Google Offers struggling three months in: report

Eric Schmidt (R), executive chairman of Google, speaks during the Dreamforce event in San Francisco, California, September 1, 2011.

SAN FRANCISCO (Reuters) - Google Inc's effort to break into the daily deal industry and challenge industry leaders Groupon and LivingSocial is not going well, according to data released on Monday.

In its third month of operation, the performance of Google Offers declined in its major markets of New York, San Francisco and Portland, Oregon, data from industry tracker and deal aggregator Yipit show.

Total revenue generated by Google Offers dropped 23 percent in August from July despite a 22 percent increase in the number of daily deals run, according to Yipit.

Revenue per deal fell 37 percent, driven by a 46 percent slump in the number of vouchers sold per deal.

The average price of Google Offers vouchers increased 18 percent, but it remains "far below" that of Groupon and LivingSocial, Yipit said.

The online daily deal industry has exploded into a multibillion-dollar business since Groupon was launched in late 2008. That growth has attracted hundreds of rivals, including giants like Google, Facebook and Amazon.com Inc.

Such competition has raised questions about the sustainability of Groupon's business model ahead of a planned initial public offering. Last week, Groupon put its IPO on hold for at least a few weeks.

Still, some rivals have stepped back in recent weeks. Facebook ended its daily deals business and Yelp chopped the number of offers it runs.

In contrast, Groupon gained market share in August. Revenue was $120.7 million in North America, up 13 percent from July, Yipit said on Monday.

LivingSocial revenue in North America slipped 3 percent to $45.1 million in August, Yipit data show.

Groupon's market share increased to 53 percent in August from 51 percent in July, while LivingSocial's market share declined to 20 percent from 22 percent, according to Yipit.

Amazon Local generated more than $1 million in revenue in August, despite being active in only a handful of markets for the full month, Yipit said. Amazon owns part of LivingSocial and sources some of its deals from the second-largest daily deals company.

(Reporting by Alistair Barr; editing by John Wallace)