Daily deals sites

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Presentation on daily deals sites for undergraduates at University of Kent.

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Daily deals sites

  1. 1. GROUPON & THE DAILY DEALS PHENOMENON Prepared by Barry Holloway for students at the University of Kent November 2011Monday, 28 January 13
  2. 2. A BIT ABOUT MEMonday, 28 January 13
  3. 3. WHAT IS A DAILY DEALS SITE? WHICH ONES HAVE YOU HEARD OF?Monday, 28 January 13
  4. 4. GROUPON IN THE NEWS IPO earlier this monthMonday, 28 January 13
  5. 5. HOW WOULD YOU SPEND £100,000? • Buy shares in Groupon - you get any increase in value • Start your own Daily Deals site - you get profits / cash if the business is sold • Put it in the bank - you get the interestMonday, 28 January 13
  6. 6. WHAT ARE DAILY DEALS SITES? Define the business as the need it fulfils for: • merchants • customersMonday, 28 January 13
  7. 7. WHAT ARE DAILY DEALS SITES? Daily deals sites are marketplaces - bringing merchants and customers together, enabling: • merchants to sell excess inventory and acquire new customers cost effectively • customers to save money and discover new products, services and brandsMonday, 28 January 13
  8. 8. WHY IS GROUPON SO VALUABLE? Compare to other online marketplaces that bring buyers and sellers together: • Google • eBayMonday, 28 January 13
  9. 9. THE GROUPON STORY • Started as a group activism site (ThePoint.com) in 2007 • Raised $30m in 2009 • Covers 54 cities by April 2010 and has sold 4 million Groupons - raise another $135m (value has gone up fourfold in three months!) • May 2010 - buys CityDeal - biggest daily deals company in Europe • August 2010 - Gap offer sells 400,000 in one day • December 2010 - Groupon turns down $6bn offer from Google and raises another $950m, with $345m going to directors • Feb 2011 - runs controversial ad during the Superbowl • June 2011 - announces IPO Source: TechCrunchMonday, 28 January 13
  10. 10. GROUPON HYPE: PR MASTERCLASS • Groupon’s growth was extraordinary • The PR story was even better...Monday, 28 January 13
  11. 11. GROUPON CUSTOMER BASE Cumulative registrants 90,000,000 •A registrant is someone who has registered, but may 67,500,000 not have bought anything 45,000,000 • The 2011 figure is for the end of March 22,500,000 0 2009 2010 2011 Source: Groupon IPO prospectusMonday, 28 January 13
  12. 12. BUYERS AND SALES UNITS Buyers Sales Units • Only 1 in 5 registrants ever 30,000,000 buy 22,500,000 • Those who do buy more than once on average 15,000,000 • Groupon makes $10 per 7,500,000 sale in commission = $270million in Q1 2011 0 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Source: Groupon IPO prospectusMonday, 28 January 13
  13. 13. WHAT’S THE HURRY? Groupon is spending vast sums to grow quickly Why?Monday, 28 January 13
  14. 14. WHAT’S THE HURRY? The market leader gets the highest margins... ... and biggest valuation A copycat could overtake them Google and Facebook are a major threatMonday, 28 January 13
  15. 15. ATTACK OF THE CLONES There are Groupon clones all over the world For example, in the US there are around 370 copycats and there are over 1,700 in Brazil Why?Monday, 28 January 13
  16. 16. ATTACK OF THE CLONES • The next big thing - huge buzz and take-up • Huge valuations being talked about • Easy to copy - low barriers to entryMonday, 28 January 13
  17. 17. HOW TO BUILD YOUR OWN GROUPON CLONE • Choose market location • Build technology: content-managed deals platform, customer database, CRM, payment systems, anti-fraud system, reporting, invoicing, customer support (or buy off-the-shelf) • Hire sales team • Acquire customersMonday, 28 January 13
  18. 18. THE CHICKEN AND EGG SYNDROME Having great offers is clearly vital, but: • How do you get merchants to give you great deals when your customer base is tiny? • How do you get customers to sign up if your offers are poor?Monday, 28 January 13
  19. 19. THE CHICKEN AND EGG SYNDROME In order to escape chicken and egg, companies: • Offer initial merchants very low commission • Increase their marketing spend • Run welcome offers - often at a lossMonday, 28 January 13
  20. 20. THE BUSINESS MODELMonday, 28 January 13
  21. 21. THE BUSINESS MODELMonday, 28 January 13
  22. 22. THE BUSINESS MODELMonday, 28 January 13
  23. 23. GROUPON’S PERFORMANCE 2008 2009 2010 Commission $0.005m $11m $280m Source: Groupon IPO prospectusMonday, 28 January 13
  24. 24. GROUPON’S PERFORMANCE 2008 2009 2010 Commission $0.005m $10.9m $279.9m - Cost of sales $0.163m $4.5m $263.2m = Gross profit e - $0.158m $6.4m $16.7m Source: Groupon IPO prospectusMonday, 28 January 13
  25. 25. GROUPON’S PERFORMANCE 2008 2009 2010 Commission $0.005m $10.9m $279.9m Cost of sales $0.163m $4.5m $263.2m Gross profit - $0.158m $6.4m $16.7m - Operating costs $1.6m $12m $700.3m = Operating loss e - $1.7m - $5.6m - $683.5m Source: Groupon IPO prospectusMonday, 28 January 13
  26. 26. THE BIG GAMBLE - REPEAT SALES Groupon will only become profitable if customers carry on buyingMonday, 28 January 13
  27. 27. THE BIG GAMBLE - REPEAT SALES 1st 1st year quarter Commission per $3.46 registrant Cost of sale per $4.86 registrant Gross profit -$1.40 Source: Groupon IPO prospectusMonday, 28 January 13
  28. 28. THE BIG GAMBLE - REPEAT SALES 1st 1st year quarter Commission per $3.46 $16.68 registrant Cost of sale per $4.86 $4.86 registrant Gross profit -$1.40 $11.81 Source: Groupon IPO prospectusMonday, 28 January 13
  29. 29. THE BIG GAMBLE - REPEAT SALES BUT: • Operating cost per registrant in 2010 was $13.84 • Increased competition is forcing marketing costs up • and commission rates downMonday, 28 January 13
  30. 30. ARE DAILY DEALS SITES DOING ENOUGH FOR THEIR CUSTOMERS TO GUARANTEE REPEAT SALES? Daily deals sites are marketplaces - bringing merchants and customers together, enabling: • merchants to sell excess inventory and acquire new customers cost effectively • customers to save money and discover new products, services and brandsMonday, 28 January 13
  31. 31. HOW DO YOU SUCCEED IN A CROWDED MARKET? • Be different • Build a sustainable competitive advantageMonday, 28 January 13
  32. 32. SO, HOW WOULD YOU SPEND £100,000? • Buy shares in Groupon - you get any increase in value • Start your own Daily Deals site - you get profits / cash if the business is sold • Put it in the bank - you get the interestMonday, 28 January 13
  33. 33. THANKSMonday, 28 January 13

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