When I first discovered AppSumo, I thought, “Oh, great. Another daily deal site.” After looking around for a little while, I quickly realized that I was wrong. AppSumo is not another copycat deal site. AppSumo is the profitable blending of two diverse business models.
Woot! and the Genesis of the Daily Deal Business Model
When Woot! started, way back in 2004, they created a new phenomenon in e-commerce — the daily deal site. The Woot! model was (and still is) all about moving surplus stock at very low prices. This model helps merchants sell older or refurbished goods that they may have had trouble selling otherwise, and it is good for consumers because these are really good deals. For many years, Woot! has been very successful — so much, in fact, that they were eventually purchased by Amazon.
Location-Based Daily Deals
Seeing the success of Woot!, which focuses on physical products like appliances, electronics, and various other gizmos, other businesses came along and made similar daily deal sites focusing on local businesses. You are probably familiar with Groupon, LivingSocial, and their ilk of location-based daily deals. You buy the coupon of the day and redeem it at a local business. The idea is that local businesses will find more customers by enticing them with ridiculous discounts.
At first, this location-based daily deal phenomenon seemed like a great idea. Businesses get more customers, and customers get great deals. But despite all their positive ambition, most of these location-based daily deal sites have failed to create their desired effect for many of the local businesses that participate.
After handling a stampede of coupon-toting patrons and giving away their goods and services for much lower prices than normal — and oftentimes below cost — the local businesses realize that they have done little to create a larger customer-base. Those deal seekers are just that: deal seekers. They aren’t looking to become long-term customers at full price. And to overcome the bar that was set with the tremendously discounted prices on the coupon deal, the local businesses usually need some kind of miracle.
AppSumo Enters the Daily Deals Ring
The location-based deals attempt to combine the successful model started by Woot! with a mentality of hyper-locality. This combination fails.
AppSumo combines the daily deal model with a much better match: digital products. While Woot! sells physical merchandise and the location-based daily deals sites sell coupons for local services, AppSumo sells e-books, software, and videos — specifically, products targeted at entrepreneurs and Internet junkies.
The genius of these deals is manifold. Because these deals are digital, the limitations of physical goods and services are completely obliterated. There is no cost for shipping. There is no cost for reproduction. The profit margins for the creator are (for all intents and purposes) infinitely greater than sellers of physical products. So it doesn’t matter if they sell a product for 50, 75, or 90% off. They are still making money, and customers are getting great deals.
The Secret of Great Deals and Internet Marketing
But the secret of marketing digital products might seem a little more devious. The money is certainly an added bonus, but it’s clearly not the only — or even primary — incentive for the sellers of these digital products. If you’ve looked around AppSumo’s site, you might even have noticed that there is a free deals section — further evidence that it’s not about the money.
Much like the location-based deals sites, the digital product merchants want to create a larger customer base. They sell an introductory product through an affiliate (in this case AppSumo) to get new customers “in the door” so to speak. The goal is to turn these introductory customers, who have already identified themselves as people who are interested, into repeat customers who are buying more expensive products. The difference is that it doesn’t cost the digital peddlers anything if the initial buyers don’t become repeat customers. Often with the local deals, the businesses are losing money before they have a chance to profit from their daily deal coupon experiment.
AppSumo: In It to Win It
Woot! has been thriving for almost a decade. They help merchants move inventory and deliver great deals to their customers. At this rate, their daily deal model seems like it will continue successfully for years to come.
The location-based daily deal coupon sites, though they started out strong, seem to be losing favor among businesses. The widespread inability to create repeat customers combined with the money they lose and the difficulties of handling a flood of deal-seeking traffic doesn’t make this a very good experience for the businesses.
The AppSumo deals model makes it possible for customers to claim crazy deals while also generating low-risk leads for the product merchants. While the location-based deals seem to be on their last leg, AppSumo creates a model where everyone wins.