This June 10, 2011 file photo shows the Groupon logo engraved in a glass office partition in the company's international headquarters in Chicago, Illinois. (AFP Photo)
New York. One maxim rings true in the burgeoning world of online coupons: Everybody wants a deal.
In recent months, Groupon and LivingSocial have been leading a virtual land grab, with dozens of companies angling for a bigger share of the fast-growing market and swallowing start-ups at a rapid rate.
There have been 37 acquisitions in the online coupon industry so far this year, compared with five in all of 2010, according to the 451 Group, a research firm that tracks the market. This week Google purchased Dealmap, a discount aggregator; CrowdSavings acquired LuckyMonkey.com, a Kansas-based deal site; and LivingSocial bought TicketMonster, one of the largest players in South Korea.
While the acquisitions remain small, at $10 million or less, the frenetic pace reflects the industry's ambitions. Companies are looking to cash in on the highly fragmented but lucrative local advertising market. Restaurants, retailers and other small merchants are expected to spend $16.1 billion this year on Internet advertising, according to Borrell Associates.
As sites jostle for the attention of local businesses and consumers, scale matters. Companies need a large sales force to connect with local vendors in major cities across the globe. Groupon, for example, has more than 7,000 employees. Merchants also tend to spend more money to list deals with sites that can attract the greatest number of potential customers, or subscribers.
With TicketMonster, LivingSocial will increase its base by 2 million users and add roughly $24 million in revenue a month. TicketMonster, a one-year-old Korean start-up, is a deal maker in its own right, having purchased Integrated Methods, a Malaysian social shopping site, less than three months ago.
''We thought Korea was an incredibly attractive market; Asia in general is an area we are really excited about," said Jake Maas, a LivingSocial senior vice president, who would not disclose the terms of the deal. "In TicketMonster, we also saw a team that could innovate quickly and drive innovation in the category."
The leaders have moved especially quickly to expand overseas. On top of TicketMonster, LivingSocial has bought four other daily deal sites this year, covering cities in Europe, Dubai and Thailand. Groupon — which made its first major foreign play last year, with the $126 million purchase of Germany's CityDeal — has recently entered into Indonesia, South Africa and Israel via acquisitions.
''Snapping up international startups is one way for companies like Groupon and LivingSocial to gain a foothold before competitors lock up the market, as we've seen happen with slower-gestating e-commerce and social networking properties in the past," said Tim Miller, a vice president at the 451 Group, a technology industry analyst company.
But the frenzy also underscores the vulnerability of the business model. With thousands of clones across the globe, Groupon, Living Social and other players need to expand into new markets and acquire rival teams. If they don't, they risk losing out to competitors — or worse, becoming the MySpace of the online coupon industry.
That's because first-mover advantage is crucial. Earlier this year, Groupon started a venture in China with a local partner, Tencent, one of country's largest Internet companies. But the site Gaopeng was among the later entrants to the space, and it has floundered amid the thousands of competitors, armed with robust local sales teams.
In June, a site called Meituan was China's top daily deal service in June, by revenue, according to a June report from Dataotuan, an industry aggregator. Gaopeng did not place in the Top 10.
''When you first enter a market, it's cheaper to advertise, and you can potentially suck up a lot of merchants and subscribers before anyone else does," said Stuart Wall, the chief executive of Signpost, a site that charges vendors a flat monthly rate to advertise deals. "So there's a short-term benefit."
Deal-making doesn't necessarily guarantee dominance, either.
For one thing, the industry is still relatively young. Groupon is less than three years old. And it's unclear whether the companies can sustain their growth trajectories or what will happen as the industry matures, according to Sucharita Mulpuru, a Forrester Research analyst, who has been bearish on the daily deal model. A crowded market and the growing cost of acquiring vendors and consumers could eventually stymie the frothy sector.
''These companies have not even mastered their operations in the U.S., and now they're trying to grow in markets they frankly have no business being in," she said. "The acquisition strategy is a better approach than trying to build it on their own, but is this business even viable in these countries?"
New York Times
In recent months, Groupon and LivingSocial have been leading a virtual land grab, with dozens of companies angling for a bigger share of the fast-growing market and swallowing start-ups at a rapid rate.
There have been 37 acquisitions in the online coupon industry so far this year, compared with five in all of 2010, according to the 451 Group, a research firm that tracks the market. This week Google purchased Dealmap, a discount aggregator; CrowdSavings acquired LuckyMonkey.com, a Kansas-based deal site; and LivingSocial bought TicketMonster, one of the largest players in South Korea.
While the acquisitions remain small, at $10 million or less, the frenetic pace reflects the industry's ambitions. Companies are looking to cash in on the highly fragmented but lucrative local advertising market. Restaurants, retailers and other small merchants are expected to spend $16.1 billion this year on Internet advertising, according to Borrell Associates.
As sites jostle for the attention of local businesses and consumers, scale matters. Companies need a large sales force to connect with local vendors in major cities across the globe. Groupon, for example, has more than 7,000 employees. Merchants also tend to spend more money to list deals with sites that can attract the greatest number of potential customers, or subscribers.
With TicketMonster, LivingSocial will increase its base by 2 million users and add roughly $24 million in revenue a month. TicketMonster, a one-year-old Korean start-up, is a deal maker in its own right, having purchased Integrated Methods, a Malaysian social shopping site, less than three months ago.
''We thought Korea was an incredibly attractive market; Asia in general is an area we are really excited about," said Jake Maas, a LivingSocial senior vice president, who would not disclose the terms of the deal. "In TicketMonster, we also saw a team that could innovate quickly and drive innovation in the category."
The leaders have moved especially quickly to expand overseas. On top of TicketMonster, LivingSocial has bought four other daily deal sites this year, covering cities in Europe, Dubai and Thailand. Groupon — which made its first major foreign play last year, with the $126 million purchase of Germany's CityDeal — has recently entered into Indonesia, South Africa and Israel via acquisitions.
''Snapping up international startups is one way for companies like Groupon and LivingSocial to gain a foothold before competitors lock up the market, as we've seen happen with slower-gestating e-commerce and social networking properties in the past," said Tim Miller, a vice president at the 451 Group, a technology industry analyst company.
But the frenzy also underscores the vulnerability of the business model. With thousands of clones across the globe, Groupon, Living Social and other players need to expand into new markets and acquire rival teams. If they don't, they risk losing out to competitors — or worse, becoming the MySpace of the online coupon industry.
That's because first-mover advantage is crucial. Earlier this year, Groupon started a venture in China with a local partner, Tencent, one of country's largest Internet companies. But the site Gaopeng was among the later entrants to the space, and it has floundered amid the thousands of competitors, armed with robust local sales teams.
In June, a site called Meituan was China's top daily deal service in June, by revenue, according to a June report from Dataotuan, an industry aggregator. Gaopeng did not place in the Top 10.
''When you first enter a market, it's cheaper to advertise, and you can potentially suck up a lot of merchants and subscribers before anyone else does," said Stuart Wall, the chief executive of Signpost, a site that charges vendors a flat monthly rate to advertise deals. "So there's a short-term benefit."
Deal-making doesn't necessarily guarantee dominance, either.
For one thing, the industry is still relatively young. Groupon is less than three years old. And it's unclear whether the companies can sustain their growth trajectories or what will happen as the industry matures, according to Sucharita Mulpuru, a Forrester Research analyst, who has been bearish on the daily deal model. A crowded market and the growing cost of acquiring vendors and consumers could eventually stymie the frothy sector.
''These companies have not even mastered their operations in the U.S., and now they're trying to grow in markets they frankly have no business being in," she said. "The acquisition strategy is a better approach than trying to build it on their own, but is this business even viable in these countries?"
New York Times
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