How Groupon's rivals are trying to catch up on social buying

The tide of group buying sites, which mix discounting with viral marketing to make marketing offers more effective, isn’t abating anytime soon. Yipit, a New York-based startup that aggregates deals from about 90 different social buying companies, says four newbies are starting to see some traction behind the two giants in the field, Groupon and LivingSocial.

The company said DealOn, KGB Deals, HomeRun and Tippr are starting to break out from the pack, according to data they’ve collected over the past few months.

Social buying is a relatively new phenomenon that Chicago-based Groupon pioneered less than two years ago and has since blossomed into a business worth more than $1 billion. These companies offers a deal a day in specific cities, but only if enough people band together to get the discount.

Group buying sites aren’t particularly difficult to start — all it takes are some aggressive salespeople to go out and get unique deals. The technical side of the service isn’t exceptionally hard to build, either. These low barriers to entry make it hard to stand out.

Groupon has an intimidating lead, being the first mover with a $170 million war chest. Yet these Groupon copycats have a couple tricks up their sleeve and are differentiating themselves on multiple fronts, according to Yipit.

Some go for a higher average deal value, meaning they earn a more lucrative commission. Bloomspot, for example, offers discounts to black-tie events, charity balls and more expensive restaurants. Others attack a lower-price tier. KGB Deals has come from the opposite angle as Bloomspot, offering low cost deals like $4 for an AMC Theater ticket.

Still others try and innovate on viral tactics. San Francisco-based HomeRun. The site uses real identity, has sophisticated game mechanics and special “avalanche” deals which lack a fixed price. The price can go even lower if even more people join.

Yipit said newcomers like DealOn, Tippr and KGB Deals are also trying to aggressively go after markets that have remained relatively untouched by some of their bigger competitors. It’s a strategy that may only work for a little while though, since part of Groupon’s strategy in raising $135 million earlier this spring was to very aggressively saturate untapped markets.

With so many competing players, the group deal frenzy may pan out even better for the small businesses these startups are fighting over. Yipit says Groupon’s typical deal commission ranges from 30 to 50 percent, but that may drop as other players crowd in.

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