This is a guest post by Tim O’Shea (Twitter: @timothyoshea), founder of Blurtit, co-founder of Qhub and most recently co-founder of the short lived UK group buying website Snippa. He addresses challenges facing the group buying site market in the UK following the explosion of Groupon clone style startups through his own experience with Snippa.
On a trip to New York in November 2009 I stumbled across Groupon for the first time. The deal displayed for New York seemed too good to be true and despite the obvious active community I quickly closed the page.
However, within a few weeks of my return I revisited Groupon again after reading the first Groupon TechCrunch post and decided that the UK needed this service badly. It appears I wasn’t the only one thinking the same thing! I put together a team with my co-founder David Hobart at the end of 2009 and set about building a business focused initially on London. By March 2010 it was clear that we weren’t going to be able to do what we set out to do in the short term (offer exceptional deals to our customers) and that some of the competition were clearly out gunning us. So Snippa was closed down a few weeks after its launch. In this post I’m going to share what I learnt about the group buying market in the UK at a time when a large number of similar startups are chasing the same goal.
Challenges Facing The UK Group Buying Market
The number of players
Due to the number of players, commission levels are being eroded far from the 40-50% that Groupon achieves down to 0% just to get the deal (at Snippa our deals averaged around 10-20%). Merchants are getting numerous phone calls from prospective group buying companies and the conversation with many is more about the commission level charged rather than how they could offer a great discount for a group of new customers. This will continue until a clear leader emerges that can demonstrate a large customer base allowing them to negotiate better deals and commission levels. Many companies chasing the same deal is counter productive for the end customer.
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. Throughout Europe there is more scope, but launching in every country with its individual particularities will take a pan-European focused and well funded company.
Starting with no marketing list
There is a good reason Groupon makes you enter your email address before viewing the deals, the size and effectiveness of the email list is key. Any startup addressing their list en mass before putting deals live will stand a far higher chance of success and good funding helps solve this. It is worth remembering that Groupon started as The Point, a platform for collective action, and that members started using the site to organise group purchases.
How To Win The War
Product and distribution. Great product has shown it will spread (see the MyCityDeal film offer below). We at Snippa had hoped to be able to compete with heavily funded competitors by focusing on great product to build distribution with limited expense (in a similar way that Zappo focus budget on customer service rather than marketing). Whilst we managed to get good deals, the killer deal was out of our reach due to the amount of competition, meaning our product distribution strategy was questionable. Moving forward this may change as the number of competitors merge and dwindle. On reflection we should have built the distribution list first.
Distribution is currently being built via email sign up by the following methods: Refer a friend, Twitter, Adwords PPC, PR, affiliate schemes, Facebook fan pages (built by Facebook PPC) and loss leader deals. A large customer acquisition budget is needed ongoing to secure market share.
Leading the Pack
MyCityDeal are clear leaders in terms of current customer base and funding in the UK. Deals such as the £1 film voucher, selling (they claim) in excess of 27,000, has allowed them to buy a large customer base. This deal looks to have been subsidized (at an estimated cost of £125k+) but has been really effective in launching them in the UK. Well funded with an experienced team, MyCityDeal look likely to succeed.
Groupon are yet to launch in London but are amassing email addresses and deals. When they launch, expect their offering to be very strong. No UK startup has been able to build the exceptional branding and community and feel Groupon has achieved. Additionally the lessons they have learnt operating in the USA will give them a clear advantage.
Wahanda seem to have traction in terms of Heath/Spa/Beauty but due to the niche can not go for the bigger cross product offering Groupon and MyCityDeal are after.
Recently launched Keynoir (following a merger with DealBunch) have an experienced team, well known backers and £1.3m funding from Index Ventures and PROfounders Capital. Although it is too early to see if they will gain traction, they certainly have the credentials to do so.
Huge funding or an existing customer base look to be the the features of a successful group buying startup.
And Bringing Up The Rear
Surprisingly, Groupola don’t appear to be selling large quantities despite a massive email list from MyVoucherCodes.co.uk and a strong company behind them. Others such as Dealmob, Wowcher, Vivavoucher, Mypiggyback are all selling but in small quantities. LikeBees and KGB deals (part of the 118 118 group) are worth watching. To stand a chance of being a market leader, these players need to raise significant funding or need to find a creative way of building a list, such as partnering with someone that already has one.
Predictions For The Future
The UK will have two dominant players, each achieving a smaller market share than the if there was one, thus not achieving the traction Groupon has achieved in the US. MyCityDeal I believe is on target to be the strongest throughout Europe. Any new players coming into the market will need to either have large current distribution or high levels of funding to compete at the top level. There will be space for a number of smaller players if they are able slowly build customers over the next two to three years. A number of niche players (such as Wahanda) will achieve traction, but not at the Groupon deal volumes.
Other Group Buying Opportunities
Group buying in the daily deal format has been proven as a scalable business, as such expect iterations be applied in different formats:
Local businesses with low buy ins: Opening the group buy to a local businesses platform for smaller deal volumes in a self service format. For example, a small local hairdresser wants to fill 5 chairs of unsold inventory on a quiet Thursday afternoon.
Group buying for business services: Many business services have large gross margins allowing for great discounts, thus taking the risk out of working with a new supplier.
Existing communities: Websites (Facebook Pages, Forums, Blogs etc) with an existing community are in a great position to add a group buying feature for their members (imagine if TechCrunch did a group buy on cloud servers!).
What I Would Do Differently
In the rush to launch Snippa we forgot to innovate and iterate significantly, we would have been better off evaluating the competition more throughly and taking action before launching. Ways to compete could have been taking the model to a niche (rather than go head to head against the mass of competition) or alternatively putting resources into finding a novel way to build a customer list.