Six Pixels of Separation - The Blog
May 27, 2010 7:13 AM

One Product. One Sale. One Day Only. One Exciting New Business Model

Do you buy in bulk?

When most people think of buying in bulk, they think about Costco. They think about saving a handful of shekels by buying a six-litre jug of Italian salad dressing. Either that, or they think about buying enough AA batteries to the point that there's not enough room for the butter on the upper inside door of the refrigerator. Buying in bulk doesn't have to look so sloth-like anymore, and there's a whole other side to buying in bulk that has nothing to do with 10-pound bags of Doritos.

One of the main promises of the Internet and Web-based technology was/is the ability for the collective to come together, collaborate and be more organized and efficient in how we do things ... and there's no reason why saving a few dollars shouldn't be a part of that equation.

During the dot-com boom, there were many start-ups (that got millions of dollars in venture capital) to figure out how to find masses of people and get them interested in buying the same thing for a better price (remember websites like MobShop and Mercato?). Think about it this way: you're looking to buy a top-of-the-line bicycle, wouldn't it be great to find nine other people who were looking for the same brand, model and make? This way, you could approach the company and ask them if they would be interested in offering a discount for the 10 purchases? If the brand isn't interested in your business, you can put out a message on the Internet and see which brands might be?

There were many issues with this model: It was always hard to find the right number of people to know when a company would be willing to give a discount, if the people all lived in different parts of the world, and if the shipping and duty would be different. Then there's the small issue of letting both individuals and brands know that these platforms exist and that they should be monitoring them (remember, this was all pre-online social networking with channels like Facebook, Twitter and blogs for individuals to reach out to their social graphs).

Things have changed since the mid-'90s, and the Internet has evolved to the point where these types of transactions are a little bit more practical and realistic.

It has also been the very successful business model that has made Groupon one of the newer (and hottest) Internet darlings. The company launched in November 2008 and stays true to its ethos, which is this:

  • Each day it features something cool to do at an unbeatable price.
  • You only get it if enough people join that day ... so invite your friends!
  • Check back the next day for another awesome Groupon!

How's that for a fascinating business model? One product/service only.

There is no catalogue. They are no product skus to deal with it. It is something that Groupon, personally, does not hold inventory on. It is driven, entirely, by the consumers' desire to buy and get their friends to buy along with them. The biggest difference in the Groupon model (and this is the key part) is that the website is offered in a variety of cities across the United States and Canada). It is location-specific and not open to anyone, anywhere online.

That is where the new Internet is able to beat the old Internet.

We now have more than enough people online (approaching the 2-billion mark) and many of them are actively looking for products and services at the local level (just ask the Yellow Pages Group). If that doesn't sound like a big deal to you, check out this quote from an April 12, 2010, news item on TechCrunch (Groupon Raises Huge New Round at $1.2 Billion Valuation): "Fast-growing Groupon, fresh off a $30-million round of financing that valued the company at around $250 million, is back raising new money. They have closed or are in the process of closing new venture money at a $1.2-billion valuation, say multiple sources (one source says that's not exactly correct, but close). ... The site has accumulated 3 million subscribers and currently manages roughly 40 markets. Three million 'groupons' have been purchased since November 2008, says the company."

The success of the Groupon model is also something that has not fallen on deaf ears.

There have been multiple companies that have tried to replicate the Groupon model both on a local level (in cities and countries where Groupon presently does not have a presence or to compete with them directly) and based on a specific category of product. Gary Vaynerchuk, the founder of Wine Library TV (a video Podcast about wine), used his growing Internet celebrity status to convert his 850,000+ Twitter followers and fans into a best-selling business book, Crush It, and beyond. His latest venture, Cinderella Wine, is a Groupon-like e-commerce site where he has one amazing wine offer every day until the inventory runs dry (so to speak) - granted, the deal happens by simply making the purchase, which is unlike Groupon, where enough people have to join the specific "groupon" to make the deal a reality.

Woot! is another similar site that offers one product for one day only (or until it runs out). Woot! has been around long before Groupon and has always focused not just on getting the one product out to as many people as possible, but also on the community side of engaging their consumers on blogs and podcasts as well as on platforms like Twitter and Facebook.

The Groupon, Cinderella Wine and Woot! commerce model seems ridiculous (and, if it does, please re-read that TechCrunch quote above).

While most retailers focus on diversifying their product lines and maximizing the cost-savings to their consumers, Groupon (and companies like it) are rewriting the retail rules by leveraging everything from technology and social media to consumer empowerment and the local angle to create a win-win for both paying customers and businesses. Could you ever have imagined a company selling one product, for one day only at a heavily discounted price being worth billions of dollars?

Welcome to the new world of retail.

The above posting is my twice-monthly column for the Montreal Gazette and Vancouver Sun newspapers called, New Business - Six Pixels of Separation. I cross-post it here with all the links and tags for your reading pleasure, but you can check out the original versions online here:

By Mitch Joel