The chances are, you’ve heard of Groupon. It’s a US-based company that offers online customers special prices on products and services, provided that a minimum number of people decide to take advantage of the offer. Groupon operates by city, and has a presence in hundreds of locations around the world. It is expected to have a turnover of more than $3 billion this year, and is preparing for a massive initial public offering. In South Africa it operates under MyCityDeal.co.za.
The site has been phenomenally successful (although that does depend somewhat on how you define success). It has hundreds of copycats throughout the world, each offering its own variant on the Groupon model and each hoping to make its own millions.
So, how many Groupon-like sites do you think we have in South Africa? Before you venture a guess, remember that these local sites are competing with the US conglomerate that has smooth-lined operations, has experience, word of mouth and credibility behind it. And oodles of cash. Oodles. Plus our online market is pretty small, at the 5 million or so people plus mobile users.
So, how many group-buying sites in South Africa? Three? Six? Nope. At least 25. Yep. There are 25 sites that think they can take on Groupon at their own game.
And they could be right.
The numbers can be a bit dazzling. Here’s an example based on real numbers of a recent Groupon Joburg deal:
1) Pay R50 for a delicious breakfast or lunch for two valued at R168 at Café Sofia
2) Value of deal: R50
3) Deals sold: 2,069
4) Revenue generated: R103,450
The commission is to be negotiated. But in the US, Groupon rarely takes less than 50%. For deals that cost less than $10 they take the whole lot (allegedly). The merchant is supposed to be happy, because he is building a new client base. So your commission could be as much as R50,000.
That’s R50,000. For one deal, in one city, for one day.
Firstly, let me take you through the logistics. It takes about R2,000 to set up a Groupon-like site. That’s it. You buy the script online for $200 to $400 or so, throw it on a server and you are ready to go. (I know this because I’ve gone through the process). The only thing between you and those millions are the great deals that will make people buy from you over and over again.
A group-buying site, however, is not an online feat, but rather a feat of good salesmanship and marketing. And even the salesmanship part is relatively easy – you tell the merchant that all he has to do is offer a deal. You will bring the customers to him, and you will give him the cash (minus your commission). No risk and no financial outlay. It’s almost too good to be true (except that sometimes it IS too good to be true, but that is the subject of another column). And so all you really need are the people. But hey… if you build it they will come, right? Especially if the deal is good.
The barrier to entry, in theory, is almost non-existent. Even the marketing, in theory, isn’t that tough since good deals travel fast by word of mouth, and all that matters is the quality of the deal. There are various deal aggregator sites that list all deals automatically, and that eases some of your marketing pressure.
So, if you are bored today, or just want a side project, here is your checklist:
So where is the catch?
There actually isn’t one. If you think that the Groupon model is sustainable (in other words, that merchants will continue to offer great deals and pay the commissions), then it follows that there will always be a customer base for the bargains. You don’t have to worry about delivery of products, because it’s all automatic and voucher-based. The script automates everything, including payments, so all you have to worry about are the actual deals and the marketing. I have watched the various local sites closely, and have seen how some have flourished, and some have stumbled. The best road to success, I think, is to make sure that you offer good new deals consistently (daily) and that you expire them quickly (Groupon’s last about 24 hours).
Then market the hell out of it, and thank me later. DM
(Disclosure: I have a group-buying script, and might launch a deal site any day, but probably won’t. I run a deal aggregator. I acknowledge that there are more complexities to the model than laid out here, and I will probably discuss them in a future column. If you want to talk to me about this, contact me via email. If you can’t find my contact details online then maybe this is not the right platform for you to be attempting a new business).
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