A small local company, still in its infancy, has been snapped up by global collective-buying giant Groupon as part of its bid to fend off a ploy by Google to break into the emerging e-commerce model.
The US-based company yesterday expanded its presence into three new territories after buying out Twangoo in SA, for an undisclosed amount, as well as companies in India and Israel.
Its move comes only months after news that it had fended off a $6 billion buyout bid from Internet search giant Google, and shortly after it raised $950 million in venture capital.
South Africa was one of the first territories included in Groupon's “land grab”, says Arthur Goldstuck, MD of World Wide Worx. “It's a huge boost for SA Internet to be seen as part of a global strategy.”
Twangoo got in at the right time, before the model became well known in SA, as recognition of global buying only started taking off locally with the news of the Google bid last November, says Goldstuck.
“There is a global strategy at play,” says Goldstuck, and SA is now a part of that global strategy. Groupon must have been watching the South African space closely to have quickly tied up a company that has yet to celebrate its first birthday, he adds.
JSE-listed publishing and Internet company Naspers has an indirect stake in Groupon through its effective 28.7% stake in Mail.ru group, which in turn has a 5.13% stake in Groupon.
The deal is not considered material to the listed company, but any increase in value of the Groupon investment should potentially flow through to the Mail.ru share price, with Naspers possibly an indirect beneficiary, the company says.
Virgin territory
“Collective buying is in its infancy in India, Israel and SA, and we see strong potential,” says Groupon president and COO Rob Solomon.
Groupon's acquisition of firms in India, Israel and SA will extend its reach across these countries, the company said in a statement.
Twangoo is still in its infancy, with its first purchase order only going through its books last June. It has less than 10 staff members, but plans to triple or quadruple its headcount in the next few months.
Co-founder Daniel Guasco says Groupon's investment into the company will give it access to capital to expand its operations across the rest of SA and aid it in keeping its market-leading position.
Apart from an investment into technology and marketing, the company made money from day one as the model is cash-positive, explains Guasco.
The model is based on it securing discount deals with a range of partners in individual South African cities and across the country. These deals are then promoted to its community and - once a set take-up target is reached - each bidder has bought themselves a discounted item, which can range from a weekend away, to wine, or electronic goods.
Guasco says it's about taking an “online customer into an offline environment”. Twangoo has a deal per city every day on its Web site and discounts range from 50% to 90% of the normal purchase price, says Guasco. “Every day, in every city, we launch a new deal.”
The Groupon deal will give Twangoo the muscle it needs to expand its business beyond its current range of partners and presence in 10 South African cities. Twangoo aims to have expanded its presence to all of SA's major cities in the next two to four months, Guasco says.
Inking the deal will also give Twangoo access to a wider range of products, he adds.
Guasco and partner Wayne Gosling will stay on with the company for at least three years.
Groupon works on the same model as Twangoo and recently offered discounted deals at companies such as Gap, the Body Shop, the Hilton hotel group and the Virgin group.
Online boost
Collective buying as a form of e-commerce concept is still new in SA. Goldstuck explains Twangoo is the leader in the space, and there are only three other similar companies, which have “cut-and-paste” models, he adds.
However, the value of the model globally can be seen through Google's bid for Groupon last year, notes Goldstuck. He says the bid shows “Google's perception of the value and what this business model actually represents”.
Goldstuck expects Google to start picking off smaller collective buying companies in a bid to replicate Groupon's model. As a result, says Goldstuck, Groupon raised cash and started buying in territories with growth potential. “The way to out-Google Google is to go global.”
There is a huge global war to gain online customers' wallets, he says. Google's revenue stream is reliant on advertising, most of which is directed at online shoppers, comments Goldstuck.
Groupon's model effectively cuts out this middle man because the sales platform also acts as the advertising mechanism, says Goldstuck. “With Groupon behind it, Twangoo can become a lot more significant in the local market.”
The US company launched in November 2008 in Chicago and offers more than 650 daily deals in 500 markets around the world.
Groupon India, Groupon Israel, and Groupon SA will now join Groupon's global network, which offers deals to over 50 million subscribers in 40 countries through its more than 4 000 staff worldwide.
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