For this Tech Tuesday, I wanted to write on perhaps the new hottest web 2.0 trend: daily deal sites. By now there are many of them and they all have certain niches, but the basic idea is the same. Every day a new product or service is offered at a heavily discounted price in a limited quantity and for a limited amount of time. There are usually some network effects built in as well; for example on Living Social if you get three of your friends to buy the same deal, yours is free.
Nice idea, nothing too creative - what's the big deal? The big deal is that these companies are doing unimaginatively huge business. Living Social has raised $50 million and just announced they have 10 million users. Groupon, the first and most successful company in this space, is reported to have turned down a $1.7 Billion offer from Yahoo to buy the company. My favorite, the luxury focused Gilt Group, has raised $83 million.
Why? Sign up and you will find out. The sites are completely addicting. The deals are delivered to your inbox, so all of a sudden you find yourself buying $18 worth of Gelato at 6:30am, or that winter coat you've always wanted on a 100 degree day in July (yes, I have done both). Local businesses like small cake shops are able to do $20,000+ of business in a single day and closeout items rarely make it until the afternoon.
While I can totally understand these huge revenues, I'm still not sure I can see the huge valuations though. There are literally NO barriers to entry in this space. The sites are simple. Clones are popping up every day and the only way to win is to have the best inventory of deals. That is great for us as consumers, but must be a bit scary for those invested at these high valuations.
With a hot business model and low barriers to entry, the obvious question is: would this work for watches? I would imagine that it would. Who wouldn't make an impulse buy here or there if a great watch showed up in your inbox at a great price? The major problem would be securing the inventory. Any strong brand will not want to participate because it cheapens their brand and their other products. Similarly, if a retailer were to do this with their inventory, the brands would shut them down immediately. The only way I could see it working would be with pre-owned and vintage watches, but margins are often so slim that I'm not sure there is much room for discounting.
That being said, I would not be surprised if a daily watch deals site pops up at some point, and I for one am looking forward to it (as long as they never have an MB&F!).