With over a hundred group buying websites pushing discount deals, it’s no secret that the group buying methodology is an easily replicated phenomena. Yet, with Google’s recent launch of Google Offers earlier this week and Facebook’s entrance today, for leading group buying companies – read: GroupOn, Living Social, etc… – the ante has been upped.
As a result, it would be wise for them reevaluate ways to reinforce their dominant market positioning if they hope to retain dominant in the long run. One option to consider, an acquisition of or partnership with Foursquare, appears increasingly likely.
A Competitive Advantage?
Fundamental economics hold that a company creates value and becomes sustainable when it sells a product buyers value – aka: are willing to pay for – at a level that exceeds the economic cost to the company of producing the product over an extended period of time. In the case of group buying, this product is the discounted product offering. Food, massages, tickets and trips (or any other deal for that matter) qualifies.
When a company appropriates such value at a higher rate than its industry peers, it enjoys a momentary competitive advantage. At first, enjoying such advantage, Groupon and LivingSocial shot to the pinnacle of the market via relatively early entries and rapid scaling and have enjoyed great success in attracting users, securing market share and funding.
Today, both companies enjoy high valuations – (Groupon, ~$15B; LivingSocial, ~$2B), continue to hire, and are rolling out new product offerings such as category specific offerings and highly localised instant deals on a regular basis.
However, competitive advantages must be defended once obtained to be maintained, and whether the leading group buying companies can maintain their position remains unseen.
Although more than a hundred group buying websites exist with more launching on a regular basis, (see Skiddy.com, a recently launched Group Buying site catering to senior citizens), GroupOn and LivingSocial are best positioned to fend off advances by Google and Facebook due to their size and historical success.
In fact, as evidenced by GroupOn’s snub of Google’s $6B acquisition offer, GroupOn it believes it can continue to fair better as an independent that as a subsidiary of the search and advertising behemoth.
Whereas at least one of the two leaders may shy away from being acquired, Groupoun and LivingSocial are no strangers to playing the role of the acquirer. Since their formations, and per CrunchBase.com, Groupon has completed seven acquisitions while LivingSocial has completed four acquisitions.
As such, assuming that their past aversion to being acquires is indicative of the immediate future, and taking their willingness to at least entertain acquisitions as a potential growth strategy, Foursquare’s leadership may want to become introspective.
The Customer’s Motivation & Usage Patterns
Consumer motivation for the adoption and usage of group buying and geosocial share several commonalities. Whereas group buying encourages usage by monetary savings and trying new things, places and foods, geosocial’s benefits are enjoyed via a manifestation of check-ins, tracking friends, getting tips, mayorships, and broadcasting where you are.
Placed on a horizontal spectra with each on polar ends and potential consumers in the middle, both platforms – while not mutually exclusive – are in a race toward the middle to capture as many users as possible. In doing so, their primary differentiation may be the platform of primary usage.
Group buying companies, although they now have mobile apps, remain primarily web reliant. Put differently, the average customer buys deals from their computer, and not from their phone. Granted, the introduction of “instant deals” is now starting to change this breakdown.
In contrast, usage of Foursquare is largely relegated to the mobile application. Sure, users may log in to the website but they are prevented from checking in from non-mobile devices as Foursquare wants to prevent gaming the system. (Note: I recently was frustrated by this fact when I attempted to check in to Machu Picchu in Peru from a computer when cell phone service was unavailable.)
At bottom, group buying companies want to have as clear a route as possible to their customers, and mobile is the key to their success. Even better, they want to be able to push deals to your phone, not only when actively sought out, but also in passive form. After all, you may want that discount dinner and a movie even if you don’t know it.
Harvard’s Michael Porter asserts that “companies achieve competitive advantage through acts of innovation.” He hit the proverbial nail right on the head.
Although some may consider what the group buying companies are doing to be a disruptive methodology, it isn’t. People have negotiated group discounts for as long as anyone can remember. Think about it, negotiating group discounts for school trips or feeding a fraternity house both qualify. Instead, what differentiates successful group buying companies are their ability to rapidly scale via the utilization of technology.
In the geospacial race, Foursquare has outpaced Gowalla in terms of adoption. Per TechCrunch in June of 2010, Foursqaure was five times larger than Gowalla and enjoyed a daily growth rate 70-five per cent faster.
Today, Foursquare has more than 8.5 million users, adds around 35,000 new users per day, has over 250,000 using the merchant platform, and its rate of adoption has increased since Facebook launched Places in the fourth quarter of last year. On a much smaller scale, Gowalla currently enjoys approximately ~1,00,000 users.
When taken at whole, combining Foursquare’s user base and functionality with a leading group buying company’s sales forces could easily result in a reduction of redundancies, improved efficiencies and a more profitable bottom line.
Foursquare is Attractive
Foursqaure makes an attractive business partner for several reasons. Here are the leading five:
- Foursquare users are more tech-savvy, younger and have a higher disposable income than non-geosocial users. (Per Radio Shack’s social media director Adam Parker.) As such, they’re the ideal user for a Group Buying platform.
- With more than 8.5 million users, Foursqaure outpaces mobile application users on GroupOn or LivingSocial by millions. Each has between 1,000,000-5,000,000 and 100,000-500,000 respectively, per on the Android Market. Note: Apple App statistics are unavailable.
- Foursquare is global and offers specials all over the world. As such, it will provide an instant platform for expanded international influence and entry.
- With less than one-hundred employees per LinkedIn, the integration shouldn’t be overly burdensome.
- Foursquare faces increasing pressure by competitive entities such as Facebook Places. Sure, as note supra, Foursquare’s new user rates may have increased in rate, but Facebook’s massive user base – now over 500 million – is formidable.
Five Point SWOT Analysis For Acquisition/Partnership
– Strengths (Why it makes sense)
- It’s likely that Foursquare possesses a more sophisticated user base information tracking system than GroupOn or LivingSocial which can be utilized to effectively and systematically tailor ads.
- Given current valuations, Group Buying companies should have access to the necessary capital to initiate research and development bringing the new feature set to market.
- Building upon a successful relationship forged from their core competency activities, Group Buying companies will be able to offer a single point of contact for businesses, thus reducing transaction time/cost.
- Minimal risk of cannibalising its sales, especially considering the relatively profitable state it current enjoys and will, in fact, likely result in increased brand loyalty. (Won’t go to competitor for deal.)
- An acquisition or partnership has the potential to integrate seamlessly with the “Instant Deals” already offered in the Group Buying market and Foursquare’s Merchant Platform.
– Weaknesses (Why it doesn’t make sense)
- A significant segment of Americans do not want “Big Brother” in their car with them, storing information on where they go, when they go there, and how long they stay. The additional sources of revenue being sought by the group buying companies —especially when automatically cognisant and linked to their physical location — will only further this sense of discomfort among privacy-seeking individuals.
- Acquisition pulls Group Buying away from their core competency. (Note: Partnership, “powered by” does not.)
- Successful marketing of innovative product is dependent upon modifying existing consumers’ behaviour. As such, the consumer education message post partnership or acquisition methodology must be delicately crafted.
- The location of the company headquarters are diverse. GroupOn has headquarters in Illinois, LivingSocial in Washington, DC, Foursquare in New York.
- Despite attempts for increased valuations, Foursquare’s business model has yet to prove itself as a long-term profitable venture. As such, an acquisition may not be in the cards.
– Opportunities (Immediate benefits)
- An immediate and realised increased user base, both on the customer and client sides.
- Instant improved application tracking (assuming Foursquare has a more developed metric).
- Foursquare already enjoys an international footprint that can be shared and utilized by a group buying company..
- Instant access to over 250,000 entities using the Foursquare Merchant Platform.
- Foursquare will be able to compete more efficiently with Facebook Places, which will now integrate its own deals offering.
– Threats (Potential hesitations and reactions)
- Google or Facebook partnering with competitors, or combining their deals offerings with a proprietary geolocation application of their own.
- This campaign should be carried out in a manner so not to intentionally or directly draw the ire of GeoSocial. At present GeoSocial is forging the way for companies such as Group Buying to roll out apps. Why step on their toes?
- Foursquare is currently pursuing a higher valuation in its next round, rumoured to be valued at $500 million. As such, they may be less interested in an acquisition, and more inclined for a partnership. Think: “Foursquare deals, powered by Groupon/LivingSocial.”
- Absent an acquisition, a “powered-by” deal would more than likely require a revenue split. Accordingly, the group buying company is going to need to run numbers to ensure that the cannibalization and competition rates make business sense.
- Potential alienation of Foursquare’s existing merchant account user base of ~250,000 in that they will be forced to adopt to a new system.
Whereas group buying companies must actively build and maintain close relationships with their customers to prevent their clients from leaving for other alternatives, an acquisition of or partnership with Fouresquare could be a portion of the proverbial puzzle to fend off Google and Facebook’s recent entrances in to the group buying market.
It may not be imperative for group buying companies to demonstrate a sizable revenue steam or cost savings from the act, but instead, can view the action as a preventative measure securing their place in the market.
In any event, happy (discount) shopping.