Yesterday, I came across an interesting episode of Dragon’s Den about a company called Teambuy. It’s the Canadian version of Groupon. You know the site that lets you get things at incredibly discounted prices (+50% off retail.)
What about Groupon and LivingSocial?During the show, no one spoke about competition? Yet invested $150K into Teambuy? I think between Groupon and LivingSocial this market is pretty much shut airtight. I’ve nothing against Teambuy, I had a look at their site and it looks pretty good. But I doubt the $150K investment would go far against the $950 million that Groupon just raised. That’s right! Groupon, the 2 year old company became the first startup to get nearly a billion in VC funding! And this was right after declining separate offers from Yahoo and Google worth billions of dollars.
Groupon Business ModelThe question is how did Groupon, such a young startup get so far and so quickly? Other than a good team, talent and hard work, it’s also a cool business model. Let me elaborate on this:
- The idea behind Groupon is very simple and easy to understand.
- It revolves around selling something that has reoccurring purchases (mostly services). For example you go to a restaurant for half price. If you enjoy your time there, you’ll likely revisit.
- The restaurant may take an initial hit because of the discount. But it saves on the marketing cost of acquiring a new customer.
- The restaurant doesn’t have to worry about where to advertise, how to implement a new campaign, and how to convert leads to sales. It’s hassle free, almost turn-key marketing.
- Also, it guarantees a minimum number of paying customers (not just leads) or else it doesn’t pay a thing! What kind of marketing program does that?
- Services that require social interaction, geared towards urban lifestyle tend to do well. Also since most of the offers are for services, you get the local factor. For example, why would you travel to another city to go to a Gym?
- It driven by an important consumer emotion – low prices. Something anyone can quantify and appreciate. No explanation required!
Barrier to entry StrategyTeambuy enjoys the same advantages as Groupon because of the same business model, but TeamBuy came to the party a bit too late. The only option is to focus on a market niche that has barrier to entry for the likes of Groupon/LivingSocial. That’s been the strategy of international vendors such as SoSasta, an Indian based service. With language and cultural barriers, it made more sense for Groupon to buyout SoSasta than to compete against it in India. Similarly, TeamBuy should work on a market that GroupOn may have a harder time carving out as an outsider.
Originally posted 2011-01-13 18:24:25.