Media Companies and Group Buying: The Perfect Fit

The Group Buying industry is beginning to mature, and signs of rationalisation are appearing everywhere. Smaller players are beginning to be bought up or are folding in what are now highly competitive global group buying markets.

It’s become clear recently that the Group Buying industry, pioneered and made famous by Groupon, isn’t a gold rush. Groupon’s recently filed S1 shows losses of $400m for this financial year, and the main reason it appears those losses are apparent is it’s high cost of customer acquisition.

It’s expensive to acquire customers, particularly if you want to do it quickly.

But Groupon is still a highly successful business. With an eight digit customer base, thousands of merchants offering deals through their site, and hundreds of thousands of transactions, Groupon has each side of the model right – and because of that, merchants and consumers have grown to trust Groupon.

This is where existing media companies have a significant advantage in the social commerce space. Media companies have large audiences and have spent years (in many cases decades) building up trust with that audience. Therefore, media companies have two of the most important keys to success in Group Buying: an engaged audience and trust.

This audience and trust gives media companies a significant advantage in being able to open doors with local merchants more easily than a new group buying site trying to build a brand and credibility with the local merchant community.

What the big players in the Group Buying space (Groupon & Living Social) don’t want media companies to know is that their market leading position is incredibly hard to defend. Groupon’s losses this year are attributable to an acquisition spend that media companies potentially aren’t required to wear.

The Australian Market

The Australian Group Buying market is a classic example of a market dominated by local media companies. Two of the biggest players in the space are operated by major media companies: Cudo with Channel 9 and Spreets with Channel 7. Scoopon, another large player in the Australian market has just received a significant investment from media mogul James Packer. One of the other commercial TV networks, Channel 10, is also trying its hand with OurDeal.com.au

Groupon (operating as StarDeals in Australia due to a legal dispute) sits as a distant 5th player in the market, overtaken by the power of media companies to build brand awareness quickly.

Based on our experience with media companies and group buying globally, there are some key insights that should be kept in mind when launching a group buying site:

Deals aren’t advertisements

It’s natural for media companies to think that they are providing advertising for merchants – that’s what media companies do. However, this mindset is likely to fail with a Group Buying venture. Advertising is a one way message, and group buying goes two ways.

It’s important to think of a Group Buying business as a set of well negotiated offers which are presented to consumers as a reward for their loyalty. The message should be that the power of the existing company’s brand has enabled them to negotiate a fantastic deal for their customers that no-one else has been able to put together.

If a company joining social commerce for the first time can’t buy into this mindset, then Group Buying won’t work for them. Consumers are already overwhelmed with advertising messaging and a Group Buying proposition presented as an advertising medium will be met very warily by consumers.

It’s important to use your judgement here to determine what a good deal is. A quick objective test to determine if a deal represents good value would be to ask yourself if the deal you have put together is a deal you or your friends would consider purchasing. If not, you’re probably thinking like someone who is selling advertising, where the content of the offer is the advertiser’s (merchant’s) problem. Group Buying has you intricately involved with the consumer, where before a media company would be a passive participant in that relationship.

One of the existing issues media companies have when entering eCommerce is that they believe too much in the power of the platform. Simply accepting an offer from a merchant, publishing it on a site and pushing it to a list of email subscribers doesn’t work in Group Buying. Groupon invests heavily in crafting excellent offers for their customers with merchants, writing humourous copy to accompany the deal and positioning each deal, with messaging, to the right audience. This is why they’re successful: they see themselves as more than a publishing platform for deals, not just “coupons” online.

Benefits of an engaging online platform

One of the biggest challenges media companies have with consumer audience migration to online is the ability to build a digital relationship with its audience. Very few users of media websites register their information because there’s no perceived benefit to doing so. For me, consuming a video or article is the same experience whether the media company has my personal information or not.

However, consumers are required to enter their information on a transactional site in order to purchase the great deals you’ve created for them. This creates an opportunity to learn much more about your audience than you would have known previously. Be prepared to capitalise on the fact that you will now be able to capture more information about your customers than before, and can build a better user experience for them based on that new information.

You’re already being used to build an audience for your (future) competitors

Check your existing website inventory, particularly any remnant inventory you’ve allocated to third party advertising networks – it’s likely to be filled with pay for performance display media for Groupon, Living Social and other Group Buying sites. They’re using your properties to build their brand and generate leads. You’re giving one of your core assets, your audience, to your potential future competitors.

Setup your Group Buying Platform

You have a couple of options here: 1) Use a white label platform (like Dealised) 2) Build the technology yourself 3) M&A with a smaller, already operational group buying site

1) Use a white label platform

White label platforms provide you with an ability to get into the market quickly with a technology feature set that has been built up over a period of time and refined through experience with existing clients. Quite often white label platforms can provide an on-boarding team to help guide you through the difficult first 3-6 months.

2) Build your own technology

Building a simple group buying platform is fairly trivial, but not an undertaking for companies that don’t have a strong technology capability. If you have this capability and believe you can differentiate in the group buying space via unique Intellectual Property, this option is worth exploring. If technology isn’t a core competency, you should decide whether you want to enter into the technology space. Technology will rapidly evolve in Group Buying to better serve relevant offers to the right audience. Unless you have a differentiator or strong capability here, you’ll be lucky to keep up with the technology development of well funded companies like Groupon.

3) Buy an existing group buying business

Although most smaller players in the space got into the market with the expectation that they’d be acquired by Groupon or Living Social. The realisation that most of them won’t be that lucky is starting to sink in. There are opportunities at the middle of the market to pick up a good deal on a business that has operations in play, and need help to scale (with your audience and authority).

The time is still right

The Group Buying industry, the darling of eCommerce for the past 12 months, is still a massive growth opportunity. All the major players in Australia are still witnessing huge growth. In Singapore, All Deals Leak recently reported that all of Singapore’s 34 active Group Buying sites increased their revenues in June over May this year.

Given the market is still growing, and existing leadership positions are hard to defend against strong, credible media brands, now is the right time to move in.

2012 could well be the year of media company group buying.

Author: Jimmy Storrier is the Director of Marketing at Dealised.