Posts filed under online deals

Group Buying: Not meant for the Indian market?

Written by: Samir

On May 25th, 2011

With a plethora of group buying websites flooding the Indian markets, E-commerce is certainly on the rise. According to the Internet and Mobile Association of India the market grew 70% from Rs. 19,688 crores in 2009 to Rs. 31,598 crores in 2010 and is expected to grow another 47% to Rs. 46,520 crores by the end of 2011. Over 25 group buying websites are already present (most of them emerging during the past one year) making the market quite cluttered, differentiation is missing between these sites and margins are razor thin.

Snapdeal, Deals and You, Buy the price, sosasta, khojguru, taggle, koovs, among others, are the new drivers of E-commerce in India. Most of these sites are relatively young, but investors are not shy of investing in them. January saw the world’s biggest group buying site, Groupon enter Indian market with the acquisition of Kolkata based sosasta.com. Infoedge (of naukri.com fame) invested Rs. 9 crores in mydala.com and German Group Buying Global AG acquired Mumbai based WanaMo.com and rechristened it as dealsandyou.com. What is also interesting to note is the entry of several major online giants in this space. Prominent e-Commerce player eBay.in entered this space. The last month witnessed two major online shopping sites: rediff.com and Times Internet launch their deal sites, Deal Ho Jaye and Timesdeal.com respectively.

Group buying websites come up with deals offered by different merchants in the city. These deals are active for a couple of days and discounts range from 20% to an incredible 95%. The user is either asked to pay the entire amount of the deal or an advance. However, there have to be a minimum number of people who opt for the deal before it become active. If the number of people who opt for a particular deal is less than the minimum required the deal is scrapped and the users get their money back. The deals are for restaurants, gyms, spas, health clubs, travel and various other services. The websites get a cut in every successful deal. These websites use Facebook and other portals, twitter or bulk emails to reach out to the potential buyers. They also thrive on word-of-mouth promotions.

But wait. Is the picture as good as it appears on the surface? Let us analyze different challenges for this business.

A highly cluttered market: With over 25 websites already present and many more in the pipeline, the competition in this market is cut-throat. The fact that these websites can easily be set-up, as the barriers to entry are very low, will only increase the competition further. Readymade softwares are already flooding the market and web development firms take no time to get you a Groupon type website up and running.

The key here is differentiation. Most of the websites present in this space are exact functional clones of each other (with some using the exact same templates as well). It is refreshing to see sites like Buytheprice.com who have tried to differentiate with a new incremental discount model, where they have deal slabs and discounts vary based on the final number of people who opt for the deal.

Deals: Are these deals too good to be true? I tried picking up a couple of deals at random from these websites. I picked up a deal for Hotel Ramada Gurgaon Central from snapdeal.com. Snapdeal claimed that the price of a night’s stay in this hotel was worth Rs. 12100 but they are offering a discount of 59% which means there price is Rs. 4999. I did a very basic online research and these are the lowest prices across various websites:

Hotel Website       SnapDeal       Yatra            TravelGuru            Cleartrip

Rs. 5849               Rs. 4999        Rs. 6928        Rs. 5099              Rs. 4887

Another deal at dealsandyou.com offers Seagate 500 GB and 1 TB Hard disks at Rs. 2999 and Rs. 5499, respectively. Out of curiosity I called up a local dealer in Indore and enquired about the prices. He got back to me with the hard disks priced at Rs. 2700 for the 500GB hard disk and Rs. 5250 for the 1TB Hard disk. These were prices for single purchase and not for bulk purchases.

Please note, these were just random samples picked up from all the available deals and are not indicative of all the deals available on these sites. The point that I am trying to make here is that there still is room for improvement and the deals that are being offered might not to the absolute best. We will surely have better deals as these websites mature.

Impact on local dealers: So does going to these deal sites really help the local businesses? Initially most of these local businesses see the exposure they get through the website. It’s a very good marketing platform for these sites. Or is it? Let us consider another example here. Dealsandyou.com lists an offer for certain salon services at Vibes in Bangalore. On contacting some of the good local beauty salons I found out the normal cost for these services would be anywhere between Rs. 2000 and Rs. 3000. Dealsandyou.com is offering the same at Rs. 750, which turns out to be a very good deal, assuming Vibes provides quality service. But the problem here for Vibes is as follows:

  • They are being pressed for margins and are providing these deals at prices which might not be profitable for them. Going forward as these deal sites mature they will press these local vendors further reducing their margins to a bare minimum.
  • Is this offer serving as a good advertising opportunity for them? I won’t think so. Someone opting for this offer at this salon might be very impressed with the services. But they will be under the impression that this service would cost them Rs. 7500 if the offer isn’t present, which, I would believe, might act as a deterrent for repeat visit.

Technical Challenges: Most of the websites operating in the virtual space agrees that doing business in India comes with its own challenges. Indian regulations don’t allow the storage of credit card information on the payment gateways unlike the US. 30% of transactions fail at the payment gateways. Companies are working on developing their own prepaid cards to ease the process of making purchases.

Traffic: With the exception of snapdeal, all the sites have struggled to generate substantial traffic for their websites. According to Vizisense.com, the total number of clicks for snapdeal was close to 34.4 million with an India rank at 16 (most visited websites in the last month). The second most visited group buying, dealsandyou.com website didn’t even feature in the top 100 and had less than 10 million overall page views, followed by sosasta.com which was ranked at 282 and barely has 3 million hits.

The good thing is, the e-commerce industry is growing rapidly and is also reflecting in the growth in traffic to these websites as well.

Survival: The abnormal increase in the number of group buying websites is posing serious challenges for every player in the industry. The number of group buying websites is already very high and I don’t think all of these sites would survive in the long run. The space would soon see some consolidation with 3-5 players controlling the chunk of the market.

The future of this industry will be quite interesting to follow. The major players will have to innovate to scale-up. Differentiation will be a key driver in this industry. Mobile phones will emerge as an important tool for differentiation as it would help the websites reach out to a wider audience. Companies would also be exploring alternate revenue sources. Another alternative for these companies on the long run would be the huge database of customers they will be handling as well as their relations with the local service establishments they will be serving.

We would love to hear your perspetcive/insights on this business. Please drop a comment or email me at samir@ileher.com.

Sphere: Related Content

Hungry for online deals

Written by: Madhur

On Jan 19th, 2007

One of the most prevalent business models in Internet companies is advertising. Here is a look at different types of business models that exist on the Internet around advertisements. The basic aim of advertisements is to generate leads for the advertiser. The beauty of CPC (cost per click) advertising on the Internet is that the vendors (advertisers) need to pay only when they actually get the traffic, which makes their marketing costs much more accountable compared to traditional banner advertising. Realizing the ROI that this promises to the advertisers, in the US, people have set up companies that solely do this – generate leads for online vendors. Of course any website that has google ads already does that. But let’s talk about sites that are dedicated to generating leads without focusing on any other content at all. One of the categories of sites that is quite popular in the US markets is the “deals” sites. These sites publish the latest and the greatest deals and discounts regularly, some updated throughout the day. People hungry for deals keep coming back to the site to check out the latest deals. Because of the timely nature of these deals, the daily traffic volume is high and since these sites publish hot deals that tend to expire soon, the clickthrough ratio is also very high. FatWallet is the big daddy of all such deal sites. There are dime a dozen other deals sites like edealinfo.com, deals2buy.com and more.

Naturally the trend is already beginning to catch on in the Indian markets. If you look at the google trends data for “online deals” India is not too low down on the list. So we had a chat with a couple of players – allindiadeals.com (publishes deals in online shopping space), tripmela.com (publishes deals in online travel space) – to get insights into what they are doing to get the latest deals on their sites and to drive the hungry for deals traffic on their sites:

Sources of data
: Both of these sites use a combination of feeds from vendors and handpicked deals from variety of websites.

Freshness of data: allindiadeals updates the site once a day while tripmela does that 2-3 times a week.

Business model
: The source of revenue for both of these sites comes from a mix of CPC based listings plus google ads on the site.

Marketing: Both the sites realize the power of SEO and are doing things to promote their site high up in the organic search results. allindiadeals uses the power of social networks like orkut and other online communities to spread the word. tripmela has used techniques like press releases and Search Engine Marketing to buy sponsored listings in search engines. tripmela also delivers weekly newsletters to the inboxes of the registered users and a lot of customers seem to like this feature. (Tip: Doing RSS based subscription could also be quite useful)

Problems they are facing
: This is probably the most interesting data that we got:
1. allindiadeals says initially people were not really familiar with the concept of online deals, although with the competition increasing among the online merchants, people are starting to get it now.
2. Both players mentioned that a lot of the online vendors do not understand the power of CPC based advertisement, as a result of which they are not willing to give data feeds. This is starting to change as well, with the increasing competition and increasing advertising budgets for online companies.

Bottomline
It’s clear from our conversation that a lot of merchants still do not understand the concept of lead generation and CPC advertising. We think as the market evolves, lead generation phenomenon will pick up steam – online vendors will realize the importance of CPC based advertising and they will start providing feeds of their data. As a result, we will start seeing more players who will get into lead generating business in the form of comparison shopping, vertical searches, affiliates and deals publishing sites.

Sphere: Related Content