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Dealify closes doors

Bonnie Tubbs
By Bonnie Tubbs, ITWeb telecoms editor.
Johannesburg, 02 Dec 2011

Within days of a fledgling e-business in the South African group buying space having closed shop, Naspers' daily deal site, Dealify, has followed suit.

Two weeks ago, ITWeb reported on the closure of group buying site Zappon, which was launched in March, under the Avusa Media Live banner. Avusa Digital MD Elan Lohmann said at the time that the venture had proven less than fruitful, and expressed doubt as to the viability of the group buying business model.

MIH, media giant Naspers' investment arm, set up Dealify in June this year and, as with many others that bought into the hype of a new type of online retail, high hopes abounded as it quickly made its way into the ranks of other top South African group buying sites.

South African group buying information site www.groupbuying.co.za states Dealify was “a brilliantly set up Web site and one of the best to buy on, according to comments from vendors and customers”.

A late entrant to the market, Dealify went pedal to the metal with a television campaign on DStv and extensive advertising within the Naspers network of Web sites, as well as on popular platforms like Google and Facebook.

However, despite these efforts, less than a year down the line Dealify is no more. MIH Internet Africa (MIHIA) CEO of e-commerce platforms SA Stephen Newton confirmed this morning that Dealify was “in the process of closing the business down”. He says Dealify will operate until all eligible deals submitted by 28 November have run their course.

Newton says the closure comes as a result of unsatisfactory profit margins. “The performance of the business has been below expectation since launch and we did not believe the situation would improve, pushing out the prospect of profitability considerably.”

While 18 employees will be affected by the closure, Newton says MIHIA looks at retrenchment as a last resort and “will endeavour to place the affected staff in other roles within the organisation”.

When asked about the possibility of MIHIA venturing into the group buying space again in future, Newton says “we are ending the Dealify business”. He adds that the company will, however, continue to be on the lookout for new opportunities and investments.

Spread like wildfire

Group buying market leader Groupon launched with full force three years ago amid abundant hype and high expectations. The first market for Groupon was Chicago, followed soon thereafter by Boston, New York, and Toronto.

Group buying first appeared on the local scene at the beginning of last year with the launch of WiCount, followed shortly by the likes of Twangoo (now Groupon SA) and Ubuntudeal. A number of other players then started their own group buying initiatives - including Daddy's Deals from low-cost airline Kulula.

But just as fast as these sites cropped up, they are starting to fall down.

In October this year, Dealio.co.za, on the group buying scene since the end of 2010, sent out an e-mail saying it had closed down “due to circumstances beyond [its] control”.

The post on its Web site currently reads: “So long, and thanks for all the fish. Dealio has, unfortunately, closed down... but you can still print your vouchers from the My Stuff section after logging in. If you have any difficulties, please e-mail us on info at dealio dot co dot za, and we will do our best to get back to you shortly!” (sic)

This was followed a month later by Zappon, Avusa's foray into the group buying space.

While Dealify, initially positioned as a top player in the group buying game, is the most recent failed venture, market observers suggest it will not be the last.

Few will survive

World Wide Worx MD Arthur Goldstuck says the news comes as no surprise to him. He says the closure was inevitable as, from the word go, it was clear that most Groupon clones would not survive due to the new and unproven business model they would be based on.

“These sites were all hallmarks of jumping on the bandwagon. In the space of just two years, group buying sites in SA went from one to 40. Suddenly you started seeing companies that had nothing to do with retail getting into the group buying environment.”

He says the glitch in Naspers' case was that the corporation tried to convert media traffic into retail traffic. “It was a mystery to me why they chose this route. These are two very different types of traffic. Media consumption is one of the first things people get comfortable with when they go online, while shopping is the last thing they gain confidence in.”

Goldstuck says the current group buying environment in SA is undergoing a confidence and learning curve involving online retail enterprises and the consumer.

Ultimately, says Goldstuck, what it takes to cut it in the industry is a rare combination of a number of elements. “Only a few will actually survive and flourish in the group buying industry: those with expertise in retail, the ability to build a community, and a sound understanding of the dynamics of group buying.”

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