Local online group buying sites - a model that Groupon first put on the map - are becoming so popular with consumers that they are seen by many companies as another form of local advertising.
The model is a simple but very effective one: a local business offers a deal on a product or service - say 75% off on a spa treatment - if enough people purchase the deal. The business offering the discount wins: it has several new clients plus additional exposure to the people who saw the offer but didn’t purchase it for one reason or another. The online site takes a cut of the revenue. Hitwise reported in April that the volume of visits to sites in the space had grown by "72 x year-over-year," Big Money noted - which accounts for the growing number of copycats that are entering the space. "The venture capitalists are giddy and foresee a digital advertising model that actually works for local business."
New Entrants
Recent entrants include KGB Deals, which launched in Chicago and six other cities at the beginning of June after its debut in New York in March. (via Chicago Breaking Business). eBay is exploring whether to offer a service, according to CEO John Donahoe (via Dow Jones Newswires). Donahoe said eBay could learn from Groupon's business model, which has creates a sense of scarcity and excitement for online services that thus far have been hard to sell online. "We're looking for ways to expand into services and expand into local," he said. "It's an opportunity and we're going to participate in it." The blog network Sugar Inc. told Paid Content it's buying FreshGuide, a startup that offers daily deals in four markets targeted at women. Sugar says it will keep the FreshGuide brand and expand it to 30 new cities within the next year-and-a-half.
Larger players include LivingSocial and Scoop St., which have attracted a significant amount of venture capital, Big Money reports - along with market-maker Groupon. Groupon completed a giant funding round for $135 million in April; shortly after that LivingSocial secured a $14 million investment. Boston-based Buywithme and Spain’s Groupalia are also attracting venture capital dollars. In this instance, a multiple venues is a good thing for advertisers. Groupon only offers one deal a day, which means it is hard to land a slot in the Groupon calendar, Big Money says - with a wait list of 100 days in some cities. Customers, for their part, aren’t likely to limit themselves to one service if they want access to these deals.
