On Tuesday, March 20, the daily deal space will be buzzing with a special offer from Amazon‘s surging flash sale site, AmazonLocal. A $10 Amazon gift card can be yours for the sum of just $5.
Last January, daily deal giant LivingSocial offered an enormously popular national deal: $10 for a $20 Amazon.com gift card. The credit could be used for anything sold by Amazon, of course, including third-party merchants listed at the site. Meaning: It could be used to buy almost anything that can be purchased online.
Unsurprisingly, it was one of the most popular daily deals ever offered. By 11 a.m. on the day of the deal, more than 300,000 cards had been sold. Eventually, more than 1 million gift cards were purchased.
“They sold 1,157,141 units, grossing more than $11 million dollars, in one of the most successful daily deals of all time,” says Jim Moran, co-founder and president of Yipit, a site that aggregates deals and compiles research on the daily deal industry. Yipit’s estimates on the LivingSocial-Amazon deal are on the low side; others have reported that upwards of 1.4 million cards were sold during the one-day promotion in January 2011.
Regardless, Moran expects that a new daily deal on Tuesday, March 20, involving Amazon gift cards with also be “extremely popular.” Amazon holds an investment in LivingSocial, but this time, the card deal is being offered directly by Amazon’s own deal business, AmazonLocal.
The offer is simple: Pay $5, get a $10 Amazon gift card.
Why would Amazon essentially agree to lose money to the tune of $5 per customer? The main reason is that doing so will rev up interest in Amazon’s daily deal branch, AmazonLocal. The service wasn’t even around when LivingSocial offered its Amazon gift card deal last January. AmazonLocal launched in its first city in June 2011. By August, it had spread to about 30 cities, and now is available in roughly 90 metropolitan areas of the U.S. According to Yipit data, AmazonLocal sales generated nearly $20 million in revenues in the fourth quarter, more than triple the sales of the previous quarter.
Still, AmazonLocal has a long way to go before being considered in the league with Groupon and LivingSocial. Groupon, for instance, did over $500 million in sales in Q4.
To call attention to itself in the crowded, ultra-competitive daily deal marketplace—where nearly one-third of such businesses disappeared in 2011—AmazonLocal and Amazon are willing to spend some money, in the form of a huge giveaway. To get the $10 gift card for $5, customers must subscribe to AmazonLocal and agree to receive a daily email featuring the newest offer.
Amazon, of course, hopes that giving a bit of money now leads to big sales figures down the line, thanks to what’s likely to be an epic and exceptionally fast expansion of AmazonLocal’s customer base. What’s more, Amazon is using this special offer as a means of highlighting how the deals can be seen (and purchased) via its e-reader/tablet, the Kindle. “Say you take a break from reading a book on your Kindle and it goes into sleep mode,” says Mike George, AmazonLocal vice president. “That day’s deal will pop up as a screen saver. These will be beautiful images too, we promise.”
Even if Amazon winds up “losing” $5 per customer through the AmazonLocal deal, there’s a decent chance the goods purchased via these gift cards will still be sold at a profit. It’s unlikely that customers will wind up using the cards to help make purchases of $30, $50, even $100 or more. Offering $5 off a $10 gift card sounds like a 50% off deal, and it is, technically. But when the customer eventually gets $5 off a $100 purchase, the promotion amounts to a mere 5% discount. That’s a deal that Amazon can live with, especially if it helps spread the word of its new, potentially hugely lucrative daily deal service.