With the Groupon IPO upon us, many people are talking about the daily deals space and wondering where the space evolves over time. At CoRise
, we try to think of the entire digital media landscape
and put the current trends in context, gaging reactions by consumers, merchants, and other traditional and non-traditional competition. Hence we have released our simple to read slides
on the “deals” opportunity in digital media, particularly within its transactional media sub segment (we define “transactional media” as: The direct link between vendor and consumer, enabling a transaction; the ecosystem of technologies and services that facilitate this). While the bulls and bears will debate current financials, valuation, and industry trends, we take a step back and look at what the future should look like for this segment. One thing that is pretty clear to us (Slide #5 ) is that the industry is nascent, here to stay, and that the future of deals will be very different from the current incarnation.
Deals will evolve to: be more interactive, be more targeted, contain multimedia, harness big data, be social, and be mobile. There will be partnerships, consolidation, and sponsorships – digital and traditional media will both shape this. The economics of a deal will likely be refined as the industry grows, and payments & digital wallets will become an important component.
While there are a number of slides, they are meant to be easily comprehended, while evoking a major point. Quickly walking through the slides, Slides 8-10 help point out the larger digital media shifts and where “Deals” reside (notice the tremendous confluence between traditional segmentation). Deals are merely one part of Transactional Media and there are many types of “deal” platforms. Slides 13-15 depict how the coupon space isn’t new, but it’s evolving and enabling direct digital commerce. Established digital companies and “traditional media companies” have taken notice, seeing the potential and entering the space. Slides 20-22 show how the Deal space has emerged almost over night, but there are many concerns raised in the press on the current status of the space. However, we think that many are too focused on the current state of Deals, and not contemplating where the space will be in 3-5 years. There is tremendous option value in this nascent space, and to truly gauge the potential, one must look at the long term sector themes.
Slides 24-28 help illustrated these themes: the factors that helped create the space (technology, consumer and merchant needs) are not going away; innovation, partnerships, and evident trends will cement the need for deals but drive a very different future of deals; deals will become more personalized, more targeted, and more robust with sound, video, celebrity endorsements, and professional copy. Ultimately the size of the market will leave an opportunity for many types of players – this is not winner takes all.
In the end, it’s important to keep in mind the broader changes that are taking place across digital media – this will have a great impact on the future of this segment and help shape the winners and losers. We aren’t sure how the Groupon deal will settle, and we aren’t making a prediction or recommendation. However, one thing is for sure though, the future of the Deals segment will be very different from today, and industry watchers should take that into account when weighing the optionality of this nascent space.
Robert Peck, CFA
President, CoRise Co. LLC
DISCLAIMER: We have no business relationship of any kind with Groupon and no financial interest in its IPO. We are not making any recommendation to investors.