Group buying not just a bubble waiting to burst: Telsyte

The group buying phenomenon is more than just a phase for Australians despite claims that the industry is unsustainable, according to the analyst firm.
Written by Spandas Lui, Contributor

Many have predicted its demise, but it seems that the online group buying industry is here to stay, according to analyst firm Telsyte.

"There are a lot of questions around whether or not group buying is a bubble that will burst," Telsyte senior research manager Sam Yip told ZDNet. "It's not really a bubble, but just an evolution of what we've seen in e-commerce."

A recent Telsyte report found that Australians spent around AU$504 million on group buying websites in 2012, although that is only 1.4 percent higher compared with 2011, and numbers are tipped to remain steady throughout 2013.

The industry, which is less than three years old, has seen heavy consolidation in the last six months, with group buying website numbers dwindling down from 80 to about 30. The top five players in this field are Groupon, Scoopon, LivingSocial, Cudo, and OurDeal, which make up 75 percent of the market.

There have long been speculation that group buying will eventually die out, with some claiming the model is unsustainable as merchants are made to offer up huge discounts on their products and services, occasionally at a loss. Merchants also have to give a cut of any profits made through group buying to their respective websites.

First-hand reports of group buying websites bullying merchants into accepting dodgy offers were also rife at one stage, but Yip said that it has become less prevalent now that the market has matured.

"From what I see, that was really early days' activity," he said. "It's a lot better now compared to, say, 24 months ago when a lot of that was actually happening."

Some major group buying players have also been shedding jobs, including Spreets, LivingSocial, and US-based Groupon, leading pundits to question if it is the beginning of the end for the industry.

But Telyste noted that the group buying environment in Australia has evolved from being very service orientated to becoming more aligned with retail e-commerce, which is a step in the right direction.

"What we've seen in the last 12 months is more traditional retail products being sold on these sites," Yip said. "These sites are becoming not just strong on local services deals, but in retail products across a whole range of categories, be it electronics, fashion, or homeware — that is where group buying is heading.

"In terms of the future of the industry, we believe these sites will continue to evolve."

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