Archive for the ‘Group Buying’ Category

Crowded House: Google Offers and Facebook Deals Launch, eBay coming soon?

April 27th, 2011
by Tim Resnik

Amidst the feeding frenzy of hungry start-ups trying snag market share from Groupon and LivingSocial, Google and Facebook near-simultaneously threw their daily deals hats into the ring. The speculation and rumors that Google was building their own platform after failing to purchase Groupon for $6 (capital B) Billion in December 2010 came to fruition on April 21st when they announced Google Offers. Just 5 days later, Facebook announced Deals and launched in 4 cities. While the blog and news sites ate-up, and sometimes regurgitated, this information, another internet beast was quietly making its own move.

On April 20th eBay announced that it acquired a company called Where that provides local search, discovery and “deals” mobile applications. eBay plans to integrate Where into PayPal’s services for local businesses and it seems highly likely they will offer a group buying service. More info about Where below:

 

 

According to BIA/Kelsey, a Chantilly, Va., consulting firm the daily deals market is expected to grow to $3.93 billion in 2015 from $873 million last year. Driving the market is an insane adoption rate of smart phones, a stagnant economy that has people bargain hunting, and extremely competitive retail markets, like restaurants, looking to lay claim to dollars from tight wallets. This created an ideal environment for Groupon and LivingSocial to explode on the scene. Heck, Groupon went from 0 to 60 so quickly that they even had the opportunity to launch a tasteless ad campaign during the super bowl (sorry, had to get that one in there). Several underwhelming copy cats emerged and have been appropriately scoffed at by Groupon, but now the big boys have shown up and are posed to snag the first-movers’ milk money.

As first-movers, Groupon and LivingSocial have the benefit of a few textbook advantages, but are not entirely defensible. Most notably, they have an established operational and sales network designed to bring retailers and customers together. For several reasons, small-business owners are not an easy bunch to sell to and require “feet-on-the-ground” in order to close the deal. Groupon and LivingSocial have a proven track record of selling and delivering. Traditionally, first-mover advantage includes that of switching costs. However, in this case there are none, and in fact, the social/viral nature of group buying encourages customers to sign up for as many coupons sites as possible for FREE.

As a group, the very large, established internet-firms have two primary advantages as compared to the first-movers. First, is access to large amounts of capital; all three firms have cash in the coffers. Google has the largest advantage in this category, and because Facebook is still burning investment dollars they are in a somewhat weaker capital resource position (IPO anyone?). Second, each company has unfathomable reach and customer data. Groupon’s 10 – 20 million registered users seems quaint compared to the aforementioned.

Google Advantages:

  • Operates the largest internet ad platform and can use it in many ways to spring board Offers
  • Is the provider of the most widely adopted mobile platform, Android
  • Disadvantage: seems to have a hard time convincing users to think of them as a social site. As with my concern with +1, people perceive Google as a place to look for information, not to connect and/or share with friends. However, people like free and cheap stuff, so this could be the social platform that changes that perception for Google

Facebook Advantages :

  • 600 million socially connected people
  • Specific data on what brands users “like” and are connected with
  • Is inherently a social platform and is perfectly primed for group buying
  • Disadvantage: fewer resources (relatively)

Now that everyone wants a piece of this market, what does it mean for the two most important stakeholders: customers and retail businesses? Basic economics tells us that the higher the supply or competition the lower the prices. The group buying sites can’t directly control price, but have a few variables that they can control: the value of the offer to the consumer, the percentage of revenue they take from the retailer and the type of coupons that they offer. Ultimately, increase competition will flood the market with better and better deals for the consumer and lower margins for the providers and retailers. As group buying hits the mainstream and everyone is conditioned to be a bargain hunter, the question is: at what point do the costs outweigh the benefits for the retailers and the market is turned on its head?

 

By Tim Resnik