Study: Partnering with a daily deal site is bad for Yelp rating

By Mike Flacy September 12, 2011

groupon-daily-deal

John W. Byers and Georgios Zervas of Boston University as well as Michael Mitzenmacher of Harvard began researching the effect of daily deals on the overall average of a Yelp rating. The trio looked at both Groupon and LivingSocial relationships with businesses that were listed on Yelp and found that the typical rating was 10 percent lower when a business participated in a daily deal. In addition, the volume of reviews increase by about 44 percent on average. Reviews that mentioned the phrases “coupon” or “Groupon” were typically 20 percent lower than the average review. This drop in ranking typically came out to a decline of half a star from Yelp’s five-star rating system.

In a study conducted by Michael Luca of Boston University, the research found that an increase of one star on a Yelp rating typically increased the revenue of the business by 9 percent. While traffic gained from a Groupon or LivingSocial promotion may increase traffic in the short term, the declining Yelp rating may end up costing the business valuable traffic in the long term. Public relations representatives from LivingSocial were quick to draw doubt on the study and responded quickly to Launch claiming that the LivingSocial internal metrics were superior to external data studied by the researchers at Harvard and Boston University.

While Groupon’s revenue is up in August according to an earlier report today, weaknesses in partnering with companies in the daily deal business are beginning to pile up. In a 2010 study of 150 businesses that partnered with Groupon, Forbes found that 33 percent of the group lost money on the promotion. Of that group, only 25 percent of customers spent more than the face value of the Groupon and just 13 percent returned to the business. Combine that loss of revenue in the short term with the likely decrease in Yelp rating and the risk involved in partnering with a daily deal site clearly increases.

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Groupon IPO back on, set for coming months

It was on. Then it was off. Now it appears to be back on again. We’re talking about the Groupon IPO.
The New York Times reported late Wednesday that, according to “people briefed on the matter,” the daily deal giant is planning to go public late October or early November.
Just last week, Groupon announced it was postponing its IPO plans because of unstable stock market conditions. There was also an issue with the Securities and Exchange Commission over an email Groupon chief executive Andrew Mason sent to employees that appeared to violate rules regarding a “quiet period” in the run up to an IPO. According to the NYT source, that problem has been resolved, meaning that the Chicago-based company could begin its roadshow to attract investors as early as the middle of next month.
Groupon must also feel the stock market is settled enough for it to move forward with its IPO, though who knows what might happen in the markets tomorrow, let alone next month.
It’s also possible that the company feels sufficiently buoyed by the news on Monday that it had increased its share of the daily deal market by 2 percent during the month of August, and enjoyed a revenue jump of 13 percent. Its closest rival, LivingSocial, saw a 3 percent dip in revenue for the same period.
Groupon isn’t the only Internet company around which IPO speculation is currently swirling. The NYT reported that Facebook is still fixed on going public in the first six months of next year, despite a Financial Times article that suggested it could be pushed to late 2012.

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LivingSocial and Whole Foods link up for national daily deal

livingsocial and whole foods link up for national daily deal market

In what appears to be a first for the daily deal business, LivingSocial is about to launch a nationwide grocery store offer that could well leave the shelves of Whole Foods stores across the US close to bare.
Reuters reports that although LivingSocial and its main rival, Groupon, have run grocery-related deals in the past, they were usually confined to local areas or specialist outlets, and up to now have never been rolled out nationwide.
The offer means that shoppers who are also LivingSocial subscribers will be able to pick up $20 worth of groceries for $10 from any US Whole Foods store. The deal is set to run on Tuesday.
According to David Sinsky of Yipit, a company which tracks the daily deal industry, it’s not easy for grocery stores to offer big discounts because they’re working with such small profit margins to begin with. Sinsky says this means that LivingSocial may be subsidizing this particular daily deal.
So what’s in it for LivingSocial? They’ll be hoping that a daily deal at the world's largest retailer of natural and organic foods will prove popular enough to bring in a ton of new subscribers in the next 24 hours.
Such a subsidy would be an indication of how far companies in the crowded daily deal business are prepared to go in an effort to make up ground on the market leader, Groupon.
But according to a report earlier today, LivingSocial and its rivals have their work cut out. Chicago-based Groupon saw revenue of $120.7 million last month, up from $106 million in July. In this highly competitive market, that’s an impressive increase of 13 percent.
In contrast, LivingSocial’s revenue dropped by 3 percent, with figures of $46.4 million for July and $45.1 million for last month.
Whole Foods Market was founded in 1980 and has more than 250 stores across the US, as well as a number of outlets in Canada and the UK.
[Image: LoneStarMike]

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Despite downward trend, Groupon revenue grew 13 percent in August

Groupon wins

Things may be looking up for daily deals giant Groupon, after all. According to Alexia Tsotsis at TechCrunch, the daily deals company gained 2 percent market share during the month of August, and saw its revenue surge 13 percent, increasing its revenue from $106 million in July to $120.7 million in August. The company's financial data comes via daily deals aggregator, Yipit, which analysed 30,000 daily deal offers, from a variety of companies, last month.
The increase in incoming cash is due to a 10 percent jump in the number of Groupons sold on each deal, as well as a 5 percent increase in the average price of the deals Groupon offers, Yipit's data shows. Groupon's travel offering, Groupon Getaways, saw its revenue grow substantially, from $5.7 million in July to $9.6 million in August, which accounted for 27percent of Groupon's overall growth for the month.
August wasn't entirely a winning month for Groupon, however. As we reported last week, the number of deals actually fell `14 percent (though the cost of the deals went up).
This troublesome trend comes just as Groupon was forced to delay its IPO due to an unpredictable stock market environment -- or, at least, that's the "official" reason given by the company. Some believe, however, that the delay may be due to a Securities and Exchange Commission investigation over an internal company memo that may have violated the SEC's rules.
The company originally planned to go public immediately following Labor Day.
The complications around Groupon's finances began this summer, when the company decided to use non-standard accounting practices in its IPO filing with the SEC.
LivingSocial, Groupon's closest competitor, had a 3 percent dip in revenue last month, from $46.4 million in July to $45.1 million. The daily deal market grew 9 percent overall, jumping to $228 million for August, versus $208 million in July.
View the full Yipit report below:
Yipit August 2011 Report (09!10!11 Draft) Copy 2