Declaring that deals have officially “jumped the shark” could well be an overstatement, considering that revenues are still on the uptick (BIA/Kelsey forecasts that the U.S. market will grow to $5.5 billion by 2016) and hundreds of companies continue to invest in the channel. However, the broad deals market is clearly evolving and segmenting in new ways, a topic explored during an ILM West superforum.

Merchant loyalty programs are seen as the next “white space.” BIA/Kelsey estimates that independent loyalty and transaction-based platforms have raked in $222 million in investment capital since 2008. One early leader is Five Stars, which CEO Victor Ho says will integrate with 95 percent of point-of-sale systems (a major value proposition, if true, in the fragmented POS landscape). Through the card issued to merchants across Five Stars’ network, participating businesses can see all transactions that go through “down to the line item.” There are integrated marketing components as well, with auto-posting to Facebook and e-mail and SMS campaigns driven by the transaction data.

Perry Evans at Closely is working on a full SMB dashboard product that includes promotions, loyalty and competitive intelligence. The latest rollout, Perch, gives a “birds-eye view of what’s happening in your marketplace,” showing a live feed of how a business and its competitors are posting and engaging across several social networks and local sites (Yelp, Twitter, Facebook, Foursquare and others). This starting point provides SMBs with a “frame of reference for their participation” through promotions, offers and other forms of customer contact.

Following the adage “what’s old is new again,” another sector seeing uptake as the luster of deals subsides is online couponing. DataSphere SVP Gary Cowan calls coupons ‘deals’ before there were deals, and positioned them as a strong option because the content is the ad and exists down in the decision funnel.

Valpak, which has long controlled massive volumes of rich local coupon content through its well-known direct mail brand, is now pushing this asset progressively across platforms with several mobile initiatives, including Apple Passbook integration. What was once a traditional direct mail company is now “transforming into multi-media distribution,” according to President Michael Vivio. Meanwhile, Valpak’s acquisition of Savings.com layers national coupons on top of its existing local content assets.

But don’t forget about deals. The original “daily deal,” with its massive discounts and huge margin splits, is evolving into more merchant-friendly models. Constant Contact’s SaveLocal, for instance, gives merchants full control over their deals and only collects a couple of dollars, says GM Dave Gilbertson. Meanwhile, with inevitable market consolidation and sales force contraction (e.g., Groupon pulling feet-on-street sellers to manage costs), Second Street President Matt Coen sees benefits for media companies with brand advantages that can offer full, long-term solutions. “Those that diversify will be strongest.”

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Even though it’s a seemingly dead simple and compelling concept, Truka admitted that while most local businesses have a general awareness of what Groupon is (primarily driven by their own personal use), “they still don’t exactly know how it works for the most part.” In other words, time to take a step back.

As Groupon has exploded from its Chicago roots to a 43-country phenomenon that plans to IPO at a $25 billion valuation, it has also learned a measure of patience about what works, for whom and at what threshold. In Truka’s words, “measure twice, cut once” with merchants.

BIA/Kelsey already sees the original deal-a-day concept evolving into a broader, deeper universe of marketing, promotional and transactional products and services. Similarly, Groupon is redefining itself as a “city guide.” Its entry to mobile (Groupon Now), verticals (travel, live events), consumer-packaged goods (General Mills pilot) and loyalty (Quiznos punch card deal) suggests that redefinition is well under way.

For traditional publishers, the Groupon threat is twofold. The company is stealing share of mind and wallet from merchants. It’s also grabbing local sales resources. “We definitely hire YP reps,” Truka said. “It’s a very similar industry, and they make great reps.”

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At DMS ’11, Marketplaces Program Director Peter Krasilovsky painted a sunnier picture of the robust and still-rising group buying industry. Among the notable growth signals are exceptionally big email lists with high (yet declining) open rates, a “no money down” value proposition and the equivalent of free advertising for participating merchants.

Groupon’s Chicago mailing list, in fact, more than doubles the combined lists of the market’s two daily newspapers. This opens up a universe of integrated marketing and promotional possibilities for SMBs far exceeding the deal of the day.

BIA/Kelsey’s recently updated deals forecast reflects our bullish view of the market. VP of Research Mark Fratrik sees the user base broadening. Combined with better personalization and targeting of deals (including mobile and flash deals), the result will be more relevant offers to a bigger audience. The forecast charts revenues increasing at a decreasing rate, ramping from $1.9 billion in 2011 to $4.1 billion by 2015. Mobile integration, specialized niches (B-to-B, for instance) and loyalty/retention tools can amplify the market even more.

Then there’s the evolving role of social signals in driving deal virality. While Facebook recently withdrew its Deals product and Yelp has scaled back, we still see promise in providers that are able to create powerful recommendation and referral loops that tap into social connections and affinity-based buying communities (moms, to name just one).

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Facebook and Yelp are downsizing their separate deals initiatives after launching them with some fanfare. Facebook is now limiting its deals to users who check in to businesses, and Yelp is sharply reducing the number of deals it features, while continuing to support self-serve efforts that are integrated with other Yelp ad products.

Are these pullbacks a sign that deals are collapsing even before Groupon’s IPO? I don’t read it that way at all (and quickly note that Google, Amazon, AT&T and others are still ramping up their “Groupon killers”).

To me, Facebook and Yelp are mostly following former GE head Jack Welch’s edict to always be among the Top 2 players. As Welch famously said, “When you’re No. 4 or 5 in a market, when No. 1 sneezes, you get pneumonia. When you’re No. 1, you control your destiny.” In the case of both companies, they can buy their way in later.

Let’s look at Facebook first. Conceptually, there has been much to admire in Facebook’s prospects in deals. It had strong potential to target users based on their FB posts (i.e., proclivity to go to happy hour, buy discounted travel and attend jazz concerts).

It also has been poised to use Facebook messaging to lessen reliance on email overload — a real advantage if one accepts the idea of email fatigue. The site’s ability to ramp up Facebook Credits as a transactional agent also loomed large for closing the loop on sales.

But as Facebook realized, none of these conceptual advantages was really ready for prime time. Moreover, during the four months it was in the deals market, its ability to source deals from other players resulted in nothing special and inevitably, in an “also ran” status.

Perhaps Facebook can come back via a smart acquisition — including some feet on the street. Meanwhile, its local efforts continue to smartly build via Ads, Pages and Sponsored Stories.

Yelp, similarly, saw a ripe opportunity to highlight local deals when it entered the marketplace a year ago. It also, ambitiously, was seeking to source deals via a ramped-up local deals sales force — taking on the big players directly. In June, it integrated its deals into its smartphone apps in more than 20 markets.

But Yelp may have been a little out of context in the deals space — it has such a strong identity for its local business reviews. And the requirement to highlight a daily deal for a site that might be a less regular habit ended up watering down the deals quality. According to data from Yipit, Yelp’s deal revenues were down from $30,000 a deal at the beginning of the year to $10,000.

Yelp now says it will focus on fewer deals that can get more attention. Weekly service deals featured on sites such as Angie’s List and Kudzu have done well in this manner.

So, what conclusions can we draw from these pullbacks by Yelp and Facebook? Some of the press thinks it means deals are going down, having already peaked. This is supported by Yipit data, which show that 38 daily deal companies have recently quit the business, while just 36 jumped in (a point of trivia which means nothing at all, really).

But here’s another thought: What if the pullback shows that there really are, perhaps, barriers of entry after market leaders have been established? This is what Groupon board member Ted Leonsis cryptically suggests.

But I would suggest that there are other signs of vulnerability — for the big guys as well. I think there is little doubt that deal quality — and the positioning of deals — has really suffered. In my market of San Diego, the same deals are being repeated, and uninspired merchants are being featured. Indeed, hardly anything has tempted me (or amused me) for months.

It is probably a reflection of my personal interests, but the only deals site that consistently engages me is Marketsharing, a B2B site that constantly comes up with fresh takes on B2B offerings (messenger delivery, cleaning services, copier discounts). In the end, it might be the interesting niche sites with highly curated offerings that really end up driving this thing.

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