Group buying comes of age

Brazil is growing, but so is inflation. Despite increasing prices, consumer spending shows no signs of slowing and the online group buying phenomena has a lot to answer for.

Exactly a year ago, the online group buying craze started in Brazil as three young entrepreneurs who lived in Silicon Valley decided to replicate the idea introduced by Groupon – the pioneer in the field which started in 2009. Peixe Urbano – or “Urban Fish” – was born in Rio de Janeiro.

In the first nine months of operation, Peixe Urbano managed to build a user base of more than five million people. Fast forward a few more months and the business already employs more than 300 staff and has attracted investments from TV presenter Luciano Huck – a Brazilian Richard Branson of sorts – and US venture capital house Benchmark Capital.

The operating model of group buying websites consists of daily mailshots offering discount coupons for products and services offered by the web site’s partner network, which could be anything from male grooming to hotel packages and electronics. Discounts vary between 50% to 90% and users can snap the deals within a specific time window that may last between 24 to 72 hours.

Despite the fact that Peixe Urbano was the first group buying website in Brazil, Groupon – which recently turned down a $6bn acquisition offer from Google – is the leader in the segment in Brazil, according to group buying monitoring website Bolsa de Ofertas.

The third spot belongs to ClickOn, which was founded by a former banker with a team of ten people, also last year. The company now employs 120 staff and intends to treble that amount in 2011. The three websites have a market share of about 90%.

The remaining 10% of the group buying market is split between a myriad of group buying websites, estimated to have surpassed the 1,000 mark back in January. A whole online industry has now developed around the discount website mania – examples include deal aggregators such as Saveme and Vale Junto.

However, as simple as it all may sound, the group buying businesses are already encountering some challenges. The Brazilian players still have some way to go towards efficient use of business intelligence tools to better match users’ profile and the type of discounts offered. The product and service offering is also getting a little tired –  most deals in the 10 emails from group buying websites received by IT Decisions between yesterday and today were related to pizza or hair treatment.

There are also some early signs that the delivery mechanisms behind such web sites may be starting to burst at the seams. Consumer rights website Reclame Aqui received 1562 complaints from Peixe Urbano users since its launch last year, many of which related to the web site’s failure to deliver the discount coupons upon payment.

Despite these hiccups, users appear to be flocking towards the web sites and merchants have begun to appreciate the power of these websites as an additional source of revenue. However, as competition increases due to readily and cheaply available tech tookit to put a group buying web site together, these companies will need to reinvent and differentiate themselves to avoid becoming a flash in the pan.

 

Image by Brian Lane Winfield Moore licensed under Creative Commons.