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How to Break Into the Daily Deals Space

Groupon—one of the fastest growing companies ever—has proven the formula works with its estimated $750 million IPO. Can you still break into the crowded daily deals space?

If you're looking for a growth industry, this is it. Daily deals sites are expected to generate nearly $3 billion in revenue this year, and by 2015 the market could reach $4 billion, according to a BIA/Kelsey estimate.

Forbes has called the industry leader, Groupon, the fastest growing company of all time. And while investors may have shaken their heads at the Chicago-based three-year-old company turning down an offer from Google last December estimated at between $5 and $6 billion, the company has proven its worth with its IPO slated to be valued at around $750 million. Other fast-growing companies share large slices of the market, too. LivingSocial, for instance, was founded in 2007 in Washington, D.C., and today has 28 million subscribers. It's another IPO contender that's earned more than $630 million in funding.

Now, it seems, everyone wants a piece of that pie. Groupon's success has inspired a torrent of clone sites—by some estimates, up to 100 in the United States and 500 globally. Plus, there are scores of sites and apps tweaking the Groupon model by going hyper-local, or focusing on a niche segment of the market.

"What's so great about the daily deals space is that it has no limits. It works in every space," says John Amato, the founder of MarketSharing, a new deals marketplace that's targeting small business. "You can look at any geographical area, and they're crushing it, or any vertical—wine, travel, anything—and they're crushing it."

Yes, plenty of new companies are finding success, but it's a market that's grown extremely crowded, incredibly fast.  Still want a shot at breaking in? Here's how the experts—five founders of new and fast-growing deals sites and platforms—advise you join their ranks.

Breaking Into the Daily Deals Space: Consider Your Niche and Market

Deborah Leff, a resident of northern New Jersey and a veteran of the software industry, had been working on finding a coupon-like partner for an application her company was watching. She began following the rise of Groupon, and the emergence of other daily deals, such as LivingSocial and kgbdeals.

"Seeing all of these offers come in to my in-box that I couldn't participate in because I was a little too far from New York City was frustrating, and I was getting awfully drooly looking at them," she says. "One day I was bellyaching about it to my husband, and he said, 'why don't you bring it to places that it doesn't exist?'"

Leff not only did so, but made the strategic move of narrowing her market further to suburban women with children. She figured so many Groupon clones already existed, why not target a loyal customer base with spending power—but also with a particular taste for getting good deals. She launched Suburban Momma (tagline: "Come to Momma for a Good Deal") in Bergen County, New Jersey, in July of 2010.

"We tried to create a very female-friendly site," she says. "Our hypothesis was that if you're a woman living in the suburbs, there's a high probability you have kids."

Now, with 20,000 New Jersey subscribers, the site also features deals for South Jersey and the suburbs of Philadelphia. While only one-third of the deals featured are actually family-related, the brand heavily targets mothers and young professional women, by not only offering local coupons, but also associating them with Daily Candy-style recommendations.

Suburban Momma found success by targeting both a unique vertical—mothers living outside of cities—and specific geographies. Stuart Wall, the co-founder and CEO of online deal marketplace Signpost, says to enter the deal space right now, focusing on your market and your vertical are crucial to success.

"I recommend everyone launching into the daily deal space not replicate Groupon and LivingSocial, because although that business has a very low barrier to entry, they are very, very difficult to scale," says Wall, whose company is based in New York City and launched in October.

Nhon Ma, the 29-year-old CEO and co-founder of Tenka, a curator of deals through social media, agrees that it's easy to accumulate e-mail addresses and offer merchants' discounts. But he says, "if you look at the major metropolitan areas across the United States right now, there are at least four daily deal sites in each of the, so it's going to be very hard to compete head-to-head. I'd absolutely advise getting into a more verticalized niche."

Dig Deeper: 10 Pros and Cons of Using Groupon

Breaking Into the Daily Deals Space: Find a Unique Way to Reach Your Market

That considered, Tenka offers mainstream deals for food, drink, and entertainment around New York City. How does is differenciate itself?

"We don't spam our users with hey this is the deal of the day. Instead, they get it though friends on their Facebook news feed," Ma says. "And on our mobile app, people can see—and redeem—nearby deals. So from the consumer side it's more like a Foursquare check-in."

With Tenka, anyone can "grab" a deal, but to do so must allow Tenka access to their Facebook account, where the fact you signed on for that deal—such as a free beer with the purchase of a chaser at the 12th Street Ale House—is publicized on your News Feed (if it's a free deal, versus a discount, which is not mandatory to post). Friends see your nod to both Tenka and the 12th Street Ale House. Mah says he's trying to make Tenka a perfect fit for businesses looking to boost their social-media presence and appeal.

He says the idea came from his experience operating a Korean taco truck in New York. He says Twitter was optimal for letting people know where the truck was, but didn't translate into creating a loyal fan base. He couldn't work out a deal with Groupon, so he tried Tippr, which was the region's fourth-largest deal site at the time.

"We got customers, but the quality of the consumers it would drive weren't that great. They weren't local, so they weren't going to come back," he says. "We wanted to do something that could leverage data, personalization, and bring that to small businesses to drive localized consumers."

Christine Lagorio is a writer, editor, and reporter whose work has appeared in The New York Times, The Washington Post, The San Francisco Chronicle, The Village Voice, and The Believer, among other publications. She is executive editor of Inc.com. @Lagorio