Spreets goes Hybrid in a desperate move that might just work.

Posted on by Billy Tucker

Spreets recently announced their plan to include offers from competitors alongside their own, making spreets.com.au the first major player to launch a hybrid Group Buying/Super Affiliate offering in the Australian market.

I imagine the evolution of their model went something like this:

Early 2010: Spreets is formed and is among the very early entrants into the Australian marketplace, their model closely echoes the fast growing US originator, GroupOn.

Middle 2010: Spreets finds early success with a single deal each day, deals are sold at 40-50% revenue share to Spreets and consumers are excited about the new model, each offer sells many hundreds of vouchers, competition is light and shareholders are happy!

Late 2010: A number of new entrants intensify competition, including well-funded overseas players GroupOn and LivingSocial, local Catch group player Scoopon and of course Cudo who brought TV advertising to bear for the first time. Spreets immediately lose marketshare to these new upstarts, unsettling shareholders and peaking the interest of Yahoo!7, the natural rival of Cudo shareholder ninemsn. A second “side deal” is now commonplace on Group Buying sites, providing an alternative to the main offer of the day. Revenue shares of 35% are also now common as competition intensifies and daily deals businesses battle to win the best merchants.

Early 2011: Spreets is bought by Yahoo!7 for just over 22m, an incredible outcome for the Spreets’ co-founders and investors. Interestingly, a higher purchase price was touted ($40m) as the new owners congratulate themselves at having managed to jump on the fastest of bandwagons (myspace anyone?). The model has evolved to include 5 or more daily offers, vacation offers and longer running offers. Revenue shares of 30% are common.

Late 2011: Some 80 competitors exist in the market and Spreets market-share has flattened to 12-14%, products offers become frequent often at under 15% revenue share for the Group Buying business, customer discontent is at an all-time high due to shoddy product suppliers failing to deliver and 20+ daily offers are now common resembling a deal marketplace and requiring an increasingly large and expensive sales force to meet that demand.

2012: 2012 was make or break for many group buying businesses with a large percentage falling away in the second half of the year. Average revenue shares of 25% are typical and with 50+ daily offers on each of the larger group buying sites the average voucher sales per offer has declined significantly making it hard to fund the sales force required to meet the demands of a deal marketplace.

December 2012: Spreets calls it quits on the Group Buying model deciding to give the Hybrid model a go instead.

For many, the economics of a deal marketplace don’t stack up, which seems to be the case for Spreets. Meeting the demands of a marketplace without the overhead of a large sales force is possible though if competitor deals are surfaced alongside those deals originated in-house as a Hybrid affiliate/group buying business. Doing so can be profitable too, Affiliates are commonly paid 10% of gross revenue when a new customer is introduced, or almost half of the revenue retained by the group buying company, which is a good bounty given no sales effort, customer support or refunds and no exposure to shoddy merchants!

Assuming their Group Buying competitors sign up to having their offers surfaced on Spreets.com.au deal choice on the site will grow and no doubt customers will thank them for it. But what is the long term outlook for this Hybrid model?

Spreets customers will be absorbed by the competition over time, Spreets will already be losing 4-8% of Subscribers each month though natural churn and may not have the funds to replace them so a customer exodus to the competition will hurt greatly. The more successful the Hybrid model is at generating Affiliate fees the more quickly the exodus will occur and unless they can make their marketplace a great destination through the curation of compelling deal content and email targeting/personalisation they won’t come back either.

Alternatively this may be Spreets way of simply “milking the asset” until they close the doors on the business given this model will lead very quickly to some much needed profits, given their original investment it would be nice to see some return!

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Click Frenzy, in spite of the massive failure it was an unprecedented success!

Posted on by Billy Tucker

Sneeze and you may have missed it.

The Click Frenzy frenzy came and went in a matter of days, yet in that time it managed to reach the consciousness of some 20% of online Australians! That’s quite an achievement.

Their PR machine had triggered something in Australia’s uber-price-sensitive media which led to an incredible amount of coverage in the days leading up to the sale – it really did become a frenzy.

Even before the site ran into capacity issues on their woefully inadequate servers, their business model meant they would only ever make moderate returns. Choosing an all-up-front fixed-fee suggested they doubted the results they could yield for their retail partners preferring instead to cover their costs and hope for a modest return.

All in all, they clearly had no idea how ready the Australian market was for Click Frenzy!

Click Frenzy founder Grant Arnott explained in a rare and touching mia culpa that 300k visitors was their top traffic estimate, so the 1.6m visitors they actually saw blew their infrastructure wide open. To be fair, I think only a handful of sites around the world would cope gracefully with 1.6m concurrent users! The fact is the 7pm launch time was a big part of the problem, internet infrastructure hates concurrency!

Aside from the access issues suffered by many hundreds of thousands of bargain hungry shoppers, many found their way to the registered retailers and boy did they spend!

One retailer example I was shown paid less than $3,000 to participate but yielded over $80,000 in sales. An equivalent Group Buying offer would have cost the business $24 – 30k in commissions! A pretty good outcome for the retailer!

The chart below from Quantium shows the direct impact on participating retailers versus non-participating retailers.

160 retailers of varying sizes participated, and Click Frenzy probably netted an average of 3 – 5k upfront from each, meaning 480 – 800k in Gross Revenue. Not bad, however had they chosen to take a booking fee plus a moderate trailing commission, they would have netted anywhere from $800k ($1k upfront, 5% commission on $80k Average) to $2.4m ($1k upfront, 15% commission on $100k average)!

All credit is due to the Click Frenzy team, they were swept along by a frenzy of their own making albeit they we flattened in the stampede. Better luck next year.

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Group Buying fortunes on the up?

Posted on by Billy Tucker

After bottoming out during the past few months, the fortunes of some Group Buying businesses seem to be on the up, albeit a significant number have collapsed or been acquired in the past six months and the outlook remains grave for many more!

The fact that the sector’s nose is slightly up is in part due to the weeding out of weaker and often less scrupulous competitors who often served only to undermine the reputation of the sector as a whole.

In fact out of the 50 largest Group Buying businesses assessed in April, only 29 remain intact just 6 months on. And given only 10% (5) of those businesses were acquired that supports the view that smaller Group Buying businesses are of limited real value. In such a crowded and undifferentiated market lifesaving investment is tricky too given a lack of brand equity, good will or asset strength (off the shelf web sites are common and subscriber base overlap with top-tier competitors is often well over 70%) resulting in the collapse of underperforming and debt laden Group Buying businesses.

A quick browse through the sites of the 29 still standing uncovered indicators of pending doom for some.

Here are the choking canaries of the Group Buying world:

  • A high degree of niche product deals, such as robotic vacuum cleaners or iPad accessories
  • No sign of “number purchased”, an essential component of Group Buying that is quickly discarded when numbers are low
  • Extended Deal deadlines, this industry was founded on deal a day for good reason!
  • A smorgasbord of deals on one page, suggesting desperate recycling of old offers

Group Buying remains a $1bn future industry in Australia, regardless if that industry seemed to lose its way and stall when it was only half way there. Regaining lost momentum will be down to the leading players showing the way once again with a combination of brilliant marketing and a commitment to helping consumers discover great business products.

The strongest already have their playbook (Living Social, Cudo and Ourdeal) and will extend their positions in the coming 6 months through a focus on back-to-basics Group Buying offers like quality restaurants, high value vacation offers and utility products such as Cudo’s Meat Merchant.

Although I suspect another 15 from April’s top 50 will be gone by April 2013, leaving only a dozen or so standing, I think I already know who they are, I wonder if they do?