Internet giant Yahoo7! has announced this morning it will pay $40 million for local group buying operator Spreets, in the latest deal within the local group buying scene that has rocketed from a niche market into a multi-million dollar global industry in just over a year.
The announcement means three of the four major competitors in the local group buying industry – Spreets, Cudo and Jump On It – are now owned or financed by major corporations, with Scoopon the only independent operator among the group.
The move only serves as an example of how serious venture capitalists and corporations are taking the relatively new group-buying industry, with Yahoo joining a cluster of investors including Microsoft, PBL Media, Ten Network, venture capital veteran Roger Allen, Living Social and original Facebook investor Klaus Hommels.
One of the more significant reveals was that Spreets has turned over $4 million so far this month, which places it as the leader in the local market by revenue.
Rohan Lund, Yahoo!7 chief executive, said he believes Spreets to be the market leader in a “highly competitive and fast-growing market”. Current chief executive Dean McEvoy will remain the company’s head, with the entire operation to remain relatively independent from Yahoo’s current operations.
“The business will sit independently from Yahoo, but will have access to Seven and Yahoo’s resources. We want it to grow as fast as it possibly can. If it ain’t broke, don’t fix it, is my view.”
Yahoo has purchased 100% of the company, Lund confirmed.
Spreets founder and chief executive Dean McEvoy said this morning the company will be able to utilise Yahoo’s resources in order to grow the business and focus on local deals.
“Australians and Kiwis love an amazing deal and Spreets has seen significant growth delivering over $40 million in savings to consumers over the past year. We’re proud to be an Australian born company leading the market in this rapidly evolving space,” he said.
“We’re thrilled with the acquisition by Yahoo!7 as we see the huge potential that one of Australia’s leading online media companies, which has huge momentum in the market, will bring to the Spreets business.”
Part of the new focus will be on localised deals, which have become more and more important for group buying sites in order to cover as much ground as possible. The sites court local businesses to offer bargains so users in every city are covered.
Lund says this localised focus is a key area of growth.
“I certainly think the retail opportunities for a business like this is in local areas. So you’ll see an accelerated rollout from Spreets into towns all around Australia.”
“It’s not just about capital cities for us. It’s about Townsville, Geelong, Newcastle, and so on. We want to go deeper into those areas.”
McEvoy claims Spreets was the first group-buying site operating in Australia after Groupon established the model in the United States. As of this month it has 500,000 members, and says over 274,000 vouchers have been purchased in its lifetime.
Yahoo said the business will be able to deliver a new audience to Spreets through distribution on its network, along with advertising through the Yahoo and Seven Media Group.
This could mean Spreets will soon introduce television advertisements – a method adopted by Nine Network-funded Cudo – although Lund says online will still play a major part of the advertising.
“That’s certainly one consideration,” Lund says. “It’s something we’ll look at in terms of how we bring awareness of Spreets. It works well for merchants to understand the model, because at the end of the day, the business works because they find the best deals.”
The purchase is just the latest in the group-buying market, as corporations and investors attempt to snap up what they can in an extremely fast-growing environment.
In November, Jump On It accepted $5 million from LivingSocial, (along with an original investment from veteran investor Roger Allen), while Spreets had previously won funding from original Facebook investor Klaus Hommel, who originally pumped money into Facebook.
Both Microsoft and PBL Media combined to create Cudo, which now claims to be one of the leading sites in the market, while Our Deal has taken an investment from Network Ten in order to promote its site through television ads.
And late last year, group-buying giant Groupon courted Google for an investment reported to be as high as $US6 billion. It ultimately ditched the negotiations and took $US950 million in funding from various investors last week instead.
Amazon also gave LivingSocial a $US175 million investment last year.
But what does this new investment from Yahoo say about where the local industry is headed?
Cudo chief executive Billy Tucker says the $40 million purchase, and the hint that Seven will help out with advertising, completely legitimises both what Cudo is doing and the space in general.
“Yahoo clearly recognises that what Nine Entertainment and Microsoft have done with Cudo has worked. So we consider that a Cudo clone, and the second point I’d make is that if Spreets is worth $40 million – Neilsen data shows we are 50% bigger than they are, so we’re at least worth $60 million.”
“I think it legitimises the space, it legitimises the industry, and it legitimises what we are doing with television.”
Zoupon founder Adam Schwab says the number of corporations investing in sites now means the likelihood of a Groupon-size giant emerging is low.
“There is certainly potential for solid growth, although I don’t think there are going to be any more Groupons. Channel Nine has done a good job in building Cudo into a big brand, but they flow a lot of money into advertising.”
“If you consider the top four – Scoopon, Cudo, Spreets and Jump On It – three of those have now taken investment from bigger players. Scoopon is now really the last big independent player.”
But Schwab also says consumers should take this into consideration, and that the inclusion of bigger players may mean some changes in services.
“The revenue these bigger players are going to get from these sites is minor compared to other operations, so perhaps businesses and customers will have to think about what sort of service they’re getting.”
Tucker agrees, to a point, and sees there is a risk of users growing fatigued of repetitive deals – which is why he says these sites need to constantly innovate in order to get traffic and sales.”
“I don’t necessarily think the market is moving too fast or that people will forget about it a year from now. What I think is that we need to innovate… and if we’re going to avoid consumers fatiguing, then it needs to become more personal, and more targeted.”
Meanwhile, Lund says Spreets has plenty of room to move despite all the competition.
“I think there is plenty of space in this industry. You’ve got 1.2 million small businesses in Australia that want to be heard. We think from our perspective we can provide some great value as the market leader.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
