Is Group Buying the catalyst for E Commerce – The Editor

There is a sudden mushrooming of so many group-buying and discounted deals website start-ups that we at Viedea have decided to go shopping. Lucky for us, we run a mandate for one of the leaders in this space in India. What I think of group buying is that it will give an opportunity to all the, marketing gung-ho starved, kiranas or retailers to build their brand and accumulate a larger customer base. Importantly they will be leveraging their presence on the net for the first time. It will be a great medium for hospitality services and restaurants to fill in tables and rooms at a faster rate than waiting for customers to walk in.

What is group-buying? It is like buying apples in bulk, which is cheaper, as compared to buying one single one. It works like this: The group-buying website will be an online platform for the service provider and it promises him a certain number of customers only if the service provider agrees to halve his service cost. The service provider will agree only if the website guarantees a minimum number of customers to avail the service. If the website is not able to find a minimum number of buyers for the service, then the deal is off. If the website is able to do so, then the website gives all its customers an e-voucher, which they can redeem at the service provider’s premises for half the original cost. The payments will be transferred to the service provider- by the website- in a week’s time after keeping a margin of 20-25 percent. It is a great business isn’t it? However I feel it involves more logistic and number crunching jugglery than what the business is currently doing. What is the outcome of this business? Is it to be used as a brand building exercise that can create viral through social media?

Before I answer the question I see an enormous level of localized buying behavior. These websites offer superb specific deals and everyone has to register addresses. Eventually there will be so much data that it can be used to target customers on an individual basis. Companies that want this data can suddenly arm their marketing teams to the teeth and modernize their distribution systems. The money is in the monetization of data and that is the objective. However it is left to be seen whether these websites can work with electronics and food retailers. This mass business will be difficult to handle in electronics because manufacturers will never undercut on their margins, an electronics retailer better figure out what percentage of his stock can be discounted or bundled to use this medium. Eventually the data will become large if these websites manage the food and electronics business.

For now these group-buying companies have stayed away from this business model. They are happy to service small restaurants, saloons and spas, which will never really bring in the margins. So I see consolidation in a year’s time. But there is always this hope- for a group buying entrepreneur- that e-commerce usage will double from the current 8 million users in two years to grow his valuation. Even then scaling will require funding and one has to bring in discounts that people will buy on a day to day basis. So would you like to shop with us, what do you think of this industry?

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About Deepak
Venture Capital and M&A advisor, Entrepreneur, Startup enthusiast..

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