Consumers have an appetite for daily deals and businesses see the potential, but with the overwhelming amount of companies jumping on the mobile offers bandwagon, relevancy will be the key challenge in keeping the hype afloat.

According to a recent Kantar study, Groupon and LivingSocial?s traffic has been down. Additionally, Yelp Deals has been scaling back and Facebook got rid of its Facebook Deals altogether.

?What we are seeing is the first wave of daily deals coming to a close,? said Alistair Goodman, CEO of Placecast, San Francisco.

?While these services started with ?serendipity? in mind ? the ability to introduce consumers to new experiences ? consumers are now educated to look for deals wherever they go,? he said.

?There is limited appetite for mani-pedi and restaurant deals, and consumers are now becoming more discerning.?

For everyone?
Daily deals have demonstrated to small merchants and large retailers alike that a lead-generation model can work for real world businesses.

However, the structure of the business terms will ultimately move to a much more efficient model for both businesses and consumers, per Mr. Goodman.

?Businesses will be able to buy based on a real understanding of ROI, and consumers will gravitate to options that give them more control over what deals they receive and when,? Mr. Goodman said.

?The key for service and technology providers that are the middlemen, is to build both the volume of deals that enable a rich, hyper-relevant experience ? ?I only get deals that really make sense for me,?? he said.

?It also requires putting tools in place that genuinely enable participating businesses to manage yield, reward loyal customers and price discriminate to acquire new ones.?

According to Mr. Goodman, that means having the capability to turn on-and-off deals in real time, deliver them via mobile devices based on proximity to a store, offer different deals to new and existing customers and be able to pay for performance.

Bit overwhelming
Mobile deals are beginning to overwhelm a lot of consumers.

Many may argue, but Groupon paved the way for time-sensitive deals and with the proliferation of its mobile offerings such as its optimized-site and applications, more consumers adapted to receiving deep discounts and offers from their favorite salons, restaurants and retailers.

Additionally, with more daily deals companies jumping on board ? such as LivingSocial, BuyWithMe, Yelp and Amazon Deals ? offers are beginning to take over a customer?s life and many may be too overwhelmed ? especially with receiving daily notifications to their mobile device.

Recently, Facebook?s decision to exit the daily deals business suggests that Google, Amazon and Groupon may face challenges in the mobile space as well.

?Facebook appears to be exiting deals because it?s not part of their core business,? Mr. Goodman said. ?What?s interesting about their recent announcement is not that they dropped deals, but that they are weaving location into every aspect of the service.

?In essence, they are enabling location-tagging of content which will provide better hyper-local targeting for their display ad business,? he said.

?Facebook has the biggest supply of inventory on the web and increasingly on mobile, and their recent moves will enable better geo- and user-targeting of ads.?

Smart deals
Consumers are becoming much smarter about deals.

?They will tell you that they know the products and services that they like, and they just hate to miss a deal when it?s nearby,? Mr. Goodman said. ?This means that relevancy of deals will make or break the fortunes of deal companies in the future.

According to Mr. Goodman, we will see more programs that are opt-in, where consumers configure their own preferences.

Additionally, there will be automated, intelligent services where consumers find the most relevant deals on their phone or in a mobile wallet when they are nearby.

?This also implies increasingly robust CRM and data mining based on behavior, with users willing to exchange some of their personal information transparently for the best, relevant deals,? Mr. Goodman said.

?For businesses, we can expect to see better tools for price discriminating and rewarding loyal customers,? he said.

Location will be at the core of the next generation of deal services because place and time are such strong indicators of intent.

The mobile instant deals offerings like Groupon Now are clearly aiming at this scenario, though the functionality we are seeing today is just the beginning.

?You can also expect the mobile carriers to play a bigger role in this space because they have several unique assets ? the ability to locate a phone anytime without an app being on, a huge audience of subscribers with whom they have a trusted relationship, and teams on the ground in local markets with merchant relationships,? Mr. Goodman said.

?Marketing dollars attach themselves to scale and effectiveness ? done right, carriers can capitalize on their assets and the lessons learned from this first wave of deal services,? he said.

Shift in deals
According to Wilson Kerr, Boston-based mobile marketing consultant, special deals have been around long before Groupon and will never go away.

However, there might be a shift.

?The notion of pushing a single emailed ?daily deal? to a large opt-in audience by location is what flipped the age old ?walk by and see the chalkboard on the sidewalk? model on its ear,? Mr. Kerr said.

?It was a brilliantly simple and successful new twist, but what fuels the marketing spend needed to attract these willing email recipients is Groupon?s hefty 50 percent take rate of the price the deal is offered for,? he said. ?This cost is perhaps unsustainable and is what is fueling the recent speculation by skeptics.

?As Groupon opens its books for the IPO filing, the cracks in the armor are appearing. Their rapid growth makes them a tempting target.? 

In addition, Mr. Kerr says that as the mass appeal slows, the bargain hunters and frugal shoppers remain.

?The problem for Groupon is that these ?Groupon groupies? tend to watch for and stockpile discounts at businesses they already frequent,? Mr. Kerr said. ?This erodes the basic premise that drives the value proposition that Groupon pitches to businesses ? incremental, tracked, new customers that can be converted into repeat customers.

?The steep marketing costs associated with keeping a constant flow of new Groupon users is perhaps unsustainable,? he said. ?This is likely what the outsider bean counters are focused on.

?Perhaps Facebook and Yelp see this and want out before the bottom really drops out.?

Overall growth is still strong for Groupon and others, as there are still businesses who see the value in filling what-would-be-empty-anyway seats at deep discount, per Mr. Kerr.

?That said, it?s hard to believe that large brands and retailers will not launch their own private label versions of Groupon, to market deals they control to the customers they spent so much on acquiring,? Mr. Kerr said.

?This trend will accelerate, and, if Groupon has to spend more to acquire new users while also charging retailers less, a negative feedback loop might be the result,? he said.