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The Other Contenders in the Group-Buying Clone Wars

Even if Google doesn't buy Groupon, the talk of a potential multi-billion dollar deal has created buzz for both the group buying site and its rivals.

Groupon.com
Source: groupon.com
Groupon.com

Certainly Amazon.com shares Google's interest in the space. The online retailer made a $175 million investment in Living Social, a company that offers both local discounts and provides several popular Facebook applications such as Pick 5 and Visual Bookshelf.

That was before Groupon, the largest of the group buying sites, turned down Google's $5 billion offer, according to reports.

While those two sites are by far the most popular in the emerging space, they aren't alone, and some suspect other sites such as SocialBuy, Tippr, and BuyWithMe could also be ripe for a takeover.

Microsoft , as well as digital and traditional media companies like America Online and Gannett , could benefit from scooping up group buying sites to tap local markets and gain fresh advertising revenue, industry watchers said.

Consumer Nation - Holiday Central Edition - See Complete Coverage
Consumer Nation - Holiday Central Edition - See Complete Coverage

One thing is clear: these sites have become a “global phenomenon,” said Dan Hess, chief executive officer and co-founder of Local Offer Network, which aggregates group buying deals from sites in 86 cities and disseminates them to shoppers through Dealradar.com. “It brings online marketing to the doorstep of the local retailer like nothing has before.”

Groupon.com, the king of the social buying sites, which has racked up an estimated $500 million in sales in just two years of business, negotiates steep discounts on local retail, services and cultural events to subscribers in a free daily email, which are activated when a certain number of people agree to buy. It typically sells shoppers coupons worth 50 percent-off products and services, and keeps a 50 percent cut of the sale.

While the heart of Groupon and other group buying sites’ business model is working with local retail stores and restaurants with location-targeted coupons, national chains are getting in on the action.

Gap , for one, participated in a Groupon promotion last summer that generated over $10 million in sales in one day. And Nordstrom has also joined the Groupon bandwagon.

According to comScore, which tracks digital trends, Groupon and LivingSocial generated 6.5 million and 4.0 million unique visitors in October, respectively, and are by far the biggest players in the space, said Andrew Lipsman, senior director of industry analysis for the company.

After those two big sites, the group buying market is fragmented among hundreds of smaller players worldwide. That’s because the model has seen little barriers to entry and has struck a resonant chord with shoppers and businesses alike.

“There are a lot of people flooding the space,” Lipsman said. “Consumers get access to big discounts, and retailers get new customers in the door.”

The data trail from these group buys can also shine a light on the long-term return-on-investment of particular shopping segments, providing retail insight on the success of new customer acquisitions over time, Lipsman said.

And group buying sites are an attractive acquisition target as they offer entry into local markets, said Lee Helman, managing director of boutique investment firm Financo.

Just as Google was hoping Groupon would “make it even more local and focused on the local advertisers,” Microsoft, for one, could also benefit from such a purchase, he said. By acquiring Tipper or BuyWithMe, for example, Microsoft could provide group-buying offers on its MSN.com shopping portal.

“This isn’t just a banner ad,” Helman said. “These are relevant, timely offers to people in very defined demographics or trading zones.”

What’s more, Microsoft, which owns Hotmail, could leverage another asset. “They have everybody’s email address,” he said. “They can embed offers and ads into Hotmail to drive conversion and traffic.”

All manner of companies are rolling out their own versions of group buying sites.

America Online, for one, just launched Wow.com, while members-only shopping site Gilt Groupe has rolled out Gilt City. Newspaper publisher Gannett entered the group-buying fray with Metromixdeals, a spin-off MetroMix.com, its entertainment guides.

While some media companies are creating their own brands, including local newspapers such as the Hartford Courant, which has launched daily deal site savenowct.com, media firms such as Hearst and the Tribune Co. could also go the route of acquire existing sites, Hess said.

For national traditional and digital media companies, group buying sites “provide a very compelling advertising product for them to [gain access to] largely untapped local markets,” not to mention an invaluable revenue stream, he said.

While the big media firms boast assets such as an existing sales force, access to consumers, media lists and mobile sites they’ve spent years building, “what they need is the expertise and execution” that the group buying site could provide, Hess said.

Local merchants eclipse national chains in size when aggregated, yet the smaller guys have never had the advertising resources of the big guns. Group-buying sites even the playing field.

That’s because there is no financial outlay for the retailer, Hess said. “The payment for the ad is sharing revenue.”

And these days, local is the operative word.

“Everybody is trying to land grab for the right local business or coupon-oriented business,” Helman said.

Questions? Comments? Email us at consumernation@cnbc.com

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