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Groupon Cedes Share of Daily Deals to LivingSocial, Yipit Says

(Corrects Travelzoo name and revenue-per-deal numbers in 10th paragraph.)

(Bloomberg) — Groupon Inc.’s share of online daily deals slipped to 48 percent in May from 52 percent the previous month, as rivals including closed in on its lead in the growing market for discounts offered on the Web.

LivingSocial claimed 24 percent of the market, up from 20 percent in April, according to website Yipit Inc., which studied online daily deals in 30 major North American cities. Yipit’s researchers estimate Chicago-based Groupon made $64.7 million in sales in May, more than double Washington-based LivingSocial’s $31.6 million.

Online daily deals, a business pioneered by Groupon in 2009, are now delivered by 345 sites and account for about $133 million in revenue in top North American markets, according to Yipit. Groupon’s lead is narrowing as it prepares for a $750 million IPO.

“The main reason you’re seeing Groupon’s market share fall is that competition is still on the upswing,” said David Sinsky, data product manager for New York-based Yipit. “Groupon pioneered a brand new space a year and a half ago, and because of their success they have attracted a lot of competition.”

Groupon and LivingSocial deliver daily discounts on hotels, restaurants and other goods and services to subscribers on the Web.

Closely competing to be third-largest daily deal provider are Travelzoo Inc., and Gilt City, a site owned by Gilt Groupe Inc.

30 Cities

Yipit, a site that aggregates deals from over 400 sites, tracked 17,958 discounts offered in May across 30 North American cities including Atlanta, Denver, Miami, New York and Toronto. Its revenue estimates take into account some sites that Yipit doesn’t currently track and says make up about 15 percent of the market.

Both Groupon and LivingSocial are making less money per deal than they did before, as the increasing number of deals offered on the Web has caused fewer people to sign up for each one, says Sinsky.

“Groupon’s revenue is increasing, but Groupon’s revenue per deal is actually decreasing because they’re putting so many deals a day in front of consumers,” said Sinsky.

In May, Groupon increased the number of its deals by 18 percent over the previous month to 4,534 as its average revenue per deal declined 10 percent to $14,277. In the same period, LivingSocial increased the number of its deals by 59 percent to 1,932 as its average revenue per deal declined 17 percent to $16,360.

No Profit Yet

Groupon said in June it hasn’t yet turned a profit, even as sales surged 14-fold to $644.7 million last quarter, according to data compiled by Bloomberg. The company had marketing costs of $208.2 million in the period, resulting in a net operating loss of $117 million. Groupon spent $179.9 million on subscriber acquisitions, as it tries to build its lead over LivingSocial. This year, 273 new daily deal sites were started and 112 were shut down, according to Yipit.

Julie Mossler, a spokeswoman for Groupon, declined to comment on the Yipit report. Maire Griffin, a spokeswoman for LivingSocial, didn’t return requests for comment.

With Ari Levy
MacMillan is a reporter for Bloomberg News and Bloomberg Businessweek in San Francisco.

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