US Coupons IPO signals a return of the Online Deals mojo

RetailMeNot today submitted an S-1 filing as a precursor to a $230m float in the US, a clear indication of an upswing ahead for the beleaguered Online Deals market.

Some time back I talked about the diffusion of innovations curve, how deal-hungry consumers had adopted the burgeoning Deals market like a pack of clucky Brangelinas on Safari, driving the growth of the market place to breaking point. What followed was market disillusionment as the half-baked players fell short of their customers’ expectations time and time again. Now that the chaff has been swept away, or in some cases absorbed by the leaders the market is once again satisfying a powerful demand for online deals.

In Australia I expect the market to regain momentum toward a billion dollars in revenue, and $100m or so in EBIT. As a market the EBIT pool isn’t stellar, but given the winner-takes-most nature of the sector each of the 2-3 leaders will likely hold 20% of the market and share more than 80% of total profits, meaning $200m in revenues will yield ~$30m in EBIT, not bad.

Diversification in the Deals model is also apparent, with a clearer division between servicing a basic need versus impulse and discovery. The holiday category is growing with fully packaged vacations on offer turning long-haul travel into a $1,000 impulse purchase, and the utility categories such as wine and home-wares are solid. Ironically the original purpose of Group Buying, to fill every empty seat in your local restaurant, continues to miss the mark with offers appealing more to the price conscious than the culinaraly adventurous, disappointing proprietors and their staff alike.

Although no one has yet nailed the local restaurant marketplace, the prize is huge. I expect one of the leaders will emerge with a model that works and further accelerate the Australian Deals market to $1bn in revenues between now and 2016.

Why I don’t worry about Hitwise

As the CEO of a Group Buying business in the nascent and burgeoning category it was critical that I had a very clear view of marketing effectiveness, with Audience Engagement being the key indicator. There were a number of sources available to the team that purported to provide reliable Audience measurement and insights however I only depended on two to provide an accurate view, Omniture and Nielsen.

Alternative sources included Hitwise, Google Analytics and Alexa – Google Analytics is cheap/free but pretty unreliable and Alexa provides a Relative view only. Hitwise is the worst of the bunch though given their data collection methodology means it doesn’t represent the broader online population and worse still, it doesn’t necessarily reflect human activity!

Here are the two main issues with Hitwise data:

1. Hitwise does not measure individuals – it measures traffic.

This effectively means you could hit your website with bot traffic to boost your numbers and it would show as traffic in Hitwise. Nielsen Australia removed 50% of GroupOn Australia’s traffic in March because that traffic consisted largely of unsolicited clicks, meaning popups that appear as you close scurrilous ads (Congratulations, you have won $1,000,000!!!!!) – those clicks are still counted in Hitwise.

2. Hitwise doesn’t include key ISPs

Hitwise harvest data from partnering ISP’s, however Australia’s two largest ISP’s BigPond and Optus don’t participate. This is major a concern as a large proportion of internet users (about 58%) are not reflected in their data. This is a particular problem for a business like Cudo given its mainstream audience, and mainstream Australia do not typically use fringe ISPs.

Nielsen was recently selected as the official measurement partner of the Australian IAB, in their press release they said:

With the endorsement of Nielsen Online Ratings, IAB Australia is identifying people-based metrics, as opposed to browser-based, as the best and preferred online audience measurement system for the Australian online advertising industry.

This is the nub of the problem. TechCrunch called it out almost two years ago.

At Cudo we didn’t care about browsers for obvious reasons, we cared about people, they still do, like the 1,000,000 plus Australians who go to each and every month, I couldn’t give a monkeys how many Bots swing by!