Yipit, Group Buying and SMBs

I recently wrote a short post about Groupon and the growing phenomenon of group buying online. Among the several companies I mentioned in the post was Yipit. I lumped the company in with several others as purveyors of local deals to consumers. Shortly thereafter I was contacted by the co-founders of Yipit (who wanted to clarify the nature of their service) and I had a fascinating conversation with them about the entire segment.

Rather than a direct competitor to these group buying sites the company aims to position itself as the “kayak of group buying.”

What that effectively means is that Yipit aggregates deals from many providers (there are a growing number; see list at bottom). The consumer-user selects the desired offer and clicks through to transact on the underlying third party site, in the same way that Kayak refers leads to airlines or hotels. Similarly Yipit takes a referral or affiliate fee for the lead — provided there’s a transaction that occurs.

The way that Yipit improves upon any one of these sites (e.g., Groupon) is that it brings together much more inventory (offers) than any one of these sites individually. Because of this, it allows users to select areas of interest and not receive offers that aren’t relevant. That has always been my experience with Groupon itself; the concept is great but there are lots of deals I’m not interested in:

The concept of group buying has been around since Mercata and the late 1990s. However in “act 1″ of the Internet it never took off. Now it has momentum on the heels of the general growth of online coupons and social networks more broadly. Consumers love deals and these sites only charge businesses — mostly SMBs — if enough people show up and a sale is made, collectively speaking:

The offers are always time-sensitive and require a commitment/purchase up front by the user. And the structure of the offer creates competition to ensure that the minimum required volume is met.

Each of the sites that Yipit “indexes” are effectively telephone sales channels, which negotiate these deals with local merchants. Yipit then delivers, or helps deliver, traffic to those individual sites.

I was told by Yipit that where there were once just two or three of group buying sites, now there are dozens of them. The barriers to entry are very low: a wordpress blog, a telephone sales and some email software.

Another fascinating thing to consider is that the risk to the merchant is almost zero; SMBs only pay when the group deal is secured. Thus it becomes potentially easier to sell something like this (especially by a “no name” company that the SMB hasn’t heard of) than more conventional “advertising.”

There’s no “ad budget” that gets tapped; the commission is a slice of sales. Consequently there may be more money for these types of programs than for “advertising.” The notion that “SEM funds itself” is one of the myths of paid search, which is especially a myth in the case of small business. However that is in fact true in this case.

If these group buying sites develop enough momentum there’s a kind of parallel universe of SMB promotions that might arise, where the value proposition is more direct and transparent to the merchant and the risk much less than buying clicks or even calls in some sense. While this is clearly not a model and channel that’s going to work for plumbers or lawyers, it probably works for a much broader group of local businesses than one might think.

Here are the sites (or most of the sites) that Yipit draws upon to serve up geographically relevant deals and offers:

Do you think “grouponing” is a fad or a phenomenon that is here to stay in some sense?

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19 Responses to “Yipit, Group Buying and SMBs”

  1. WikiCity Says:

    People like a deal, so this will stick, but markets won’t support this many players. Related to this, I just read on TechCrunch that “Groupola” is the latest Groupon clone. (I threw up in my mouth when I first read the name “Groupola”, but that’s just me.)

  2. Sebastien Provencher Says:

    I’m a big fan of group buying. I think we’re still scratching the surface of the many opportunities in the field. It will evolved to a user-generated group request, i.e. 10 people want to buy a new dishwasher, please make us an offer. It’s coherent with the rise of social media, more power to users/consumers.

    Three years ago, I wrote about Tuangou (the team buying phenomenon in China). I stated at the time it would be the next hot sector in local search. I still stand by my prediction.

  3. Robin Allenson Says:

    I think that group buying is definitely here to stay and that the ecosystem will continue to grow. Here in the Netherlands, we have a WOOT aggregator, http://www.dailyoffers.nl/index.php. It’s very easy to build out affiliates like this, and they’ll start to get link juice from multiple competing players, ranking higher.

    I also agree with Seb (as usual). We have to yet to see the flavours of the United Consumer models. I think that we should expect a lot more community driven flash mob models of group buying, where it is up to advertisers to bid for the business, probably within a vertical. I think you’re more likely to see some kind of positive lock-in here, such that the sites that initiate this will be able to build a greater competitive moat around themselves.

  4. Greg Sterling Says:

    In my view, as I tried to suggest above, the “radical” part of group buying is not so much the consumer side, which is compelling obviously, as the way it may create a completely new way for local businesses to acquire customers than the prevailing methods.

  5. 8Coupons Makes Bid to Become Aggregator « Screenwerk Says:

    [...] previously wrote about Yipit, which is aggregating deals from the various group buying vendors (e.g., Groupon). Now 8Coupons, [...]

  6. AhmedF Says:

    ” The notion that “SEM funds itself” is one of the myths of paid search, which is especially a myth in the case of small business. ”

    Not sure I agree with that – lots of companies generate quite a bit of an ROI on PPC :)

  7. Greg Sterling Says:

    I should have been more precise with my words . . . yes, many have made money off PPC in e-commerce. It’s much less certain for traditional SMBs who sell and fulfill offline.

    The notion that your PPC spending pays for itself in sales is a myth in those contexts. That’s what I was referring to. If you’re Zappos it’s a different story and you can measure precisely. If you’re a chiropractor or attorney it’s not as true, although PPC is a valuable marketing vehicle for SMBs in many cases.

  8. Groupon Pours More Gas on the Fire « Screenwerk Says:

    [...] aggregator Yipit, which positions itself as the “Kayak of group buying,” pointed out that there were more than 40 of these sites in the US as of a couple of months ago. It’s only [...]

  9. Kevin Says:

    Greg, excellent review of the history behind group buying sites and how they work. The list for these kinds of sites seems to be growing every day. You have a few here I haven’t heard of. I’ve started a list of them and created a comparison chart to identify different features that are evolving from these kinds of sites here: http://tomuse.com/group-buying-sites-coupon-deals-discount-savings

    It looks like I’ll need to update this again however based on all those cited above. Let me know if you find an more and I’ll try to get them added to the table.

  10. Greg Sterling Says:

    Kevin … There appear to be more all the time. Nice compilation.

  11. The DealMap: The Mother of All Local Deal Sites « Screenwerk Says:

    [...] like Yipit are seeking to do a version of this by collecting the content of group buying sites and pushing [...]

  12. Aaron Johnson Says:

    Yipit got a lot of competitors now. Some have mobile apps. For my Adroid phone, I use dealleak, which can show deals based on my current location or zip code.

  13. Chris Cagle Says:

    Not sure why they needed funding to do what they did – i built http://buydeals.in in about a month with no funding

  14. Ashley Says:

    There are so many daily deal aggregates sites now. Here’s another good one that I use: http://www.dealhandler.com

  15. Customer Advantage Says:

    I stumbled upon this aggregator option today and I think this is awesome for finding more deals then I can find on one site, which has been my main point of contention with group buying.

    While this site is not an group buy aggregator site, it is a kind of unique group buying site in that it takes far less from the business from deals then say Groupon does and it actually pays members part of the proceeds: http://buyamerican.thecustomeradvantage.com/

  16. dagaanbiedingen Says:

    There are a lot of coupon sites but only a few get the idea of offering people valuable information that enhances their shopping experience.

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