Daily-Deal Model Tweaked as Novelty Fades

Investors have turned skeptical on Groupon, growth has slowed, and hundreds of would-be competitors have disappeared from the crowded daily-deal landscape, but that doesn't mean a fadeout to the era of the discounted restaurant meal or manicure.

Nearly four years after Groupon introduced the concept, smaller rivals that had sought to replicate the Chicago giant's early, explosive success are making tweaks to take advantage of lessons learned -- sometimes painfully.

"There was a large amount of exuberance for the first couple of years in the industry, and now players -- both on the daily deals side and on the merchant end -- have gotten very sophisticated about what works and what doesn't," said Jim Moran, co-founder of Yipit, a deals aggregator that also tracks sector data.

Local advertising and media research firm BIA/Kelsey projects that U.S. consumer spending on online deals will reach $3.6 billion in 2012, doubling last year's figure of $1.8 billion. By 2016, spending is forecast to hit $5.5 billion, though year-on-year growth rates will slow to single digits.

Groupon continues to dominate the field, accounting for more than half of the North American daily deals market, according to Yipit. But the company is also adding new services to expand beyond traditional daily deals, in which Groupon sells vouchers for discounted products or services and shares the proceeds with the merchant.

Smaller companies have used Groupon's model to carve out niches. Chicago startup FamilyFINDS, for example, targets mothers with deals on family-friendly activities and products.

The two-year-old company's deals were initially structured like Groupon offers: Pay $20 for a $40 box of organic fruits and vegetables delivered to your doorstep. Founder and Chief Executive Lindsay Cohen said she encountered three problems: The cost of acquiring customers, mostly through online advertising, was getting too high. Local merchants, burned by poor experiences running offers, were...