Daily Deal Disappearing Act: One-Third of Deal Sites Sold or Closed This Year

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As the daily deal craze took off over the past two years, hundreds of upstart flash deal sites jumped into the marketplace to try to get a piece of the action dominated by Groupon and LivingSocial. Almost from the start, though, analysts observed that the daily deal space was oversaturated with too many competitors going after the same consumers. How many daily deals can each consumer consume, after all? Over the past few months, the day of reckoning has come for many deal sites, with hundreds of businesses selling out or shutting down.

Using data gathered by daily deal aggregator Yipit, the Wall Street Journal reports that 170 of 530 national daily deal websites have disappeared in 2011. That goes for operations like Scoop St., which was purchased by BuyWithMe, and for Facebook Deals, which Facebook killed off a few weeks ago, even though the company’s flash deal arm only came to life a few months before that.

What many daily deal sites have discovered is that getting the business started is pretty cheap and easy—register a domain name, find local businesses willing to give discounts to attract new customers—but sustaining the business is increasingly difficult and expensive. The main reason why this is so is that consumers aren’t quite as jazzed by the daily deal concept as they were during its early 2009 heyday. Acquiring new customers is much more expensive than it used to be: The WSJ says that it cost Groupon roughly $8 apiece to sign up a new subscriber in early 2010, but nearly $23.50 by the third quarter of 2011.

(MORE: How Daily Deals Are Losing Their Allure for Businesses and Consumers Alike)

The business model hasn’t been working for many companies, especially smaller ones that have struggled to make names for themselves. And so, many sold out to larger businesses or just closed up shop.

Major daily deal sites that are very much still in business, meanwhile, are trying to figure out how to expand their offerings to attract new customers—or at least some attention. Last week, LivingSocial offered the first national deal on groceries, and the week before that, Groupon had the first-ever daily deal on college tuition. Whether these deals come to be viewed as innovative, ahead-of-their-time moves or desperate and misguided jump-the-shark type attention grabbers remains to be seen.

(MORE: How Coupons Became Cool)

Brad Tuttle is a reporter at TIME. Find him on Twitter at @bradrtuttle. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.

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