WSJ: Smaller daily deal sites dropping like flies

Ever wonder why some corners of the web are practically littered with Groupon ads? The Wall Street Journal has put together an exposé on daily deal sites like Groupon, and it paints a picture of a saturated market where bigger fish are spending fortunes on marketing to draw in new customers... while smaller players struggle even to stay afloat.

The Journal says Groupon, the top dog on the daily deal scene, boosted marketing expenditures from $35.5 million in the first half of last year to $378.7 million in the early part of 2011. Back in March 2010, the firm spent about $7.99 to bring in each new customer; that cost had risen to $23.46 by June of this year. Groupon's sales staff—tasked with gathering offers from "local merchants"—has also grown almost five-fold from 201 to 990 since last year.

Not surprisingly, a lot of smaller deal sites can't engage in this "arms race" for very long and have been forced to close shop. The Journal says almost a third of all daily deal sites (170 of 530) faced that reality this year alone. Even larger services that dabbled in deals are shrinking from the costs involved. Facebook, which kicked off a Deals program in April, ended up shutting it down just a few months later.

As big deal sites keep inflating their marketing budgets to smother the competition, I guess we'll keep being reminded of the best deals on local cupcakes again and again. And people wonder why the obesity rate is on the rise... (Thanks to TR reader neutronbeam01 for sending this in.)

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