Group-buying site LivingSocial hit a milestone for the relatively new industry overnight after it managed to sell 1.3 million vouchers for online retailer Amazon.com, exceeding $US13 million in sales that eclipses the $US11 million record previously held by the Gap-Groupon deal.
But the success of the deal only serves to highlight the lack of offers led by well-known brands in the group-buying industry, with many of the offers being for lesser known restaurants, spa clinics and adventure “experiences”.
Dean McEvoy, chief executive of Spreets, which was acquired by Yahoo!7 yesterday in a $40 million transaction, says the lack of well-known brands is due to the sheer logistics involved.
“It takes a long time to get a business over the line,” he says. “It has to be budgeted, and those smaller businesses are where the focus has been so far.”
The LivingSocial deal began yesterday, although only customers in the United States were able to purchase the $20 gift card for $10. But after sending messages through Facebook and Twitter, along with an email to over 16 million subscribers, the deal went viral and was shared over Facebook 30,000 times.
The fact that any LivingSocial buyer who persuaded three friends to buy got the deal for free was also another factor in the deal’s success.
By the end of the day, the coupon link had been shared so many times sales ended up over 1.3 million – netting LivingSocial over $US13 million. This beats the previous record clothing retailer Gap held, after netting $US11 million in a deal with Groupon.
The offer was a much-needed boost, given that Groupon is continuing to dominate the sector.
But those larger brands are few and far between in the group buying industry, and in Australia so far no massive retailers have been showing up on these sites.
Colin Fabig, chief executive of Jump On It – which manages the LivingSocial brand in Australia after receiving $5 million in funding last year – says it’s unlikely any large Australian retailers will take part.
“We’re looking at deals in the future… but our business is an SME business. We are in the services industry, and not the product industry, so generally the deals are ones that are based on filling empty spaces and acquiring new customers.”
“You look at the big retailers, the Myers and Harvey Normans, they don’t have any real margins. Their margins are super thin, so they’re not going to be giving away 50% discounts. We want to look at services, so you’re looking at things like hotels, and so on.”
Fabig says the big brands would use something like a group-buying deal as an acquisition tool – but the amount of sales needed to break even is incredibly high.
“Myer or David Jones would need hundreds of thousands before an offer became profitable. I think we could do a good deal like that, but the question is around that small margin within the retailer itself.”
McEvoy says Spreets is looking at these big deals but there are significant issues regarding logistics and budgeting – some analysts have pointed out Amazon’s financial burden is lessened by the fact it invested $US175 million in LivingSocial last year.
“You have to think about how long it’s going to take for the deal to get prepared, how it’s going to be budgeted and so on. We’ve been talking with some large companies for awhile, but I think like all big companies are, they take awhile to jump on a new trend.”
“I definitely think it will become bigger, but I don’t think it will be all of what we do. It will be about complementing those deals we do every day. Besides, the most interesting things aren’t run by big companies. We’re more of a city guide that helps people find stuff within their city.”
“But if the odd deal comes along that’s right, we’ll definitely do it.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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