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Group buying has taken the Indian Internet Industry by storm. A lot of websites are coming up which offer group discounts on things to do in a city like restaurants, spa’s, holidays, movies and products..

Listing out the industry players

*Data source: Google ad planner, Facebook, Twitter as of 14th August 2010. Comscore did not have all the websites.

Ever since Groupon got valuated at $1.2 billion.. every one in India wants to create the next big Indian Groupon. This rush is quite similar to Social Networking sites rush that India experienced in 2006-07 when Orkut got bought by Google everyone thought they will create the next big Indian Orkut.

One thing for sure is that the group buying space would not see similar outcome as it relies on local presence and network. So the faster you build numbers the faster you get market share. The success of the group buying sites solely will depend on the initial amount of promotion and the type of sourcing.

Right now Snapdeal has some amazing traffic which no other portal is able to match and surprisingly Taggle has the largest number of Facebook fans but the same hasnt translated into traffic for the website.

I have a lot of questions on this like where is the money in the model?  How much can you scale up in India? I think it will become like the travel industry where still after years the companies in the space have not even reached the break even point.

Where is the money in group buying model?

Right now I seriously doubt the profitability of these ventures. If we go by naked stats.. on an average, a deal sells 40 coupons in a period of 2-3 days. The margin of the company is Rs. 100 max. Therefore a maximum of Rs. 4000 per deal for 3 days. So that is Rs. 40k revenue for a month. So thats not even close to the salary of a manager in a MNC. Now if I take an average of 10 top cities that would be 4 lacs a month from 10 deals from 10 cities.

The overheads  for offices in those cities would be much more than 4 lacs. Then not to forget the staff salaries, Internal deal promotion (expenses for email and sms because an average mail cost 5 paise and per sms 2 paise) and also external promotion of the website.

Unless the ticket size of Rs.100 increases to Rs. 500 or the sales achieve 1000-2000 deals, the venture cannot break even in this decade.

Scaling up in India?

40-50 % of the internet audience belongs to top 10 cities so after reaching these cities where does the volume come from.

Ecommerce is still nascent and not every user has a credit card/debit card or a netbanking account. So the number of people who could buy funnels down to a very minuscle number. The reports given by IAMAI or Juxtconsult paint a rosy picture but the real facts seem to be different.

If we consider that I have 100 members so out of that atleast two will buy that deal but then if I need 2 more deals to be sold I got to have another 100 members so to sell 2 coupons I spend atleast Rs. 10-20 per member. So for earning Rs. 200 from these two people I have to spend Rs. 2000 to get the 100 members and then after buying a restaurant/spa deal the same person who has a credit card would not go for another the next time it comes for atleast a month or so.

Another problem that they can face is User burnout. i.e. After constant email updates about deals that are not interesting the user may just turn off and would not even check the emails.

The only good out come I see is that people are getting conditioned to shop online and the savings that these sites bargain for the user.  I believe the day when everyone in India relies on the internet like the Americans or Europeans, it is then when the change will happen but in Indian context this is really far away. Now as usual that each veteran from the industry will say is “everything will consolidate into one or two top players in the market and the rest will have to shut shop or merge”.

I believe that in the near future the big thing is the platform which has the biggest reach i.e. “Mobile”. The potential for ideas on this platform has the scalability has well the reach. So someone somewhere must be working to get thing rolling.  Location based group buying on mobile applications looks to have awesome potential. NGpay, Obopay, Atom etc can actually achieve this. Just as technology in Mobile phones evolve GPS will be as obvious as Bluetooth in the coming 3-4 years.

I am going to dissect this space a lot more in my posts ahead but if you have some other view or something I missed please feel free to share in comments.