The Group-Buying concept
A group-buying or daily deals website presents a huge "discount deal of the day" everyday, on lifestyle-related services, such as restaurants and hotel accommodations. The site works on the concept of hyper-local and collective bargaining. It usually presents deals to its members in their nearby areas. Thus, different deals are offered to members based on the locations from where they log on to the site.
The discount deals are usually opened for certain durations. To avail a discount, members first have to express interest in the deal of the day. However, whether they get the discount deal or not is a function of the number of members who show their interest in the deal. The deal can be availed by members only when a specified number of members (critical mass) apply for it.
eBay.in, the prominent player in the e-commerce space, also ventured into the daily deals business and launched its group buying operations in Delhi and Mumbai regions.
Thus, two more companies join the daily deals sector in India, which is already overcrowded.
The group of group buying
More than 20 daily deals/group buying sites or daily deals aggregators are already active in the country, including Snapdeal.com, Dealsandyou.com, Mydala.com, Taggle.com, Buzzintown.com, Koovs.com, Dailydeal.in, Dealivore.com, Khojguru.com, Thekha.com, Scoopstr.com, 24Hoursloot.com, Masthideals.com, Snatchdeals.com, Lootmore.com, 30Sunday.com and Bindasbargain.com.
Many more group buying sites are expected to emerge soon. afaqs! has learnt from reliable sources in the industry that some prominent internet companies are finalising their plans to venture into the daily deals business in India.
Readymade software packages (to create daily deal sites) are available online. Many web development firms such as Agriya.com, Contussupport.com and G-antssoft.com have started selling the facility to build websites such as Groupon in India. "A new daily deals website emerges every third month," observes Kunal Bahl, chief executive officer, Snapdeal.com.
The rapid rise in the number of daily deal sites has created a lot of hype in the Internet space. However, this does not mean that everything is fine.
Where is the revenue?
It is estimated that the combined number of coupons sold by about 20 daily deals websites in a single day are about 10,000, including multiple deals in multiple locations. Considering the average price of each coupon (at Rs 350), the gross sales value or turnover achieved by the daily deals industry is Rs 35 lakh per day, bringing the monthly gross coupon sales/turnover to about Rs 10.5 crore for 20 websites.
As per the business model of daily deals websites, they earn revenue from sales commissions on coupon sales. Most industry players charge 8-20 per cent of the total coupon value as sales commission in India. Assuming that 15 per cent average commission is earned on each coupon sale, the net amount of money earned by 20 websites (together) would be Rs 1.5 crore monthly.
This is definitely not a good net revenue figure and must not be sufficient to run or incur costs (of human resources, marketing and site maintenance) of 20 companies.
Many of the deals websites offer similar deals from the same retailers in the same localities.
"The same merchant often gets featured on competitive sites within a fortnight, if not on the same day. I have noticed that Cafe Coffee Day was the deal on Taggle.com and Snapdeal.com on the same day, and a deal on Blackberry phone, which was available on Dealsandyou.com, was made available on Snapdeal.com within a week," observes Guneet Singh, ex-co-founder, Dealsandyou.com.
According to audience measurement website Vizisense.com, there was no huge difference in the number of unique users who visited Mydala.com (1.07 lakh) and Bindasbargain.com (1.9 lakh) in December, 2010.
Websites such as Snatchdeals.com, Dailydeals.in and 24Hoursloot.com have not even got a lakh users in December.
Even Dealsandyou.com, touted as a significant player, was not much ahead of Buzzintown.com last month. While 11 lakh unique users visited Dealsandyou.com, Buzzintown.com received 7.3 lakh unique users. Snapdeal.com managed to get 40 lakh unique users in December.
Also, there are chances that the mentioned websites are getting duplicate traffic since the type of service offered by most of the daily deals sites is almost the same.
Tolia adds, "It is easy to set up a daily deals site and very difficult to scale it up on a day-to-day basis."
He further adds, "One can set up the deals site and also manage to get deals from local merchants if one hires four-five people in a city. However, it is not that simple for all daily deals sites to build a strong database and get local customers who will actually visit and buy deals from the site."
Tolia closed the daily deals site named Mobstreet.in last month, after running it for 10 months, because of scalability issues. Even Bahl agrees that it is very hard to scale up the deals business.
The survival puzzle
Says Kiran Gopinath, founder and chief executive officer, Ozone Media, "If the same situation continues, it may turn out to be a bubble for many daily deals websites. It will become difficult for many group buying sites to sustain in the low revenue situation in the long run, unless they manage to get funding or have deep pockets."
In case of non-family funded companies. or where the owner of the site does not have his own money to support the venture (which may be the case with a few daily deals sites), other sources of funding may be required.
How many daily deals websites can get venture funding is a puzzle in itself. Fundamentally, venture investors like to invest in projects which are unique, scalable and can earn them significant profits. Considering this fact, it seems that getting funds will not be an easy task for daily deals websites. "The propensity to invest in group buying sites is now going down with each passing day," says Bahl of Snapdeal.
He elucidates, "Venture investors have now realised that group buying is not as easy a market as they expected it to be in its earlier days. Also, things are not very well for many group buying sites. They are facing issues related to less sales margins, attrition of sales force and unhappy merchants. With such a situation, investors will not like to lock their money in these ventures."
Says a venture investor, "Perhaps unknown and new players will not receive funding easily, but some prominent deals sites could get the next level of funding by venture investors if they manage to scale with profitability."
Some websites which are already funded are Snapdeal.com (by NEA-IndoUS Ventures), Taggle.com ($8.75 million by Battery Ventures) and Greylock Partners. Mydala.com is funded by private equity veterans Ajay Relan and Jayanta Basu. Dealsandyou.com is backed by Group Buying Global.
Survival of the fittest
So how many of the daily deals sites would be able to stay alive? Says Anurag Gupta, managing director, DGM Media, "I do not feel all daily deals sites will survive. There will be a consolidation in this space for sure." He further adds, "I feel there will be space for more than one player to grow in this business. One player will not win it all. It will be like the online travel or job business, where three-four players have significant market shares."
It will be interesting to watch how big group buying sites scale up and how small players save themselves in the future. Will they innovate and differentiate their services to sustain themselves in the long run? Will they leverage the mobile platform, where they could find a bigger user base? Or, will deal sites scout for alternative revenue streams such as advertising to earn profits?
For feedback/comments, please write to firstname.lastname@example.orgFirst Published : January 18, 2011