Yahoo!7 may be starting to encounter the downside of the group buying industry as a new report indicates the media giant is no longer expected to make any more performance-related payments to its subsidiary Spreets.
The revelation comes as growth in the group buying industry tapers off and smaller players start falling away while larger businesses, such as Scoopon and LivingSocial, diversify into new markets and consolidate their power.
The Australian Financial Review has reported an unnamed source as saying no more performance-related payments will be distributed to Spreets. It bought the company for $40 million back in 2010, but since then, the group buying market has slowed.
“We are happy with the business but it’s tougher than expected and the gloss has worn off the space,” a source told the publication. “[The] plan is to keep it profitable and sustainable and not worry too much about the Groupon approach.”
The local group buying sector has maintained a healthy group of businesses, but they have been threatened by declining interest on the part of consumers and international competition.
Spreets was contacted by SmartCompany this morning, but declined to comment on the details of its financial details.
“We have never disclosed the commercial terms of the Spreets deal and we aren’t making any comment in relation to the AFR story,” a spokesperson said.
Experts agree the group buying market, while still growing, is slowing down to a more sustainable pace.
“Group buying has to be well managed,” says Deals.com.au co-founder Adam Schwab. “The dotcom businesses that survived are those that are run tightly, with profit and have maintained a solid business.”
“We’ve had a very slow build up, but I think we’ve maintained profitability while a lot of other companies haven’t.”
Telsyte senior research director Sam Yip says there are essentially “two different games” being played – one with the larger earners, and the smaller sites.
“For some of those smaller players, what they need to realise is there is no more space for generic sites. Any new players must specialise in niche products or locations.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
