get a significant discount on a product.
I think Amazon Local shutting down is a combination of the following 3 things:
- Being a large corporation
- Trying to focus on something outside its core competencies
- Being late to the game
As a publicly traded company, you feel the pressure to add new revenue streams–constantly–so I understand Amazon’s logic. Ultimately, it didn’t work out because consumers know Amazon as an online shopping/e-commerce platform and Amazon was way too late to the game to create a lasting and sustainable department.
This is nothing new. Google, a search engine, was late to the social media game and ultimately failed to gain momentum with Google+. Microsoft was very late to getting into the cell phone space, and it’s cost them as well.
JP: What’s happening in this market? With customers–both businesses and individuals?
JZ: The Daily Deal space has undergone a big transition over the past 3 years. Back in 2012, there were tons of restaurants using Groupon. Fast forward 3 years, and you’ll rarely see restaurants on the big Daily Deal sites. Now, the majority of Daily Deals that consumers have access to are related to spas or travel.
I believe losing the restaurants was the ultimate demise of the big Daily Deal sites. There’s a very large demographic looking for food discounts (everyone has to eat!) and a much smaller demographic looking for spa and/or travel deals.
So why did restaurants stop using Daily Deals? The math simply didn’t add up. Let’s say you own a sandwich shop and sell a large sub for $10.00. If you decided to run a Daily Deal, you had to sell your sandwich to users for $5.00. The problem is that of that $5.00 transaction, the Daily Deal comapny typically took 50% of the revenue ($2.50) and the sandwich shop took the remaining $2.50. As a result, you’ve sold a $10 sandwich for $2.50.
Daily Deal sites were effective at driving traffic, so business owners were willing to take a loss in that transaction in order to get their product in front of consumers. The Daily Deal sites’ pitch to these business owners (like your sandwich shop) was, “we’ll get your name out there and people will try your product and come back again if they like it.” This ended up not being the case. The consumers were more loyal to the Daily Deal site (whether it was Groupon or Living Social) at the end of the day, so they would just hop from business to business, rarely paying full price for anything. The Daily Deal consumers very rarely made return visits to pay full price for a product.
JP: How is what y’all are doing at Stealz different? How are you impacted with this trend?
JZ: Ironically, the Daily Deals trend is what led to the creation of Stealz. Back in 2011 (the height of the Daily Deals frenzy), the other Stealz co-founders and I consulted with more than a thousand small business owners that were mostly restaurateurs. These business owners had two big challenges at the time:
- How to effectively engage with their customers through social media
- How to incentivize customers to return after redeeming a Daily Deal
It was really these business owners and their pain points that shaped the concept of Stealz. We concluded that if we could encourage customers to promote a business through their personal social media accounts and get deals in return, it’s a win-win for both parties. Since we wanted to encourage repeat visits, we created a point system within Stealz so customers can earn better deals the more they visit.
I think Stealz has been very effective in executing this unique model. Evidence lies in our growth and diverse list of partner businesses (McDonald’s, Taco Bell, Applebee’s, KFC, Dairy Queen, Zaxby’s, Anytime Fitness, and many other large chains).
JP: What are companies in this space doing to pivot or drive success?
JZ: The large Daily Deal companies have been active in the acquisition space to drive new revenue streams and break into new markets. Last quarter, Groupon acquired OrderUp, one of the fastest growing online ordering / delivery platforms for restaurants. It’s very difficult for consumer applications to execute a successful pivot because you have to re-educate a user base that already has a preconceived understanding of your platform.
JP: Any concerns about your model?
JZ: The one macro-level concern I have about the Stealz model is continuing to deliver value to our user base. Next week, we’re launching a survey feature for users and businesses. Customers will be able to leave feedback about their visit to earn more points they can use towards deals. As a startup with limited resources, it’s always challenging to move as quickly as you’d like, but we continue to push our product forward to implement new ways to better accommodate our consumers.
