Innovation

Social media: Selling gets more social

Written by Ian Portsmouth

Win-win relationships are the cornerstone of a sustainable business model. So, to Chris Nguyen, online social buying is the perfect concept on which to build a lasting company.

In May, Nguyen and his business partner, Lee Liu, launched Toronto-based TeamSave.com Corp., which combines e-commerce and social media to unite sellers with virtual groups of buyers. It’s not a unique business; in fact, their startup is among the youngest of dozens of firms in a race for online social buying supremacy. That’s not great news for the pair of 27-year-olds or their rivals, but the proliferation of online social buying sites is creating an affordable, new sales and marketing channel for many other companies, especially those in retail and consumer services.

TeamSave’s model is typical of online social buying websites. Individuals sign up for a daily e-mail promoting TeamSave’s deal of the day €” say, half off a session at a local rock-climbing gym. Consumers confirm their interest in purchasing the session by supplying their credit-card details. But no sale is made until a minimum number of buyers, set by the seller, is reached; only then is the deal “unlocked” and all of the registrants receive an electronic coupon that they can then exchange for the rock-climbing session at the vendor’s premises. All the while, aspiring buyers are motivated to promote the offer through social media channels, helping to ensure the deal they want gets unlocked €” and, concurrently, giving the seller and its product more exposure. If the quota is not met before a predetermined deadline, the offer is withdrawn and no one gets billed.

“It’s a win-win,” says Nguyen. “It helps consumers find great deals because they’re buying in bulk, and it helps companies lower their cost of customer acquisition.” Make that a triple-win: the typical online social buying intermediary takes a 30% to 50% cut of every sale, without having to carry any inventory. Its primary costs are technology infrastructure and sales, as human capital is still required to attract deal-of-the-day vendors.

Web-assisted group buying isn’t new. Several group-buying businesses launched in the late 1990s, although they didn’t survive the tech crash of 2000. But Salim Teja, a veteran of the sector, has hope for its new wave. “The core principle still applies today, but the conditions are much more ripe,” says Teja, a co-founder of San Francisco-based MobShop, an online group-buying heavyweight that folded in 2002, before its fifth birthday. “The Web is certainly more social. We were relying on e-mail to generate demand, but with Facebook and Twitter, the mechanisms to create social awareness of these shopping experiences are more prevalent.” More companies are more informed and strategic about online advertising, Teja adds, and the Web is simply more pervasive: “The customer touchpoints are much more numerous.”

Yet, contemporary group-buying firms still face several challenges €” the biggest being each other. “There are low barriers to entry,” says Teja, who’s now an executive at Toronto-based online advertising network CX Digital Media. “I know of nearly 50 companies that have launched or are planning to launch in this space.”

Several are up and running in Toronto, including Chicago-based Groupon Inc., the 800-lb. gorilla of online social buying. Founded in November 2008, the 300-employee firm runs groups in Toronto, Vancouver, 59 U.S. locations and 14 European countries. It has been on an expansion tear, trying to establish enough market share to deter would-be rivals from entering the same cities. This is an expensive endeavour, but Groupon has raised US$165 million in venture capital since last November.

TeamSave, meanwhile, is operating on “enough money to get us to our next [financing] round,” says Nguyen. Funding has come from angel investors and the founders themselves, who sold their first company, Jobloft.com, a specialized job board, in 2007 to Engelwood, Colo.-based onTargetJobs Inc. for an undisclosed sum. But being the new tykes on the block doesn’t faze Nguyen: “There are first movers, and then there are the fast followers who can innovate around the pain points.”

At this stage, the possibilities for innovation seem endless. Today’s online social buying sites are fundamentally indistinguishable from each other, using the same methods to make the same types of offers to a general audience. “Eventually, consumers are going to get €˜deal of the day’ fatigue,” says Teja. “How are you going to keep them interested?” Undifferentiated players will be forced to compete on price and take a dwindling share of each sale €” which they can ill afford when it’s not uncommon for deals to be priced at $20 and bought by 50 people.

Nguyen says he and Liu are investigating a few ways to make TeamSave stand out from the crowd, including using customer analytics to design and target offers, and applying gaming concepts, such as rewards-points systems, to encourage participation.

Any such edges will help online social buying businesses, whether they try to be generalists or focus on narrow product categories or hyper-local offerings.
Time will tell whether online social buying is an effective customer-acquisition tool or only a way to loosen the purse strings of price-conscious shoppers. The latter might encourage sophisticated marketers and well-recognized brands to bring online social buying in-house, building their own systems or buying white-label services to promote new products or sell excess inventory to their existing customers.

One thing that won’t change: people love deals. And any business that figures out how to make a buck saving someone else a buck will have the power of win-win on its side.

Originally appeared on PROFITguide.com