Suddenly, grab-a-bargain websites are everywhere, with deep discounts on anything from burgers to overseas holidays. But how many of the daily deal sites will survive, asks Karyn Scherer.
When was the last time you paid full price for something?
If your answer is "fairly recently", you may be showing your age. And if your mornings don't yet involve a quick check of your emails to sift through the latest buy-now-or-miss-out bargains, then clearly you've not yet cottoned on to the latest fad.
Over the past three years, an entirely new industry known as group-buying has suddenly emerged, and is growing at a phenomenal rate.
A gourmet burger for a dollar? A family holiday for $850? How about a facial for half price?
Each day, hundreds of thousands of Kiwis are being offered discounts of up to 90 per cent off popular goods and services, through websites and smartphone applications that seem to be multiplying almost by the day. The usual catch is that a minimum number of vouchers must be bought before the deal is activated, and there is likely to be a limit - so it pays to get in early.
Most sites rely heavily on social networks to expand their databases, offering subscribers generous enticements to pass on deals and sign up new members. But in recent weeks the trend has spread to mainstream media as well, with the major players capitalising on their partnerships with the big media companies in the hope of expanding their reach to as many potential consumers as possible.
From the day it launched last July, the top dog in New Zealand has been GrabOne, a joint venture between serial entrepreneur Shane Bradley and APN News & Media, publisher of the Herald.
But in the ultra-competitive world of online media, trends can change awfully fast. Only a month ago, APN's main rival, Australian media company Fairfax, launched its own daily deal site as an offshoot of Trade Me.
With a huge database of Trade Me members to call on, TreatMe has already secured the number two slot in an increasingly crowded market that includes a plethora of sites with silly names such as Cudo, Groupy, Spreets and Yazoom.
And it's not just local players who are fighting for market share. Cudo and Spreets already dominate the Australian market. America's second-biggest daily deal site, LivingSocial, also launched in New Zealand this week, although you could be forgiven for not noticing. The site, which includes internet retailer Amazon among its investors, is promising hyper-local deals, although it doesn't appear to have got there quite yet.
The site that started the whole trend, the phenomenally successful Groupon, is also expected to launch here any day. Hailed by Forbes as the "fastest-growing company in history", Groupon turned over US$760 million last year, and expects that to hit the billions this year.
Groupon has already turned down a US$6 billion offer from Google in favour of an IPO later this year.
Needless to say, both Google and Facebook have also jumped aboard the group-buying bandwagon. Just last week, Google launched Google Offers - at about the same time one of its senior executives was poached by Groupon.
If some people are to be believed, the daily deal phenomenon could yet have a profound effect on the advertising industry, as well as the entire media industry, and even online shopping. Amid all the global hype, there have even been references to daily deals being the new "rivers of gold" - the epithet that used to be applied to the classified advertisements that helped make newspapers so profitable for so many years.
But not everyone is convinced. Some sceptics believe the trend has all the hallmarks of yet another dot-com bubble. And while the major players reject the "fad" tag, even they concede that in New Zealand the number of sites is more likely to shrink rather than grow in the near future.
According to Auckland blogger Adrian McKeown, there are now nearly 80 daily deal and group-buying sites in New Zealand.
McKeown has been recording the progress of the local industry on his OneDayDeals website since 2008. Although his site is simply a guide to other sites, McKeown is regularly contacted by confused business owners wanting to do deals, so he is convinced there is still plenty of demand from advertisers. But he expects we'll soon see considerable consolidation.
"It's just gone crazy," he says. "With about 80 sites now, all the little ones are going to fall away. They're either going to give up or just stay small. As for the big sites, there will probably be only five or six that will stay around."
At the age of 33, Shane Bradley is already regarded as a bit of an "old-timer" by some of his colleagues at GrabOne. He is, after all, three years older than the current chief executive of Groupon.
Bradley likes to joke that his current job has aged him significantly. But the truth is, the clean-cut entrepreneur is clearly loving every second of his latest venture.
Born and bred in Rotorua, Bradley has his parents to thank for his penchant for start-ups. They were businesspeople themselves and instilled in their sons a can-do attitude that virtually ensured they would choose the path of self-employment.
Bradley owned his first business at the age of 19 and in just three years he turned a single-person aluminium window business into a thriving operation that employed 48 staff and had its own factory in Auckland.
But by 2001, the construction scene was starting to go sour and his company, Design House, got slammed by more and more bad debts. "It took me to the wall, and on September 14, 2001, I put that business in liquidation. I hated it."
A decade on, he is still bitter about the experience, but admits he learned some valuable lessons, including the biggest one: cash is king.
A spell in London helped him clear his head and when he returned to New Zealand he decided to set up a local version of the online directory Gumtree. The business quickly morphed into what became known as Finda.
They were tough years, and he recalls that at one stage the only food he had to live on was a block of cheese and a loaf of bread.
"That kept me going for six or seven days. I just made a point of doing it, because you can always get money from somewhere. You can always borrow it, but I think with any success, if you go through hard times, you really appreciate the good times."
Fortunately for him, the good times weren't too far away.
APN ended up taking a stake in Finda, before the business was sold to Yellow Pages for an undisclosed sum in 2009.
Similar projects have followed, including helping to set up the Grown-ups website, which was also eventually sold to Yellow Pages. But GrabOne is probably his biggest success so far.
"I absolutely don't believe in luck. I believe in making your own luck. So in that case, was Sam [Morgan] lucky that he got Trade Me? No, it was a lot of hard work to get Trade Me there because he had a lot of competitors who did the same thing, and he got it through.
"Likewise with us. We started one month after Groupy, and probably four months after DailyDo. We hit the ground running and we were the biggest by the end of the first day. I tell you what, it's been a pretty full-on nine months."
He is open about the fact that the business is a direct copy of Groupon - right down to an identical website design.
"There's this big thing around the internet and copying models, but a lot of people who are successful have looked at overseas trends and brought them back to their own countries and done it better than anyone else," he says. "I think a lot of that comes from people who are jealous. If it's that easy, go and do it yourself."
So far GrabOne has 70 staff, and Bradley has already sold 75 per cent of the company to APN. The sale was partly about ensuring the business got the capital and contacts it needed, and partly about "derisking" his own future, he admits.
But he's not planning to move on for a while yet. His next goal is to expand the brand overseas. GrabOne already operates in Australia and Ireland and he hopes to launch in Britain and South Africa fairly soon.
The site itself is also likely to change significantly over the next year, he hints.
"If you're looking at the business model of one deal being sent out each day, I see that as probably 20 per cent of the business. As I was telling the Marketing Association last week, GrabOne by Christmas will be so different to what it is now that you won't even recognise it. It's about doing all deals all the time, not just about one deal each day. And it's about offering a deal that you want."
Bradley is fully aware that consumers will quickly become bored if the offers get stale, or don't relate to their interests. The next step is much more personalised offers, he says. He is also keen to offer location-based discounts, so that people will be able to use their smartphones to check out what deals are available nearby.
"In the future I see a restaurant in Parnell that says: 'We've got no bookings at lunchtime'. So GrabOne instant deals will be not too far away. And we're launching a last-minute travel site in early May. And we can start selling products, too. We sold 310 vacuum cleaners one Sunday. That's $30,000 worth of vacuum cleaners!"
At present, GrabOne's headquarters is literally just around the corner from the flat where he once lived on bread and cheese. He can almost see it from his desk, which stops him getting too cocky.
That said, he is fairly dismissive of most of his competitors.
"Some of the other sites are very, very poor," he reckons. "As for Groupy - anything involving Yellow Pages is going to go downhill anyway, because they've got to sort out their core business first. And DailyDo and that sort of thing has been around for a little while, and they've got their little niche and that's cool, I guess."
However, there is one competitor he is definitely taking seriously, and that is TreatMe.
Like Bradley, TreatMe boss James MacAvoy has been putting in some serious hours getting the business up and running. "My record is 39 hours straight," he sighs.
MacAvoy is probably best known for helping to found the Movieshack movie rental business with his brother. The business, now called Fatso, is these days owned by Sky TV.
He has also done stints at Xero and Trade Me, and originally hoped to launch the new site before Christmas. However the Christchurch earthquake and the size of the task eventually proved too much.
TreatMe finally launched five weeks ago, and he is proud that it already has 11 staff and more than 300,000 subscribers.
"I guess the ultimate goal is to have the exact same number as Trade Me, which is 2.74 million," he says.
While he concedes GrabOne is making more sales overall, MacAvoy claims TreatMe is already selling bigger volumes of specific deals.
"We've had a few instances where by sheer coincidence we've had almost the identical deal at pretty much the same price point in the same city. It was a complete accident, and we thrashed them in terms of volume bought."
However he is coy about revealing any plans to expand beyond New Zealand. "To be honest, no comment. The stance is we are so focussed on growing where we are at, we haven't even begun to consider that."
Neither MacAvoy nor Bradley will put a figure on the size of the industry here. At one stage, GrabOne claimed to have 80 per cent of the daily deal market, but Bradley concedes it is now more like 70 per cent.
In fact, it isn't too hard to make an educated guess about what sort of sums might be involved, given that most sites publish a running total of how many vouchers have been sold so far, and how much has been saved by consumers.
GrabOne expects to hit a significant milestone this week: it is likely to clock up its one-millionth voucher, bringing its total savings to consumers to nearly $32 million so far. TreatMe has also had a promising start, selling more than 100,000 vouchers in just five weeks, allegedly saving consumers nearly $3 million.
The reason group-buying sites are seen as so lucrative is because they take a huge cut of sales. In the US, Groupon takes as much as a 50 per cent commission on each deal. A cut of 15 to 30 per cent is more common here, although in some cases the site will actually subsidise a particularly good deal, to boost its own marketing.
Merchants report that commissions are getting more competitive as sites poach top staff from each other and attempt to outdo their rivals. Merchants also claim they are no longer receiving all of their revenue upfront. Instead, payments are now being spread out.
Because the daily deal phenomenon is so new, there is still very little independent research available.
According to The Economist, one study carried out last year in the US showed that of 150 businesses that used Groupon, one-third did not make any money from the deal, and 42 per cent said they would not do it again.
Local marketing veteran Michael Carney is not yet convinced that the group-buying model is as win-win-win as is sometimes claimed.
"The notion of group-buying sites is great for the consumer, and it's great for the group-buying site operators. It's not necessarily always such a good deal for the advertiser," he suggests.
Anyone, he argues, can generate sales by giving away their products at a deep discount. "Just look at Borders," he retorts.
Many advertisers, he believes, will struggle to get enough extra business to compensate for the cost of such deals.
"You've really got to cut your margin down, so potentially you could be commoditising your product. At the same time you've then got to be able to convert that discount-price customer into either someone who buys more on their visit to your operation or someone who will come back and pay full price. That requires quite a degree of effort and homework on the part of the advertiser, so it is quite a challenging offer to take up."
Inevitably, some customers will be hard-core bargain-hunters who won't ever come back, and others might have been happy to pay full price. There also tends to be a skew towards young females, which is not necessarily the demographic that everyone wants, he notes.
His personal belief is that the sites will eventually run out of advertisers willing to play the game.
"People are only going to respond to these deals if they're really good, and if they're that good then clearly someone is paying for that and that is the advertiser.
"You'll get people coming in or out of the market if they need to generate cashflow or create a large customer base or whatever, but beyond that you're eventually going to fall into what these categories typically seem to be, which is spas, beauty treatments and gym memberships - things that have a low marginal cost so you can afford to offer them to whoever might want them."
Auckland beauty therapist Leonie Emery owns Balmoral spa Natural Beauty, and was an early advertiser with GrabOne. Emery says she is called almost daily by rival sites these days and although she remains loyal to GrabOne, she admits the novelty is starting to wear off.
In the early days, Emery was thrilled when many of her discount customers became permanent clients. But lately she has noticed that more and more of the discount customers she is getting are only motivated by the cheap price.
"I was probably fortuitous enough to get on the bandwagon right at the beginning, when there was only one other beauty therapist," she says. "It worked really well and I've got some good clients out of it. But since then I have to say it's gone down and all you get now is people who just sit on the computer and do bargain-hunting."
Emery is a smart marketer and she tries hard to provide a memorable experience for clients. But she believes that too many discount sites are now chasing too many small businesses.
"It's just overkill and I'm starting to think it's just cheapening the whole experience. It's like someone had a good idea, and now it's a bit like everything that happens in New Zealand - everyone is on board now."
Bradley and MacAvoy both acknowledge that bargain-hunters come with the territory. "I think everyone recognises that and is looking to reach as many people as possible so you don't just have that subset," says MacAvoy.
Says Bradley: "What we tell people is you're going to have to take the good with the bad. Yes, you probably are going to get a percentage of people who are probably very annoying, but if you can keep 20 per cent as paying clients, then you're still 90 per cent up."
Wellington businessman Regan Wood remains a big fan of the model, and can personally attest to the fact that group-buying sites are indeed cannibalising other forms of advertising.
Wood owns the Bling jewellery chain, which has 10 stores throughout New Zealand, and also owns three upmarket bowling alleys in the Wellington region. He has used several group-buying sites, including GrabOne and TreatMe.
To boost business in the school holidays, Wood normally spends some of his marketing budget on radio advertising, as well as flyers and ads in local newspapers. He has also dabbled with social networks such as Facebook and Twitter. This year he just did daily deals.
The group-buying model, he admits, works well for his particular businesses. At the bowling alleys, for example, customers seem more relaxed about spending more on drinks and food because they have already paid for their admission. "That's what you're banking on - upselling."
Wood is convinced a fundamental shift in consumer behaviour has taken place among Generation Y, to the point where they are no longer interested in buying something unless they get a discount.
"I was still buying things at full price not long ago, but the staff here don't. They just won't pay full price. They go to a bar and they want to know what the deal is. As soon as you say 'No' to that, you're saying: 'I don't want your money'. You're seeing this change, and I'm not sure that people are recognising the change."
It is vital, Wood believes, that retailers vertically integrate their businesses, and strike better deals with their suppliers if they want to survive in the current environment. The hospitality industry also has to wake up to the discounting trend, he believes.
"Hospitality didn't used to offer deals, and now they offer deals - things like two-for-one cocktails on Wednesday night. Things are changing and we need to grapple with that change and understand what it means for retail, and what it means for hospitality. The agencies also need to change what they're doing. They need to understand that space."
In the United States, new infrastructure is developing around daily deal sites, including brokers who seem to be doing a similar job to traditional media buyers. Inevitably, software developers are also cashing in.
According to a recent report by Local Offer Network, a software company that claims to be a leading player in the market, the industry is growing exponentially.
The report notes that food and drink offers continue to be the most popular deals in the US. However, the average value of deals is gradually increasing as luxury brands and higher priced items join the juggernaut, it says. Other trends include offers being extended from a single day to a week or even longer.
The company predicts the number and variety of deals will increase significantly this year.
"While market consolidation and attrition will occur, Local Offer Network predicts that the overall number of competitors will continue to grow. In turn, consumers will enjoy access to thousands of deals a day, bought directly from sites of all sizes, and via convenient tools such as deal aggregators and personalised deal feeds."
Merchants, it predicts, will be better-equipped to measure the relative cost of consumer acquisition from various channels, and will optimise their spending accordingly.
"There is no question that consumers win in this business, saving an estimated US$1.26 billion over the course of 2010 and looking forward to US$3 billion in savings in 2011," says the report. The flip side, it argues, is that merchants have already forfeited US$1.76 billion in revenue, net of discounts and revenue-sharing deals. It also stands to reason, it argues, "that other local advertising and promotion methods will in turn pay a price, underscoring a need for legacy companies in local advertising to determine how they will play in this market if they have not already set a strategy."
Naturally, Shane Bradley is convinced group-buying is here to stay.
"As long as there are businesses who want customers, and as long as there are customers who want good deals, this business in some way, shape or form will be around forever," he enthuses. "If you look at the coupon business per se, people have been cutting out coupons since 1940. People have been advertising for clients for goodness knows how long. I think maybe people will get sick of getting half-price haircuts, but it comes down to making sure you get what you want."
An internal memo from Groupon chief executive Andrew Mason, leaked last year, probably nails the more immediate issue.
"By this time next year," Mason wrote, "we will either be on our way to becoming one of the great technology brands that define our generation, or a cool idea by people who were out-executed and out-innovated by others that were smarter and harder working."
Local sites seem to have the hard-working bit covered. The rest is probably up to their CEOs.
Deal with it
Here are some of the leading discount websites:
* TreatMe
* GrabOne
* Groupy
* Cudo
* Yazoom
