Once bitten, twice shy must be a term that escapes media mogul James Packer, who appears to have fallen victim to the second (dot)coming, courtesy of a scheme people in tech circles are now calling Grouponzi.
Aussie deals and group buying website operator Catch Of The Day recently earned a spectacular $200 million valuation (making it one of Australia's most valuable online retailers) after a 40 per cent chunk of the company was acquired for $80 million by a consortium featuring Packer (Consolidated Press Holdings), Tiger Global Management, Andrew Bassat (Seek co-founder) and boutique investment group Gannet Capital.
That's an impressive list of names. The last time Packer and his mates were embroiled in a famous tech-fling was during the dotcom boom with fickle mistress One.Tel, which broke the hearts of many a mogul and millionaire.
Catch Of The Day, founded five years ago by Melbourne entrepreneurs Gabby and Hezi Leibovich, operates online retail sites CatchOfTheDay.com.au and Scoopon.com.au.
Gabby Leibovich told The Australian that the site has been profitable from day one and is on track to grow revenues and profits by 100 per cent this year, a feat it has achieved for the last four years.
He did not specify profits, but group revenue for the current financial year was expected to be $120 million.
Recently, Catch Of The Day had a sale on chainsaws and whipper-snippers, while Scoopon had another restaurant deal.
Flogging stuff that nobody wants to buy? Isn't that how the global financial crisis started?
Leibovich said Catch Of The Day (and related sites) has almost 1 million members, and each day attract over 150,000 visitors.
It's a similar picture across the industry, including sites like Spreets (Yahoo!7) and Cudo (ninemsn).
They're impressive numbers but there is one fundamental flaw: while customers (mostly) benefit, group-buying and daily deals ultimately disadvantage the businesses whose products and services are being bought, resulting in a low rate of repeat use.
The participating businesses lose money when they offer products and services below cost and studies show that less than half of businesses would use group-buying services again.
It does not bode well for the future, particularly when there is an ever-increasing number of players.
Still don't believe me? The details revealed as part of the Groupon IPO show the group-buying bubble is all too real.
The founders siphoned off the majority of the US$946 million investment that was gifted to the company earlier this year, according to a blog on The Wall Street Journal (the graphics tell the whole story).
Of the almost US$1 billion that made Groupon the face of the second (dot)coming, US$136 million was kept to help run the money-losing company — the filings said the company lost US$413.4 million last year, and US$113.9 million in the first quarter despite a surge in revenue to US$644.7 million.
Where did the money go?
The remaining US$810 million was paid out, via stock purchases, to CEO Andrew Mason and some of his backers, including Eric Lefkofsky and, notably, the Samwer brothers, who sold their CityDeal company to Groupon in 2010.
Grouponzi is pretty simple:
- Create a slick website with optimised SEO (OSEO) and the latest social-networking gizmos
- Promise small businesses the world if they discount their services on your site
- Force people to sign up just to view a deal, creating a lucrative membership base
- Pick some gullible investors (hopefully already burnt in the first dotcom bust), assure them this time it's the real deal (point to Silicon Valley and advice form Wall St bankers) and grab their cash
Unfortunately, for Packer, group-buying sites usually have a no returns policy, but just in case he might want to email the support team.