In October 2008, Hari Krishna Aculeti, a Hyderabad-based software engineer, shifted jobs from Infosys Technologies to Polaris Software. It was a career jump for the 29-year-old with much better prospects and a higher pay. But, at his new workplace, Aculeti, a gizmo shopaholic, missed the opportunity to purchase gadgets at sharply discounted rates that he enjoyed at Infosys, where various brands used to offer group buying schemes.
That's why he was exhilarated when he discovered buytheprice.com in January this year through a friend. The portal brings together demand of users at a pan-India level, fetching discounts on branded products. Aculeti immediately picked up a Micromax mobile phone for Rs 3,400, or 15 per cent less than the market price, thanks to nine others who bought it on the portal. He then referred it to another friend, who also saved a cool Rs 2,500 on a laptop.
Welcome to a whole new paradigm for online shopping in India. In 2010, a rash of group-buying portals has emerged, selling everything— from services like travel, restaurants, movies, clubs and fitness centres to gadgets and consumer durables like LCD TVs, microwave ovens, air conditioners, refrigerators and washing machines. Already, there are about nine such portals in the country.
How it works for portals
The majority of group buying sites is scaling up its presence across the metros tying up with local services businesses such as leisure package providers or, even, restaurants. And many are now fanning out into the Tier-II and III towns. Take Delhi-based SnapDeal.com, which was launched in February 2010. It has a presence in seven cities (Bangalore, Chennai, Chandigarh, Delhi/NCR, Hyderabad, Mumbai and Pune).
It plans to expand to 25 cities by the end of the year. "Tier-II and III towns are big markets for us. We have tie-ups with over 5,000 retailers across the country and are constantly increasing our network," says Kunal Bahl, co-founder, SnapDeal.com. The portal will invest up to Rs 15 crore in two years in brand building and geographic expansion.
But why has online group buying seen a sudden surge in entrepreneurial interest in India? In large measure, it's a consequence of the success of the model in the US, Europe and China with a growing tribe of price-conscious consumers hopping on to the bandwagon. Here's a straw in the wind. Groupon, the biggest groupbuying portal in the US, is the only start-up (apart from YouTube), which is valued at over $1billion (in April, Groupon raised $135 million by selling 10 per cent stake) by investors in just 16 months from its launch.
Explains Ranjith Boyanapalli, co-founder, Buytheprice.com: "After the accelerated growth of group buying start-ups in the US, many tech entrepreneurs have tried to replicate the US models." The global experience, perhaps, explains why angel and VC investors have willingly funded most of these group buying portals. Then, higher Internet penetration coupled with poor penetration of organised retail seems to have created a big market.
Says Boyanapalli: "Online retail has increased by around 30 per cent last year alone. There is immense potential in non-travel online shopping space in future." Adds Bahl of SnapDeal: "Merchants are willing to give such aggressive discounts as they are essentially passing the cost of customer acquisition to the consumer in the form of a discount." His company expects revenues of Rs 4.5 crore by March 2011.
The idea of group buying appears to be a win-win business proposition for both retailers and websites. The portals make money by keeping a cut of the revenue, which ranges from 10-40 per cent depending upon the brands or services involved (less in case of national brands) and negotiation power.
"We are charging 100 per cent amount through our portal. There are many players who are taking partial amount upfront, leaving a big chance of customers not actually turning up to the retailers. In such cases, your negotiation power with retailers takes a hit," says Anisha Singh, co-founder, Mydala.com, adding that the portal has a success rate of 97 per cent—that is, only 3 in 100 deals do not touch the tipping point.
The rapid growth in the space is evident from the strong traction on both sales and subscriber addition by most leading portals. Within two months of its launch, Wanamo.com has acquired over one lakh subscribers. "We are seeing brisk growth in this new segment, which we call entertainment commerce/push commerce (in place of plain Jane e-commerce)," says Sampad Swain, co-founder, Wanamo.com.
SnapDeal has a subscriber base of 2.5 lakh since February and is adding a subscriber every 40 seconds. Mydala.com has been able to offer its 10,000 unique visitors daily unusual deals: In February, it offered a three-days, two-nights camping holiday near Dehradun from Zice Holidays, marking down the rack rate of Rs 5,000 a person to Rs 1,300. In just four hours, the deal touched tipping point and eventually sold 124 vouchers.
Local deals drive the majority of growth for group buying portals— the most popular deals tend to be restaurants and services-related activities. But national, and even global brands, are gradually waking up to the potential of the medium, particularly consumer durable and FMCG companies. Take the example of buytheprice.com, which has already inked deals with 25 mega brands such as Nokia, Videocon, LG and Nikon.
Says Yashovardhan Verma, COO, LG Electronics India: "Right now, e-commerce is a small part of our total sales. However, the share of e-commerce as well as those of groupbuying portals is expected to grow significantly. In the next 5-6 years, e-commerce would account for 10-12 per cent of our revenues." Online group buying first surfaced in India in the late 1990s, but failed to take off because of tardy consumer response. Experts believe that things might be different this time.
"The availability of various online social networks such as Facebook, Twitter, Orkut, MySpace, YouTube and Google enables users to share the offers with their friends or followers. As consumers have personal incentives to refer their friends to join in a given deal, the viral effects of social media platforms are very well used by these portals," says Gaurav Mishra, CEO, 2020 Social, a social media research and strategy company.
While it's still a fledgling industry, the market already appears overcrowded with a large number of city-specific players. And therein lies the rub. E-commerce in India has still not been a big success, with consumers reluctant to pay online due to safety concerns. With most portals unlikely to break even in the short term, only 2-3 large portals will survive and rest of them either get acquired by the large ones or just shut shop.