Watch CBSN Live

Deal Me In: Startups Pursue Variations on the Groupon Model

AOL Patch. The New York Times. Google (GOOG). These days, it seems like everyone wants to be Groupon. It's all that loot the Koupon King reportedly made -- well, at least until its IPO filings showed otherwise.

Too many companies are trying to use the Groupon model, and the market probably can't support more than a few, let alone the hundreds of clones that already exist. But some start-ups are looking for different ways to approach the deal business. BNET spoke with a few of the would-be innovators.

Power the company with an animation studio
Figures that with a Hollywood creative type as co-founder, Shooger might have a different take from everyone else. Donick Cary is co-executive producer for HBO's Bored to Death and was a writer for The Simpsons and the Late Show with David Letterman and creator of Lil' Bush, the first television series to start as a series of cellphone animations.

Instead of the typical take-a-cut-of-the-promotional-price approach, Shooger tries to combine social networks with deal referrals, according to Cary:

We're all fans of Groupon and LivingSocial and getting deals, but I was getting a little fatigue. Maybe one in ten deals were relevant. One of the key things to this is first and foremost we're about user-generated content. Our experts are real people who are really good at finding deals. Like someone who knows the best tacos, the cheapest, where you can go on a Tuesday morning where it's slow, specials on a Thursday night. You could create a profile where you follow four or five experts that have everything you like: tacos and indie rock and shoes.

Shooger will also scout its own deals. (If it waited for enough experts to provide content, things could stay pretty slow.)

What's interesting about Shooger's business model is the monetization plan. Sure, one part is the now obligatory Internet statement of get-people-and-figure-how-to-monetize-later. The off-beat part is animation.

Cary co-owns Sugar Shack Animation, which he started with the people who helped do Lil' Bush. The company keeps its costs low by working with artists in Bulgaria so getting work done is within the budgets of many smaller businesses."We've figured out a pipeline to make lots of little animated videos for businesses and deals," Cary says. "What do you want to sell this month and how do you want to sell it?" At worst, Shooger becomes a prospecting mechanism for animation.

The business of deals is business
A growing number of start-ups realize that daily deals have focused on consumer spending, not the business-to-business market. MarketSharing promotes heavily-discounted deals to business owners. CEO John Amato aims to have a mix of 30 percent necessities that companies would buy anyway and 70 percent "discovery for owners" -- products or services that might give them different ways of doing business, "whether that means helping them discover a way to keep happy helpful employees or today discovering a new way to advertise."

Amato previous started Show Media, which he says "owned about half the advertising on top of taxis in NYC," so he and some associates from that company are experienced in selling promotional vehicles to businesses in Manhattan. Within two weeks of officially launching MarketSharing, Amato says that they had promotions from Dunkin Donuts and UPS, as well as a list of 100,000 businesspeople who had either signed up or came via development deals that the company did.

RapidBuyr is another business-to-business deals site, except it has partnered with American City Business Journals, a publishing company in 41 different markets, according to CEO Tom Aley:

If you look at these markets, ACBJ doesn't really have any competition [other than] the local business sections, which are incredibly weak. [Publishing company] Cranes is in New York and Chicago, but isn't as broad. Whether you're a national business or a local business, we're sending out 15 or 20 million impressions or more to move as much as 3000 to 5000 units in a national deal or hundreds of units locally.
ACBJ already has sales staff, which eliminates a difficult part of starting this sort of marketing service. "Our edge is that nobody's got the footprint that we have in terms of local plus national," Aley says.

Is that a business or a charity? Yes.
As Groupon's numbers show, making money in a deals business is tough, largely because of the merchant and consumer acquisition costs. CoupMe started in July 2009, marketing coupons to area college students. Investors brought in Bill Yucatonis as CEO, who was charged with finding ways to make the model work. And then came 2010 and a problem, as he explains:

This market exploded, measured in both the growth of buyers and the uptick in competitors. At one point I could count the number on my hands, and suddenly there were thousands popping up worldwide. We didn't have the [customer acquisition] budget on the top end and also didn't have a large enough [deal] throughput to feed the budget. We needed to keep our lead [generation] in the $5-9 range as a target per new customers, and unfortunately sometimes we'd reach $20 plus on campaigns that under-performed and couldn't be optimized.
So the company made a switch and branded itself as GoodTwo, a free fundraising platform. Charities bring in-house lists of donors who convert to paying customers at a high rate as a way to support the institution. Because the deals come branded directly from the charities, consumers don't get the same promotion fatigue that can happen with a Groupon. Half the deal revenue goes to the merchant, while the charity and GoodTwo each gets 25 percent.

Selling to merchants has also changed. "It's a cause marketing message now, an approach where we can put a local brand alongside an amazing cause," Yucatonis says. "This creates a very significant halo-effect for the brand offering the deal because to the donor it's helping a cause they care about."

Who knows if any of these companies will ultimately succeed? The lesson to learn is one of innovation. Doing the same thing that everyone else does puts a company into a crowded field where it's difficult to be heard. Find a different angle, and you might identify a way of making money, even while everyone else scratches their heads and wonders how to make a profitable business.


Image: Flickr user .Larry Page, CC 2.0.
View CBS News In
CBS News App Open
Chrome Safari Continue