Daily Deal Sites Going Down the Drain?

It seems the old adage of "quality being better than quantity" still holds true, especially with regards to these daily deal sites. Recent reports such as this one show that both customers and merchandisers are fed up with such sites as Groupon, Living Social, Google Offers, and Amazon Local amongst numerous others. The customers claim that the discounts just aren't worth having to deal with terrible customer service, which, itself seems spurred by the unsustainable increase in customers towards small businesses.

You then have the merchandisers, 39% who said they weren't likely to run another Groupon promotion over the next couple of years, making the claim that the customers that Groupon brought in were far less likely to be repeats and were much more likely to spend less. Additionally, all these daily deals/discount websites charge considerable commissions, and often make it so that these businesses don't gain nearly as much as expected.

Mohammed also noted that drastic discounts attract the "wrong customers." Super-bargain hunters often decide to buy the rock-climbing class simply because of the low price and have no intention of coming back to pay full price. Indeed, in Raymond James' survey, 67% of merchants found that Groupon customers' spending habits are "lower" than their typical customers.

The likelihood is that this trend will continue, as the "too good to be true" deals originally seemed more to be a fad than a permanent fixture in the economy. There were many early reports of local businesses being unable to handle the massive overload of new internet-driven clientele, and such small shops would often find themselves actually losing money having to hire extra workers and paying utility costs. At the same time, many people who used the early deals reported satisfaction with the price, but questioned whether the quality of a restaurant or store willing to offer such deals was truly worth going to.

On the bright side, at least Groupon seems to be aware of this and appears to be focusing less on its traditional daily deals and more on being an online marketplace:

In its third-quarter earnings report, Groupon touted "rapid growth" in Groupon Goods, a retail marketplace selling things like toys, apparel, cameras and jewelry that was launched a year ago. Groupon subscribers have no doubt been noticing the email offers.

We'll see what happens in the future, but for now, it's safe to say that this business model is unsustainable unless a focus on better service and a cut in commissions are implemented. What do you guys think?