Watch your back Groupon! One of your competitors is perfecting the art of the daily deal without much fanfare. In a subtle way, e-commerce giant eBay has been rolling out an online marketplace for deals on local services. Designed to compete head-on with Groupon, the new site called eBay Lifestyle Deals is being tested in several cities across the U.S., including New York, San Francisco, Los Angeles, Boston, and Washington D.C.
This latest offering by eBay is its first attempt to use discounted local services to carve out a bigger share of an expanding multibillion-dollar daily deal marketplace that has been dominated by Groupon. eBay’s new service is managed through its partnership with Signpost, which arranges Lifestyle Deals with local merchants on everything from acupuncture sessions to Zippo lighters. Once a customer clicks on the deal they want, they are directed to the standard eBay page where they must select the “Buy It Now” button to collect their package and pay via PayPal. Signpost, the two-year old start-up backed by Google Ventures, already provides deals for Google Offers.
In addition to eBay, the expanding daily deals market has caught the attention of rivals such as Google, Amazon.com and Facebook, spurring them to take on industry leaders Groupon and LivingSocial.com. Market research firm BIA/Kelsey, which tracks the local media industry, predicts that the U.S. demand of online deals is on target to generate $3.6 billion in revenues by the end of this year. The group also expects daily deal spending to grow by an additional 23 percent in 2013 and reach $5.5 billion by the end of 2016.
A Tough Business in a Crowded Market
Despite the predicted growth of the daily deals market, it remains difficult for businesses to grow profitably in the competitive sector. Groupon, which started the daily deal craze in 2008, grew into a $1 billion company that employed thousands of workers. When the Chicago-based daily deals company issued its first public stock offering in November 2011, investors were eager to pay premium price for its shares, driving Groupon’s market value to $17.4 billion. However, Groupon shares have lost about three-quarters of their value since the company went public. Acquiring subscribers is even harder to do these days because an overcrowded market is being saturated with daily deals created by so many competitors.
As the daily deal market matures, the costs of operating business are soaring. Groupon hires thousands of sales reps to negotiate discounted offers daily, making its operations a much more expensive endeavor. Google and Amazon are using other deal providers to perform the legwork and keep business costs down. eBay is doing the same thing with Lifestyle Deals. However, Facebook, which chose not to make huge investments in its staff decided last month to end its daily-deals business.
“This is more competition for Groupon, but also more validation for Groupon’s business,” said Sterne, Agree & Leach analyst Arvind Bhatia in a Reuters.com article. “The market opportunity is big – that’s why you have Google, Amazon and now eBay committing themselves.”