Groupon South Africa promises you a good deal

The duo's first challenge was to put a strong management team in place, having realised it would be impossible for them to manage the whole operation by themselves in the quick turnaround times required.

Then followed more staff in sales, marketing, editorial and tech, as well as the new offices. All the while they were transferring their Twangoo customer base to MyCityDeal.co.za while they tried to sort out issues around the Groupon.co.za domain name (which had been registered by rival group buying company Wicount).

Twangoo had gone into business in June 2010 and shortly after Guasco and Gosling, both MBA graduates, attempted to initiate negotiations with Groupon regarding an acquisition. Several months passed before they made contact with Groupon's Oliver Samwer, who had Guasco fly to Europe to negotiate a deal.

Running at a breakneck pace

The possibility of a deal was first reported in December 2010 and announced in early January 2011. Guasco and Gosling seem to have been running at a breakneck pace ever since.

Whether the incredible growth at the new SA subsidiary is sustainable or not is an open question but it is certainly in line with Groupon's international growth strategy. Forbes magazine headlined a story on the rise of Groupon "Meet The Fastest Growing Company Ever". Pundits predict the company will breach US$1 billion in revenue this year. Some suggest revenue multiple that.

Groupon offers group buying, which means it basically emails its database of users a discounted deal every day and, if enough people take it up, they get the coupon to redeem at the product provider, be that a retailer or a service provider.

The group-buying element suggests that consumers can collectively bargain down (for argument's sake) a retailer. In reality, Groupon bargains down the retailer and sees how effectively it's done so, based on the number of consumers taking up the deal. It has a database, the retailer wants feet, consumers wants bargains. Ding, ding, ding!

Make coupon business hot again

Groupon's strategy was to digitise the coupon business and make it hot again. By all accounts, it has succeeded. The Wall Street Journal estimated its world-wide revenue in 2010 at US$760 million from US$33 million the previous year. The story in Forbes reports that Groupon and its clients (the retailers) splits revenue on deals 50/50 and that 97% of Groupon's deals garner the required minimum number of buyers for the coupons to be valid.

One of the reasons Groupon is expanding so fast is that it needs to tie up the market. Its business model is easy to replicate and locally it already sports nearly a dozen competitors, including Wicount (which bought key words such as 'Groupon' and 'Twangoo' on Google and originally registered the groupon.co.za domain name, which Groupon SA only managed to get back last week) and Zappon - a new entrant backed by Avusa Media - owner of the Sunday Times, the Sowetan and The Times, among others.

Naspers was purported to have been in negotiations with Guasco and Gosling as well before the Groupon deal was announced. It's widely expected to enter the market in the near future, backed by its extensive community and regional newspaper network.

According to Guasco, Groupon isn't intimidated by the entry of larger media players as it is the expert in the field, with international best practise and research to back it up. He believes competition will grow the marketplace as people dip their toes into group buying and then migrate to those who offer the best experience (and deals). It's happening all over the world, says Guasco, and yet Groupon remains number one in the markets it operates in.

Rival-registered domain name

As already mentioned, Twangoo shifted operations to the MyCityDeal domain after the Groupon deal was announced. A rival had registered the Groupon.co.za domain name and issues around this was only resolved at the end of March. MyCityDeal is a network of European group-buying sites that was acquired by Groupon in 2010. Guasco and Gosling expect that both the Twangoo and the local MyCityDeal domains will redirect to Groupon.co.za by the end of this April.

Gosling says the international group has set targets and expectations but basically allow the local management team to make the decisions. MyCityDeal offers daily deals in the major metros including Cape Town, Johannesburg, Durban and Tshwane. Port Elizabeth was rolled out this past weekend and Bloemfontein should be live by next week. Once the metros are stitched up, Groupon will start targeting large towns.

Asked what a service such as Groupon offers brands, Gosling says Groupon will grow beyond bargain hunters to include anybody looking for good deals. After all, everybody looks for a good deal - from housewives to company execs.

Guasco says Groupon is a brand marketing tool, rather than a tool used to get rid of stock. It induces trial and gets feet through the door, offering their clients an opportunity to impress consumers with their products and service. It initiates a relationship; what happens after Groupon is in the hands of whomever is responsible for the customer experience.

Consumers will ultimately benefit

Consumers will ultimately benefit from a Godzilla-sized discount business whose strategy requires lower prices online, rather than maintaining the status quo (hello, Apple!). I'm also looking forward to endless copy on rehabilitating 'Groupzilla'.

If Google taught us anything, it's that we are safe in the hands of powerful mega corporations. We are yet to learn if it were a deal worth taking.

For more:

• igeek.co.za: Group buying sites in South Africa