Trying a little of its own medicine, social buying juggernaut Groupon went on something of a shopping spree Tuesday, announcing that it has bought Japanese and Russian rivals Qpod and Darberry, respectively. While the terms of the deal were undisclosed, the company plans to assimilate both into the Groupon brand, according to the Wall Street Journal.
A great idea naturally draws copycats, and it’s cheaper than ever to launch consumer websites — which means companies like Groupon often find rivals established overseas before they can expand internationally.
In April, the company famously raised $135 million from Russian investment firm Digital Sky Technologies. The next month, it announced the purchase of its European rival CityDeal, which bought the site’s reach to 18 countries and 165 markets. With its latest acquisition, Groupon now expects to operate in 29 countries and 230 markets.
Like Groupon, Qpod and Darberry offer time-sensitive deals at local restaurants and other businesses that are only valid if a certain number of users sign up, a structure which encourages people to market the deals to their friends.
President and COO Rob Solomon told the Wall Street Journal that the company wants to define the worldwide daily deal market. Solomon made the direct comparison to fellow e-commerce sites Amazon.com and eBay, pointing out that both have been helped by having a global footprint.
Amazon, an early entrant into the e-commerce market in the mid-’90s, expanded into markets like the UK and Japan without finding much local competition. But eBay, which started a few years later, found a host of clones waiting for it abroad.
Luckily, eBay was well-funded through its blockbuster 1998 IPO. eBay began a shopping spree with a $50 million purchase of a three-month-old German clone, Alando.de, in June 1999. It then swallowed up French clone iBazar, Korean clone Internet Auction Co., Chinese clone EachNet, Indian-clone Baazee.com, and Swedish clone Tradera over the next few years. eBay did try its own hand in most of these markets, but opted for the buy when it wasn’t successful. To date, it has spent more than $1.6 billion in international acquisitions.
Groupon relies on what it calls the collective buying power of large numbers of consumers. This enables the site to offer special pricing on a merchant’s product or service, making it a win-win situation: The consumer gets a drastically cheap offering, the merchant gets a high volume of sales in a short span, and the dealmonger taps a markup on the exchange.
That relatively simple concept has spawned a number of international clones in different markets. Since most — if not all — of the site’s utility comes from the nature of the deals it offers, international operators have the leverage of being well-versed in a country’s rules and operations and in a much better position to form relationships with local retailers.
Instead of trying the slow and expensive process of international expansion on its own, Groupon seems to be using its financial muscle to acquire overseas rivals — exactly the strategy eBay pursued when faced with a clone army.
It worked for eBay, and there’s no reason the stratagem can’t work again for Groupon. Not only does the company get to harness countless retailer relationships, it also obtains new users and awareness in the market, avoiding the need for it to start from scratch with an American brand. For example, the company’s European acquisition, CityDeal, is now Groupon CityDeal, and operating it on its German domain, groupon.de. A similar fate is likely to follow with its Japanese and Russian counterparts.
While eBay made use of money from its IPO to spread its wings, Groupon has its $135 million investment led by Russian-based DST. By striking deals decisively and early, Groupon wants to make it clear that in this new game of social shopping, it has the biggest wallet.
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