Group Buying and Social Commerce Startups in Europe: A quick look at some players and trends Mike Butcher Editor, TechCrunch Europe

WARNING I am *shit* at Powerpoint, and prefer words to pictures, sorry You can complain to me

Group buying. Isn’t it fun!

It’s a revolution

WHERE DID GROUP BUYING COME FROM? “group buying” or “store mobbing,” tuangou is a shopping method that originated in China. People would swarm a store all at once and haggle for a group discount on a particular item. But people quickly realized that it was a lot less painful to contact other potential buyers and organize massive group buys online.

Let's go! (your last picture for a while)

THE OLD MODEL Start a group dedicated to a specific product and set a target price. Alert your network and encourage them to add in to your group. The more people join, the lower the final price. The group closes and vendors bid on the sale; lowest bid wins. The group is happy because they’ve just got a substantial discount, and the vendor just sold a lot of product

WHY DID IT FAIL IN THE 90s? Sites like Mercata and Mobshop in the 90’s failed because: Buying groups could take days or weeks to form No social networks so no word of mouth

THIS TIME IT WORKS Social networks have made people used to joining groups quickly Texting, Facebook and Twitter means deals spread fast Groups fill faster creating larger discounts, incentivising buyers Offers for specific products

BENEFITS Big discounts Discovery of unknown new services Often get ‘side deals’ in addition to main deal Deal personalization potential Targeted by location (e.g. postcode)

WHO IS BUYING? Tend to be affluent with disposable income 18 to late 30s Likely Facebook and Twitter users

ECONOMICS Merchant retains minimum 50% of the deal High offer redemption rate, about 80% High spending Repeat customers (around 20%)

BEST FOR… High fixed cost businesses Business with high customer acquisition cost, normally have to advertise A LOT Business thriving on repeat customers. e.g. spas, lifestyle, restaurants

TOP CATEGORIES City tours, Hair Removal, Spa days, Facials, Massage, Yoga, Manicures, Seafood, Pizza/Fast food, Hair Salon FOLLOWED by Restaurants, Fitness, Life Skill classes, Food and grocery, Sporting events, Beer, Dance classes, Home services, Bars and Clubs, Treats, Wine tasting, Womens clothing, Theater

(So probably more men than women, then)

EUROPEAN EXAMPLES?

GERMAN GROUP OFFERS Two main players

Groupon City Deal (The former MyCityDeal purchased by Groupon) Active in: Aachen, Augsburg, Bergisch Gladbach, Berlin, Bielefeld, Bochum, Bonn, Bottrop, Braunschweig, Bregenz, Bremen, Bremerhaven, Chemnitz, Cottbus, Darmstadt, Germany, Dornbirn, Dortmund, Dresden, Duisburg, Düsseldorf, Erfurt, Erlangen, Essen, Feldkirch, etc etc etc

DailyDeal Arch competitor to competitor to Groupon CityDeal Active in: Aachen, Augsburg, Berlin, Bielefeld, Bochum, Bonn, Braunschweig, Bremen, Chemnitz, Darmstadt, Dortmund, Dresden, Duisburg, Düsseldorf, Erfurt, Essen, Frankfurt / Main, etc etc etc

OTHERS donandaDeal Deal Ticket Cooledeals Promozebra GetDeal OecherDeal Deals4 West Deal (so at least 10 players in Germany)

A LITTLE BACKGROUND Samwer brothers/ European Founders Fund backed Groupon bought MyCityDeal for a rumoured €100m DailyDeal is backed by Team Europe Ventures They don’t get on.

UK GROUPON CLONES Groupola, Groupon City Deal, Scrum Buy, Wowcher, Deal Bunch, Viva Voucher, KGB Deals, Wahanda, Snippa (closed), Likebees, Deal Mob, London’s Best (11 in total)

UK MAIN PLAYERS Groupon City Deal Keynoir (merged with DealBunch) have an experienced team, well known backers and £1.3m funding from Index Ventures and PROfounders Capital. Wahanda: Heath/Spa/Beauty niche. Groupola - Spun out of MyVoucherCodes.co.uk - selling slowly, lower end

OTHERS Dealmob, Wowcher, Vivavoucher, Mypiggyback - selling but in small quantities. LikeBees and KGB deals (part of the group) are worth watching

LET’S HAVE ANOTHER SPAIN: Spanish group buying site Groupalia has raised €2.5 million Groupalia, a Spanish Groupon clone And let’s not forget the grand-daddy - Vente-Privee in France passed €650m in turnover last year.

I COULD GO ON But in other words, they are everywhere now

UK CASE STUDY

THERE ARE MASSIVE CHALLENGES 1. The number of players means commission levels are being eroded far from the 40-50% that offers sites want to achieve down to 0% just to get the deal. This will continue until a clear leader emerges. The same is likely to happen in each Euro market

2. Market size The UK does not have the volume of high population cities (compared to the US) so the competition is even more focused on London as the top prize. Europe has more scope, but requires cash to acquire each city (Groupon has it).

3. Starting with no list You need an initial list. Groupon makes you enter your address before viewing the deals. Do you?

4. How To Win Product and distribution: Great product wins. No great products, distribution suffers Lesson: Build the distribution list first, then use that as leverage to get and offer the best products

4. How To Build distribution sign ups via: Refer a friend, Twitter, Adwords PPC, PR, affiliate schemes, Facebook fan pages (built by Facebook PPC) and loss leader deals. And a large customer acquisition budget.

How did MyCityDeal win (so far) in the UK? The £1 film voucher sold over 27,000, brought in a large customer base (subsidy was £125k+). Plus a great team.

PREDICTION The UK will have two dominant players, at this point MyCityDeal and Keynoir Again, this is a scenario likely to repeat across each European market

LET’S LOOK AT TRENDS - Group buying has had remarkable success - Easy to Launch - Immediate generating revenue - Trend towards for decentralization - Clones everywhere! - Media Publishers are now in on it (Underlying deals are powered by partners and aggregators)

TRENDS - Advertising spend is shifting away from other forms of media to group buying (media, watch out) - More and more fragmentation, especially in publisher/white-label partnerships - High growth among users and businesses - Local advertising media owners threatened

AND FINALLY We will gradually see more and more local businesses using group platforms for filling excess inventory, smaller deals, self service format (e.g. small local hairdresser wants to fill 5 chairs)

PROBLEMS - Consumer Retention is Difficult… - You get deal driven consumers not long term customers, you don’t own the and customer retention is low - Limited network effect because the deals are one-off - Clones don’t require exclusivity on deals - Startups that solve those problems will do well

AND Retailers may go off the idea: Selling any product at a loss at scale is unsustainable. Why pay full price at any restaurant - ever - if every morning 10 new restaurants put 'deals' in your box offering you the chance to eat at 50% off? Duh!

MY HUMBLE SUGGESTIONS - Incentivise the repeat deals - Smart Groupon businesses offer follow-on discounts - Targetting people on the way from their work to their homes works well - Manage getting to many responses - Watch redemption - coupon life time can hurt some businesses

THE FUTURE The Future lies in getting business to accept offers as advertising, possibly even replacing traditional online ads which rarely don't generate foot traffic to physical storefronts or services. Group buying as widgets/buttons?

THREATS - If Yelp is experimenting with deals in the US then similar players in Europe will, e.g. Qype in Europe - Google has an advertising model considered complementary to group buying sites but there is a trend towards using Groupon-clones instead of search marketing and Adwords. Google won’t like that…

A picture of Groupon after Google got involved

Man the barricades! Here come the group buyers!

Mike Butcher Editor, TechCrunch Europe eu.TechCrunch.com Twitter.com/mikebutcher Linkedin.com/in/mikebutcher Thank You