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Are Smaller Daily Deal Services Doomed By Groupon, Living Social, and Google?

Sale sign in store window

Groupon is burning through cash. In January, it raised about $950 million; by March, it had just $209 million left. And last week, it filed an S-1 statement looking to raise $750 million in its IPO.

The company is growing exponentially, and at this point, it appears only large-scale competitors can keep pace, such as Google or Living Social, which has raised $175 million from Amazon. Yet there's tons of players in the daily deals space—BuyWithMe, BloomSpot, DailyFlock, Tippr, and more—with some that have been around far longer than Groupon. Given the towering giants now either entering or dominating the market, are smaller competitors doomed?

"I definitely think there's room for others—probably room for five or six," says Jere Doyle, CEO of Eversave, a daily deals service that has been in the industry for more than a decade. "This is not a winner-take-all business."

Rather, as Doyle explains, Groupon's massive IPO helps to "legitimize our industry." He understands business will become tougher to scale with so many crowding the space now, but understands there's big opportunity still to grow. "The black eye of the daily deals business is the 'one-and-done,'" Doyle says. "[The customers] that only come in once with the discount, and never come again."

That's been the major criticism of the industry, one that Groupon and Living Social have had to defend themselves against. Smaller competitors in the space must focus on customer retention in order to succeed, or focus on a niche market. Eversave, which has seen its business not decline but actually "grow very fast" since Groupon's entry, focuses its deals on female consumers, for example.

"I'm not going to be able to outspend Groupon—I've known that since the beginning," Doyle says with a chuckle. "I think the guys that are going to be able to compete with the big players are the ones that can leverage some other resources." For Eversave, that means leveraging its technology and existing relationships with local merchants and big brands like P&G.

But for Groupon, Living Social, and Google, that means leveraging hundreds of millions (if not billions) of dollars to compete against each one another for market dominance. Such massive resources might just be too much for a smaller player like Eversave to keep up with.

[Image: Flickr user NajeeBKHan2009]