Deal Sites May Be a Bad Deal for Small Businesses

We posted two weeks ago that we are skeptical about the upcoming Groupon IPO.

Last week, over at TechCrunch they ran a great guest post by Rocky Agrawal, who makes a compelling case for why the current deal-mania is bad for small businesses.  His argument is that, at their core, most of these deal sites drive non-recurring customers at a steep discount or loss to the business and great profits to the deal site.  His example:

Consider what would happen if the deal companies broke out their fees like Ticketmaster does:

Face value – $50.00

Discount – $25.00

Payment to business – $12.50

Google Offers service fee – $12.50

People would be up in arms and complain about the fee just as they complain about Ticketmaster fees.

Transparency alone would drive a race toward lower fees. Of course, none of the deal companies would want to do this. But the fact that the business model would not survive transparency should be a red flag to investors.

This alone was enough to give me pause, but he makes some very solid arguments about the kind of customer this drives, and the fact that the companies selling these deals don’t do much to help the small businesses that buy them make the most out of the experience.

Why I Want Google Offers And The Entire Daily Deals Business To Die | TechCrunch

Photo Credit: Carmela Songer

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