Is Group Buying a Fad or a Revolutionary New Local Advertising Vehicle?

What is Group Buying?
Daily offers to buy a local product/service at a deep discount (50-90%).
It must be bought in a minimum quantity, otherwise, the seller will not allow the purchase.
Comes with conditions and expiration date
Close cousin to the coupon industry
Also called daily deals, social buying or offers
Source: some content from Wikipedia

How Does it Usually Work?
Interested buyers are asked for credit card details, which will be charged only when a required number of buyers registers
Intermediaries charge merchants a percentage fee (30% to 50%) of the total value of the whole deal.
Limit: once a quarter at most for an individual local advertiser

What Does it Look Like? Source: http://www.thedinnerdetective.com/colorado/denver/groupon.html

Benefits
For consumers: bargains!
For local advertisers:
Brings pre-purchased customers to the door
Redemption rate: 90%
Demand supply management for small and medium-sized businesses (SMBs)
« Customers not clicks »

Downside
Volume of group buying alternatives to SMBs is overwhelming
Can you grow a profitable business by discounting?
Deal-driven consumers (do SMBs retain long-term customers?)
Are they bought by existing customers?
SMBs don’t keep the e-mail addresses

Tuangou: Real Origin of Group Buying
Originates from China
Several people via the internet agree to approach a vendor of a specific product in order to haggle with the proprietor as a group in order to get discounts.
The entire group agrees to purchase the same item.
The shoppers benefit by paying less, and the business benefits by selling multiple items at once

North American Ancestor: Mercata
Launched in 1999
Slogan: "If you're not part of the we-commerce revolution, you're history!"
$89M invested
Folded in January 2001
Ahead of its time
Source: some content from Webcast: Local Social Commerce - The Explosion of Group Buying

Competitive Landscape
120+ players in North America (500+ worldwide)
Low barriers to entry
Remarkable success
Immediately competitive and generating revenue

Groupon: The 1000-pound Gorilla
Launched November 2008
Based in Chicago
$170M in VC investments
Valuation: $1.35B
Estimated 2010 revenues: $350-$500M
More than 100 cities
33 million e-mail subscribers
Gap: 441,000 deals sold

Groupon’s Stratospheric Growth Groupon is on pace to pull in $1 billion in sales, faster than any company in history Source: Forbes

In Montréal: 8 Players
Tuango
Teambuy
Steal The Deal
LesPac’s Promo du Jour
Rabais du Jour
Livingsocial
I Love MTL
iGet.it

Tuango.ca
http://tuango.ca
Based in Montreal
Launched in 2010
Launching Quebec City in September 2010
Seems to be one of the local leaders

Teambuy
http://www.teambuy.ca
Based in Toronto
Launched in October 2009
In 4 cities (Toronto, Vancouver, Halifax and Montreal), with 3 others coming soon
Seems to be one of the local leaders

StealTheDeal
http://www.stealthedeal.com/Montreal
Based in Guelph
In 11 Canadian cities
Seems to repeat same deals very often

LesPac: Promo Du Jour
http://www.lespac.com/Promodujour
Based in Montreal
Owned by Yellow Pages Group
Not launched yet

Rabais du Jour
http://www.rabaisdujour.com
Based in Montreal
Waiting to get to 2000 subscribers before launching

LivingSocial
http://livingsocial.com
Based in Washington DC
In 52+ cities
Raised $44M in VC investments
Not launched yet in Montreal

I Love MTL
http://ilovemtl.ca
Based in Montreal
Not launched yet

iGet.it
http://iget.it
Based in Montreal
Not launched yet
Positioned as social commerce platform
More exclusive/luxury goods?

Expecting new players
Entry of traditional media brands
Gesca
Transcontinental (Publisac)
Quebecor Media
And Groupon!

The Future of Group Buying
More growth in the space
Consolidation and Verticalization
Physical goods
Integration within traditional media bundle and SEO/SEM
Technology providers (GroupCommerce, Close.ly, Offerex)
Offer aggregation (Yipit, The DealMap, Aubaines.org)
Offer re-selling (Lifesta)

Food for thought
Not a fad, not revolutionary but definitely game changing and here to stay
Perfect in a recessionary environment
Gives more power to the consumer
Does it cannibalize local media advertising? (newspapers, coupons)

Recommended Reading
Yipit Blog, http://blog.yipit.com
Greg Sterling, http://www.screenwerk.com
My blog: http://blogs.praized.com/seb

Merci!
Sébastien Provencher
Co-founder
Praized Media
[email_address]
http://blogs.praized.com/seb
http://twitter.com/sebprovencher

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Is Group Buying a Fad or a Revolutionary New Local Advertising Vehicle?

by Sebastien Provencher on Aug 25, 2010

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Is Group Buying a Fad or a Revolutionary New Local Advertising Vehicle? — Presentation Transcript