Deal Sites Have Fading Allure for Merchants
Like businesses across the land, the Madison Avenue spa Wellpath tried to drum up customers by running heavily discounted coupons on deal-of-the-day Web sites. But the Internet coupon fad is shrinking faster than fat from a weight-loss laser.
Context & Ripple Effects
The daily-deal wave is meeting its first real merchant revolt. Back in February 2011, TechCrunch warned that Groupon risked becoming just another useless coupon site if repeat customers never materialized; by September, Yelp had quietly wound down its own Deals offering, as Yipit documented. The Times' account of Madison Avenue spa Wellpath — which ran heavily discounted coupons to drum up customers and found the fad shrinking fast — is the merchant-side confirmation of that warning.
The arc runs longer than Groupon: digital coupons have been evolving since the RSS-era deal codes of 2006, and a 2010 Times piece showed how online coupons track and expose consumer data. What changed by late 2011 is that merchants, not just consumers, started judging the model — and finding that one-off deep discounts buy traffic without loyalty.
First-order effects
- Merchants like Wellpath cut back or stop running discounted coupons on deal-of-the-day sites, shrinking the supply of deals that the sites' entire model depends on.
- Deal sites face rising customer-acquisition costs on both sides at once: shoppers tired of the format and merchants unwilling to eat 50%-off margins for one-time buyers.
Second-order effects
- Sites competing for a thinner pool of willing merchants must sweeten terms — lower revenue splits, targeting, or repeat-purchase guarantees — compressing the take rate that made the model lucrative.
- Yelp's September retreat from Deals signals that even diversified local-advertising platforms judged standalone daily deals unworthy of continued investment, pushing rivals toward bundled or loyalty-based offerings instead.
Third-order effects
- If the pattern holds, local-online advertising consolidates around platforms that own the ongoing merchant-consumer relationship, with one-off coupon blasts demoted to a customer-acquisition tactic priced accordingly.
- Merchant disillusionment invites scrutiny of deal-site economics ahead of any public-market ambitions, since the growth story depends on merchant renewal rates that are visibly deteriorating.
The trend: Daily deals are shifting from a land-grab for merchant inventory to a retention business, where only sites that can prove repeat customers keep merchants on board.