Original Central Mass. ‘Daily Deals’ Website Revamps Business Model
Tom Breen, founder of The Local Deal, said he decided to change his business model in March to something he describes as more traditional advertising.
Pioneering deal-of-the-day websites Groupon and Living Social have fallen on hard times over the past year, losing either employees, money or both.
Part of that trend can be explained by the experience of Audrey Valley, office manager at 64 Highland Dental in Worcester.
Several years ago, Valley's co-worker at a previous employer signed up for a daily deal package for discounted dental services. The basic model: The daily deal website publicizes and sells the deal though its massive email subscriber list, and the business splits the revenue for the deal day with the website.
It got plenty of customers in the door, Valley recalled, but the crowd was difficult to manage, and they didn't seem particularly prone to being upsold. In addition, she said Groupon paid the dental office its 50 percent in installments, which took several weeks.
“In the end, we really ended up losing out on the whole thing,” she said.
It's a complaint merchants around the country have made. Groupon stated in a 2011 financial filing that paying in installments helps the company maintain its cash flow. The Wall Street Journal also reported that year that the practice helps deter businesses from using Groupon for a quick cash infusion before going out of business and not being able to honor deals those businesses have already sold through Groupon.
That may be, but Valley's experience left her with the impression that the deal badly undervalued the dental work being offered. But now, Valley has tapped the services of a Worcester-based entrepreneur who recently converted to a new business model.
Tom Breen, founder of The Local Deal, said he has seen the writing on the wall for a while when it comes to the daily deals model.
From 2009 until just recently, Breen was offering the very same types of deals to Central Massachusetts consumers and businesses through his company's website. He has been in the gift certificate sales business for two decades. He started door to door, and in 2009, launched The Local Deal, a web-based business with a Groupon-like model. Chicago-based Groupon was just starting to spread to a handful of states at the time it launched.
“We had a 13-month head start on Groupon at the time,” Breen said.
That was good and bad — good because there was no local competition for more than a year; bad because most didn't seem to grasp the concept.
But soon enough, radio stations and brick-and-mortar merchants were trying to complete with the Groupons and Living Socials. Breen said “deal fatigue” started to set in and knew it was a matter of time before the model devolved into websites warring over revenue percentages, with sites offering lower and lower discounts.
That's already begun to happen, he said. So, in March, he decided to change his model to something he describes as more traditional advertising.
The site now offers an annual subscription package to businesses that want to advertise their coupons, news, daily specials and other information. Like virtually all deal websites, consumers can sign up through their email for free. Breen didn't want to disclose how many subscribers he has.
The site offers advertisers an introductory 14-month subscription for $399, though Breen said he's tweaking ideas for various packages.
Breen talked to clients for about a year before the re-launch. He said many appeared to favor to a model that would be less about bringing in coupon clippers and giving up half their sales money, and more about informing consumers about deals available to anyone in the area. Many of the deals on the site — and there are already quite a few — don't require the customer to pay the website, but rather to just print the coupon and bring it to the merchant.
There are deals from restaurants, salons, dentists, golf courses and auto dealers sprinkled throughout.
For 64 Highland Dental, the subscription has already paid for itself. Valley said several customers came through the door during the first week of her office's $2,499 package for an implant, an abutment, an implant crown and a CT scan, a package the business says usually goes for nearly $4,400.
Breen still has plenty of competitors, such as the big daily deal sites and local promotions through radio stations. There's also print advertising, social media and programs like the Woo Card in Worcester. But Breen hopes to eventually attract investors to bring the model to other cities.
“I believe this is what's next in local advertising,” he said. “So we're still ahead of the curve.”
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