It has been a great week for the people who own and run online daily-deals business, thanks to Google and Amazon raising their profile via investment and acquisition offers.
Google offered an astounding $US6 billion for the United States-based Groupon, which – as John Chachas, the founder and managing partner of Methuselah Capital Advisors, put it – equalled the gross domestic product of a small country.
Perhaps more astounding, the owners of Groupon rejected the offer. Clearly they have a lot of faith in their product and their business, a two-year-old business in the fickle dot-com world.
Presumably the owners of Groupon have a solid strategy and plan, as Google is unlikely to back away from the daily-deals business. If Google sets up its own website, Groupon – a company with a market capitalisation of $US105 million – will be up against a business with a market capitalisation of $US163 billion and one of the strongest brand names in the world.
Google is not the only company interested in the daily-deals market. Lost in the shadows of its unsuccessful (at this stage) bid for Groupon was Amazon’s $US175 million investment in LivingSocial.com, which is Groupon’s closest competitor.
Why the sudden interest in daily-deals websites and what do these sites offer?
To quickly summarise, these websites typically offer 50 to 70 per cent discounts on the retail prices of specialist consumer goods and services, such as health, beauty and lifestyle products and entertainment services.
To generate a sense of urgency and exclusivity, these offers are available for just 24 hours and only activated when a certain number of people request to purchase the offer (hence the “group coupon” play on words).
The formula is one that clearly appeals to consumers. According to Reuters, Groupon’s global network has more than 33 million subscribers across 35 countries.
While Groupon is not present in Australia, more than a dozen copycat companies have appeared here over the past year, including Jump On It, Cudo, Spreets, Scoopon, OurDeal and Zoupon.
This flurry of daily-deals sites has resulted in the appearance of aggregator sites such as allthedeals.com and buyii.com, which make it easier for consumers to quickly review all the offers available.
Beyond consumer appeal, there is also a significant opportunity for small local businesses in the daily-deals market.
The opportunity lies not so much in the revenue these sites generate for the businesses on the site but in the marketing exposure the sites provide, together with the ongoing revenue potential associated with repeat purchases from new customers, assuming the services provided are up to scratch.
From a cost perspective, the model is low-effort and low-risk as the commercial model is typically commission based. Groupon’s commission is reportedly 50 per cent of the sale price, plus credit card charges where applicable.
From Google’s perspective, the potential of adding timely offers to local businesses in its Place Search product not only provides an improved online user experience and a greater reason for local businesses to extend their Place Search relationship, it would also enhance the company’s product offering on mobile, through the associated localised relevancy, usefulness and thus desirability to consumers.
The extended reach resulting from the mobile extension and the visibility and positioning in Google search would mean a far more compelling proposition to local businesses than any independent company can provide, which begs the question: was Groupon’s rejection of Google’s $US6 billion takeover offer wise, or will it be the start of their demise?