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Group buying sites eye expansion

Business Standard, Mumbai March 20, 2011

BS Reporter

Group buying websites, mostly launched in the last one year, plan aggressive expansion as they see record traffic for their offerings.

Group buying websites put up deals offered by merchants on various services and products for a limited period, say for 24-72 hours and offer discounts of 30-80 per cent.\

However, there have to be a minimum number of people, between 5-20, before a deal can go live, when deals are made available. Offers are normally made on gyms, spas, restaurants, travel and so on in services and on various products. Websites get certain commission for the goods sold.

Delhi-based Snapdeal.com plans to to start its operations in 100 cities, up from the current 45, by the year-end, according to its Chief Executive Kunal Bahl. Bahl says the one year-old online venture is growing 150 per cent month-on-month and claims to have a 70 per cent market share among group buying websites. “Currently we have 350 employees and are adding 50 people every month,” Bahl says.

“These kind of websites make sense for India where consumers are value conscious. While consumers gain from these offers, it helps merchants to utilise their excess capacity and promote their services and samples,” says Guneet Singh, former director & co-founder, dealsandyou.com.

John Kuruvilla, Chief Executive and founder, Bangalore-based Taggle Internet Ventures, which runs eight month-old group buying site taggle.com, says, “The business has been exceptionally good. Traffic quadrupled in the last two months. We expect similar growth in the coming months.” Kuruvilla now wants to launch the service in 20 Indian cities in the next two years.

On March 15, 2011, Taggle launched the service in eight cities such as Ahmedabad, Pune, Delhi, Kolkata and others with products offering. The company wants to offer services in these cities shortly, Kuruvilla says. Currently, it operates in 10 cities. Other sites such as koovs.com, dealsandyou.com and groupon.in are also expanding their operations across the country.

Analysts say the group buying website space in India is expected to see a lot of action, with the entry of Chicago-based Groupon which bought Kolkata-based SoSasta.com early this year and launched its operations.

Groupon, one of the world’s largest group buying sites, was in the news last week for seeking a valuation of as much as $ 25 billion ahead of its initial public issue this year. The two-year old Groupon, which provides daily discounts online, now has 70 million users and reaches more than 500 markets in US, Europe and others.

However, the segment has its share of challenges too. “Since it is a relatively new model, the firms have to spend a lot on getting traffic on a consistent basis. Not everybody can get the returns on the capital employed,” says Devangshu Dutta, chief executive of Third Eyesight, a retail consultant.

Guneet Singh says hyper competition and wafer thin margins may pose additional challenges for the existing players. “Gross margins are between 10-15 per cent and firms have to factor in IT costs, people costs and so on. Most end up making negative net margins,” Singh says. “Most of group buying sites are clones of Groupon. Somebody needs to come out with a clear differentiator,” says Singh.

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