The problem with group buying sites is that the technology is super simple to create. A good programmer can basically build a site like this over a weekend. But then you have a chicken-and-egg problem; without a big customer list you can’t attract top retailers, and without great offers from top retailers, customers won’t sign up. Some investors have been calling these types of business a “butterfly” because it needs both wings in order to fly.
But signups can be bought. You can accumulate a 10,000 person mailing list with some clever marketing, or by just plain buying the traffic. Then you gotta beat the street to get some retailers to sign up. For retailers with no hard costs (like the bootcamp guy who makes you do pushups in the park at 5am), they’ll sign up all day long. But what consumers really want is half off at Justine’s, and with 1 hour waits for dinner there’s no incentive for discounting. Not to mention the fact that coupons can be redeemed during peak times when there are plenty of people willing to pay full price.
It’s a tough business to be in, as I’m sure Localiter has discovered. They never made it past Austin, but today they announced that they’ve been acquired by ICG America, a small 15 person company with offices in Austin and New York. So they probably don’t have the capital to take Localiter national, but through their other businesses they at least have a bigger mailing list. That might make scaling to a regional level a little bit easier.
[Update: Company CEO John Paterson reached out today to say that the information on them I found on LinkedIn isn't entirely accurate. Hopefuly we'll have a story on ICG and their relocation to Austin soon]
All direct to consumer deal technologies eventually peak and reach a much lower norm (direct mail, email marketing, etc) in terms of response rates. So at the end of the day, just wait and Groupon will come back to Earth. Especially once Facebook gets into the business. After all, those sales people at the fancy new Facebook offices in downtown Austin need something to do, right? Why not call on local retailers? Especially now that people are checking in on Facebook, they have a chance to realize the big vision of social + mobile + check-in + flash buying.
My biggest complaint about Groupon is that I get about 30 emails a month from them, and I respond to about 1 in 75. So either they better get relevant, or they are just going to be another spammer in fancy brand clothing.