Download - Daily deals sites

GROUPON & THE DAILY DEALS PHENOMENON

Prepared by Barry Holloway for students at the University of Kent

November 2011

Monday, 28 January 13

A BIT ABOUT ME


WHAT IS A DAILY DEALS SITE? WHICH ONES HAVE YOU HEARD OF?


GROUPON IN THE NEWS

IPO earlier this month


HOW WOULD YOU SPEND £100,000?

•Buy shares in Groupon - you get any increase in value

• Start your own Daily Deals site - you get profits / cash if the business is sold

• Put it in the bank - you get the interest


WHAT ARE DAILY DEALS SITES?

Define the business as the need it fulfils for :

•merchants

• customers


WHAT ARE DAILY DEALS SITES?

Daily deals sites are marketplaces - bringing merchants and customers together, enabling:

• merchants to sell excess inventory and acquire new customers cost effectively

• customers to save money and discover new products, services and brands


WHY IS GROUPON SO VALUABLE?

Compare to other online marketplaces that bring buyers and sellers together:

• Google

• eBay


THE GROUPON STORY

• Started as a group activism site (ThePoint.com) in 2007

• Raised $30m in 2009

• Covers 54 cities by April 2010 and has sold 4 million Groupons - raise another $135m (value has gone up fourfold in three months!)

• May 2010 - buys CityDeal - biggest daily deals company in Europe

• August 2010 - Gap offer sells 400,000 in one day

• December 2010 - Groupon turns down $6bn offer from Google and raises another $950m, with $345m going to directors

• Feb 2011 - runs controversial ad during the Superbowl

• June 2011 - announces IPO

Source: TechCrunch


GROUPON HYPE: PR MASTERCLASS

• Groupon’s growth was extraordinary

• The PR story was even better...


GROUPON CUSTOMER BASE

• A registrant is someone who has registered, but may not have bought anything

• The 2011 figure is for the end of March

0

22,500,000

45,000,000

67,500,000

90,000,000

2009 2010 2011

Cumulative registrants

Source: Groupon IPO prospectus


BUYERS AND SALES UNITS

•Only 1 in 5 registrants ever buy

• Those who do buy more than once on average

• Groupon makes $10 per sale in commission = $270million in Q1 2011

0

7,500,000

15,000,000

22,500,000

30,000,000

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Buyers Sales Units



WHAT’S THE HURRY?

Groupon is spending vast sums to grow quickly

Why?


WHAT’S THE HURRY?

The market leader gets the highest margins...

... and biggest valuation

A copycat could overtake them

Google and Facebook are a major threat


ATTACK OF THE CLONES

There are Groupon clones all over the world

For example, in the US there are around 370 copycats and there are over 1,700 in Brazil

Why?


ATTACK OF THE CLONES

• The next big thing - huge buzz and take-up

• Huge valuations being talked about

• Easy to copy - low barriers to entry


HOW TO BUILD YOUR OWN GROUPON CLONE

• Choose market location

• Build technology: content-managed deals platform, customer database, CRM, payment systems, anti-fraud system, reporting, invoicing, customer support

(or buy off-the-shelf)

• Hire sales team

• Acquire customers


THE CHICKEN AND EGG SYNDROME

Having great offers is clearly vital, but:

• How do you get merchants to give you great deals when your customer base is tiny?

• How do you get customers to sign up if your offers are poor?


THE CHICKEN AND EGG SYNDROME

In order to escape chicken and egg, companies:

• Offer initial merchants very low commission

• Increase their marketing spend

• Run welcome offers - often at a loss


THE BUSINESS MODEL


GROUPON’S PERFORMANCE

2008 2009 2010

Commission $0.005m $11m $280m




2008 2009 2010

Commission $0.005m $10.9m $279.9m

- Cost of sales $0.163m $4.5m $263.2m

e= Gross profit - $0.158m $6.4m $16.7m




2008 2009 2010

Commission $0.005m $10.9m $279.9m

Cost of sales $0.163m $4.5m $263.2m

Gross profit - $0.158m $6.4m $16.7m

- Operating costs $1.6m $12m $700.3m

e= Operating loss - $1.7m - $5.6m - $683.5m



THE BIG GAMBLE - REPEAT SALES

Groupon will only become profitable if customers carry on buying



1st quarter 1st year

Commission per registrant $3.46

Cost of sale per registrant $4.86

Gross profit -$1.40




1st quarter 1st year

Commission per registrant $3.46 $16.68

Cost of sale per registrant $4.86 $4.86

Gross profit -$1.40 $11.81




BUT:

•Operating cost per registrant in 2010 was $13.84

• Increased competition is forcing marketing costs up

• and commission rates down


ARE DAILY DEALS SITES DOING ENOUGH FOR THEIR CUSTOMERS TO

GUARANTEE REPEAT SALES?

Daily deals sites are marketplaces - bringing merchants and customers together, enabling:

• merchants to sell excess inventory and acquire new customers cost effectively

• customers to save money and discover new products, services and brands


HOW DO YOU SUCCEED IN A CROWDED MARKET?

• Be different

• Build a sustainable competitive advantage


SO, HOW WOULD YOU SPEND £100,000?

•Buy shares in Groupon - you get any increase in value

• Start your own Daily Deals site - you get profits / cash if the business is sold

• Put it in the bank - you get the interest


THANKS
