In Asia, the daily deals industry is apparently in the doldrums. In an analysis done by Groupon Singapore, only 19 group buying companies now remain, down from a peak of 72 in 2010 and 39 in 2011. 84% of these companies lasted less than a year.
The downward spiral in Singapore dovetails with the predominant trend in Asia and the world: Group buying sites are shutting down en masse. In the second half of 2011 alone, Daily Deals Media reported that 1,348 such companies have gone under. While some group buying sites have been acquired, they are in the minority.
Groupon’s share price, meanwhile, has tumbled to USD 5.25 per share on 6 October from a high of USD 31, despite a profitable quarter. Another American daily deals company, JigoCity (acquired by the owner of porn magazine Penthouse), is also finding the waters choppy in Asia: It recently left Singapore, Hong Kong, Malaysia, and Australia.
But just like how the movie Rocky Balboa became a surprise hit in the face of doubts in 2006 — 16 years after the disappointing last film — Asia’s daily deals sites are reinventing themselves to stay in the fight.
Entrepreneurial spirit stays alive at Groupon
Leading the charge in Southeast Asia are Groupon’s young country CEOs, whose companies were acquired during the daily deals giant’s rapid expansion phase. Flush with funds and support from their parent company, these entrepreneurs have continued to stay nimble.
“It is imperative for companies in the group buying space to continuously rethink and relook their business models to address the changing needs of both merchants and consumers,” said Karl Chong, CEO of Groupon Singapore. Together with his brother Chris Chong, he sold Beeconomic to the daily deals giant for a reported USD 24M in 2010.
Besides creating a mobile app, Groupon Singapore has ventured into the retail space. They launched a store in Suntec City, a shopping mall in the heart of Singapore. That is a first for Groupon worldwide. Shoppers can purchase deals through one of the computer terminals at the store and then redeem their items on the spot.
In Indonesia, Ferry Tenka, CEO of Groupon Disdus, is diversifying his business. Instead of merely acting as a referrer for merchants, they now operate their own online retail store and hold their own inventory. While the business model is different, they are targeting the same consumers with all sorts of products at deeply discounted prices.
Now, half of the company’s revenue comes from selling products. It claims that out of its 1.2 million subscribers, 30% to 40% of them have purchased from its online store.
About 1,000 to 2,000 products are shipped throughout the country daily. “That’s what companies in Indonesia typically ship in a month,” he told SGE during an interview at the East Ventures office in Jakarta. East Ventures, an early stage VC firm, had invested seed funding in Disdus.
It clearly believes in the potential of the company and its leader.
Conceivably, daily deals could eventually become a small part of Disdus’ business model. With so much growth potential in Indonesia’s e-commerce market — a Veritrans and DailySocial report projects that it will swell ten-fold from USD0.9B to USD10B by 2015 — there’s plenty of room for Disdus to grow.
“E-commerce in Indonesia isn’t established yet. There’s no one dominant player that controls the market. Disdus has a plan to go there,” he says.
It ain’t just about group buying anymore
Back in Singapore, before the media hoopla about daily deal’s decline started, a group buying company quietly pivoted into something else. Now, Perx wants to help brands gain repeat customers through digital loyalty cards. The startup offers a possible path for businesses who want to stay relevant in the daily deals space: Get the hell out of it.
Despite the divorce, Perx has incorporated elements from group buying into a new concept, called ‘chopmobs’. It is essentially a special reward that can be unlocked when a certain number of Perx users ‘chop’ at a particular location. For example, Coffee Bean held a campaign where it offered free drinks to users once 1,000 chops were gathered.
There are other signs of life in Asia’s group buying industry. Deal.com.sg, one of Singapore’s market leaders, has diversified into the online food delivery business, launching DEALivery.sg in March 2012. Meanwhile, deal aggregation companies like Singapore-based All Deals Asia and Indonesia’s DealGoing are propping up smaller players by giving them more exposure and offering customers a more unified user experience.
In China, a wave of consolidations has produced some clear winners: The top 20 daily deals sites now account for 97.1% of the market, according to daily deals aggregator Daotaotuan. Notably, the market leader right now is Taobao Juhuasuan, which is run by Alibaba, China’s top dog in both B2B and B2C e-commerce.
While intense competition and blatant copying in the daily deals space resulted in some casualties and outright derision within the startup community, it is too early to count the industry out.
While the low barrier to entry and an excess of me-too startups has contributed to the industry’s decline, the leading players have the benefit of strong partner relationships and economies of scale.
Group buying companies can expect further growth from mobile commerce, especially in emerging economies like Indonesia and the Philippines where a strong take up of low-cost Android phones is expected.
An emerging middle class will also continue to clamor for better lifestyle options at a fraction of the cost. This ensures a healthy demand for good deals online.
Perhaps we might even see daily deals melt into the background: More group buying sites will eventually diversify into other e-commerce models in a bid to build a more sustainable, long-term business.
The term ‘daily deals’ may one day go out of fashion, but its legacy will live on.