In Groupon's wake a wave of imitators

Is there no limit to the passion of American shoppers for online daily-deal discounts? Hundreds of startup companies — imitators of Groupon, the group-buying website that offers daily deals on knitting supplies, skydiving lessons, barbecued ribs, pole-dancing classes and a smorgasbord of other stuff you may (or may not) want — are racing to find out.

Groupon’s competitors have been called groupies, copycats and clones. But who can blame them? In just over two years, Groupon has accumulated 60 million subscribers, more than $1 billion in venture capital and $760 million in annual revenue to become the fastest-growing web company ever. In December, it declined a $6 billion buyout offer from Google.

So the race is on to emulate the company’s appealing business model: Team up with a local merchant, send out an e-mail blast pitching a discount coupon for the merchant’s product or service, and keep half of the revenue that comes in.

Groupon’s closest rival, LivingSocial, has confirmed a $175 million investment deal with Amazon. Other web heavyweights — including Facebook, Yelp, Travelzoo, OpenTable and the spurned suitor Google — are all adopting features similar to Groupon’s.

But most of the companies grabbing at Groupon’s coattails do not have a vast subscriber base or millions of dollars. Instead, they are relying on a strategy called fast following — the idea that copying a blockbuster startup yields fewer risks and potentially great rewards.

Will it work? Among the hopefuls are these recent entrants, grouped by strategy: If you are a member of any particular crowd, chances are a Groupon imitator is looking for you. Gay? Try Daily Pride. African-American? There’s Black Biz Hookup.

In November, Jodi Samuels, 37, and Allen Ganz, 43, introduced a Jewish group-buying site in New York City called Jdeal (Jewpon.com, Samuels said, was already taken). Recent offerings have included bargain bagels and half-price tickets for the Maccabeats, a Jewish a cappella group.

Samuels and Ganz think Jdeal can thrive alongside Groupon because they know their audience. In 2000, Samuels helped found Jewish International Connection, a nonprofit organisation for young professional Jews who move to New York from overseas. In 2009, she and Ganz started MetroImma, a social networking site for Jewish mothers.

“We realised we’d immediately have traction,” Samuels said, “because we already had the young professionals and the moms, who are probably the two prime consumers of the daily deal sites.” Jdeal already has more than 8,000 subscribers and offers merchants a revenue split of 60-40, in the merchants’ favour.

Samuels and Ganz say Jdeal brought in more than $1,00,000 in revenue in its initial 11 weeks, and they predict $5,00,000 in revenue for the first year. They hope to expand across seven markets in the US and Canada in 2011.

Groupon has established itself in 500 markets across 42 countries. How do you compete with that? For dozens of entrepreneurs, it is a matter of fencing off some territory and building strong relationships.

That is what brother-and-sister team Rob and Wendy Jaffe are doing in southern California’s Conejo Valley, a cluster of suburban communities where they introduced Conejo Deals in April.

“You get the Groupon and LivingSocial e-mails, and you say, ‘That’s a great deal, but I’m not driving 30 miles or 50 miles’,” said Rob Jaffe, 48. “So the idea was to bring it to our community.” As a Little League coach, he started building his subscriber list during team tryouts, offering to donate a dollar to local schools and nonprofits for each parent who signed up. He now has 10,000 subscribers.

Advantages

Wendy Jaffe, 49, thinks that, with local sites like Conejo Deals, merchants can reach more customers who are likely to return. “If you’re using a large company like Groupon,” she said, “you’re getting people into your business who will be there once for the deal. You’ll never see them again, because they’re not going to drive back 30 miles to pay full price.”

And if Groupon invades the valley? “I’m not worried,” Rob Jaffe said. “They’re based in Chicago, and I’m here.” Local merchants, he added, appreciate that he visits them in person the day after a deal runs, bearing a spreadsheet and, more important, a check. Conejo Deals offers merchants a 50-50 split on each offer and has brought in more than $7,00,000 in revenue so far.

Groupon caters to the masses, which means avoiding the obscure corners of any particular product niche. For example, you might be hard-pressed to find a Groupon discount on allergy-relief shampoo for dogs. And so competitors are creating daily-deal boutiques with specialties like eco-friendly products, outdoor adventures and pet supplies.

PetSimply, which recently offered $10-off deal on $20 worth of the aforementioned dog shampoo, introduced its first deal on Feb 14. The site’s founders — Adam Jacox, 25, and Jason Casperson, 30, of Kissimmee — say they have contracted with more than two-dozen retailers to introduce discounts on nutritional supplements, chew toys and gourmet dog cookies.

The founders of PetSimply are both devoted owners of rescued dogs. In the process of building a company with $50,000 in seed money from family and friends, they are also trying to help neglected creatures. When subscribers refer their friends to PetSimply, a portion of the proceeds goes to animal charities.

The idea for PetSimply came after the company’s founders started keeping an eye on the daily-deal market — as consumers. “We got addicted and spent entirely too much money on Groupon and LivingSocial,” Jacox said.

Why jump into the gold rush when you can sell picks and shovels to the prospectors? Groupon imitators have created a system with plenty of secondary markets. Lifesta, a site that had its debut in July, lets remorseful buyers resell unused deal vouchers, charging 99 cents apiece in addition to 8 per cent of the sale price. Agriya, a Web developer in Chennai, India, builds and sells Groupon clone sites for aspiring deal-mongers.

One of the best-known companies in the secondary market, Yipit, aggregates daily deals from more than 360 sites, offering one-stop shopping for some 1,50,000 bargain-hunters on its subscriber list. Yipit adds about 20 new sites each week, said Vinicius Vacanti, its chief executive.

Last summer, Yipit raised $1.3 million in venture capital. The company is not profitable yet, but it is developing revenue streams, selling industry data reports and charging commissions on referrals. Groupon, for example, pays 2 per cent of the gross revenue on each sale that Yipit brings in; smaller daily-deal sites pay as much as 40 per cent.

Perhaps predictably, Yipit has attracted Yipit clones, at least 20 so far. Yahoo announced its daily deal aggregator in November and, last week, Microsoft unveiled Bing Deals, a service that has formed a partnership with a startup called the Dealmap to cull bargains from social commerce websites and other sources. Could the fast-following trend take a chunk out of Yipit’s market, too?

Vacanti, 29, believes that specialisation will keep him ahead. Unlike Yahoo and Microsoft, he said, “this is all we do and all we focus on.” For example, Yipit, he said, allows subscribers to specify categories of deals they want to hear about, a service Yahoo and Microsoft do not provide. At least not yet.