Yipit rides the daily deal chaos to success

Yipit co-founders Vinicious Vacanti and Jim Moran

Groupon is getting hammered in the press in its lead up to an IPO. Facebook is closing its daily deals experiment after four months, and Yelp is reorganizing its deals effort. It’s a tumultuous time in the young daily deals market, but the volatility is just proving to be more opportunity for New York start-up Yipit, a deals aggregator and recommendation service that is growing fast and leveraging its wide knowledge of the industry.

Yipit currently gathers deals from more than 600 daily deal sites and presents the best of them to users based on their pre-selected interests and location. That ensures that users see a good cross-section of deals, but only the ones that matter to them. This addresses the issue of relevance, one of the problems of many daily deals services. Yipit, which got started by in March of last year, ended 2010 with 100,000 users and is up to 250,000 members as of the end of June. Those aren’t Groupon numbers by any stretch, but Yipit has achieved that level of success without any advertising.

Co-founder Vinicius Vacanti, who founded Yipit with Jim Moran after they fled finance jobs, said the boom in daily deals has created a ripe opportunity for companies that can make sense of all the offers, much like Kayak organizes travel information. And with the proliferation of daily deals services, Vacanti says consumers are now getting more skeptical that they’re getting the best offers from any one provider.

“With all this fragmentation of content, consumers like to to go to one place where deals are organized for them and they can know what the best recommended deals are,” he said.

Yipit isn’t the only company to ride the daily deal boom and earn affiliate fees for referring consumers to other daily deal sites. Others like Local Offer Network, Adility, Monster Offers and Analog Analytics also round up deals. And Deal Map, a Yipit competitor, was recently snapped up by Google (s goog), which is aggressively expanding its Offers product.

But Yipit is not just a simple aggregator. It’s now using its broad knowledge of the sector to build up a data business, which is actually bringing in the lion’s share of Yipit’s revenue. By tracking the deal metadata, purchase counts, deal categories and what’s selling, Yipit has deep insight into the overall health of the daily deal market. For example, it recently reported that daily deal revenue overall declined by 7 percent in July, and Groupon grew its marketshare to 49 percent.

Yipit started licensing the information in February to other daily deal sites looking for opportunities, and then began pushing out monthly reports in June starting at $495 per edition. Later this month, it’s planning on offering investor reports that covers the worldwide daily deal market.

Vacanti said he expects affiliate fees to eventually return as the main revenue driver, but he said the data business has been a nice surprise and has allowed Yipit to focus on user experience without having to resort to advertising.

“90 percent of what we do is already on the consumer side,” Vacanti says. “It’s just a little more work to package it up and license it up and monetize it.”

From his perch above the larger market, Vacanti has a good perspective on the trends in daily deals. He said he wasn’t surprised by Facebook’s withdrawal, since the company didn’t do a good enough job explaining its daily deals and integrating them into the site. He said the lesson is that companies can’t just tack on daily deals; they need to incorporate it thoughtfully and frame it as a service for consumers, not as advertising. Companies also need to invest in sales people according to Vacanti, because self-serve tools are not enough to extract attractive deals from merchants and businesses.

As for Groupon, he expects the IPO to go off as planned. But he said the biggest challenge is its reliance on the email inbox, which is now swimming with daily offers from other services. That, he believes, is affecting Groupon and other daily deal sites’ conversion rates. “The key is how to get out of the inbox and get users to the website or the mobile app,” he said.

But while some individual companies may struggle at times, Vacanti said the overall daily deal market is healthy and has room to grow. That will only mean more opportunities for Yipit and other aggregators. Yipit raised $6 million in June from Highland Capital Partners along with existing investors RRE, DFJ Gotham and IA Ventures. It previously raised $1.3 million last year from SV Angel and others. The company is in the process of moving out of its space at General Assembly to a nearby location in the Flat Iron district. Vacanti said the company is focused on the product and isn’t looking at selling like Deal Map. He said there’s still a lot of opportunity in remaining independent in this market.

“It’s still very chaotic in the daily deals market but a lot of opportunities emerge to take advantage of that and that’s what we’re doing,” argues Vacanti.