Groupon Clones in Vietnam update 24/10/2011 Source: taitran.vn

1. Groupon Clones in Vietnam
Collective Buying via the Web
Tai Tran, updated 24.10.2011
Page 1

2. Updates
• 24.10.2011
– Slide 4, a few more sites
– Slide 26 - 31 on financial information
Page 2

3. Terminologies Disclaimer
• Idea from Groupon.com, a • Information from this slide is
portmanteau derived from solicited from public sources
"group" and "coupon" only
• Use Groupon logo as • The author does not benefit
representative of Groupon & from promoting any service
Groupon clones in Vietnam mentioned in this slide
• Merchants in this research are • This slide does not necessarily
usually retailers reflect the investment view of
• CC: credit card the author
• COD: cash on delivery • This slide does not necessarily
• VP: pay & receive voucher in reflect the investment view of
providers' office the organization where the
author works
• Disclosure: the author is not
working at a venture capital
firm Page 3

4. Page 4

5. Big 4 (updated July 2011)
Page 5

6. Traffic
Source: Google AdPlanner, composed by Phi http://twitter.com/p2045i/status/107757376874086400/photo/1
Page 6

7. • Zing Deal
A NhomMua.com
•
few notable sites – (used to) promote Zing Xu (payment
system), but was forced to offer free COD
– Leader – User base from Zing's sites
– Free COD
• KhuyenMaiVang.vn
– Heavy advertising
– Experienced sales force from 5giay
– Experience from industry investor (Rebate
Networks) • 51deal.vn
– SMS code: buyer pay after using service =>
• Hotdeal.vn
buy without painstaking research
– Fast follower
• Everyday.vn
– Free COD
– BTA
– More mature segment
– Rebate unused vouchers after expiry dates
• MuaChung.vn
• Others notable
– Selective deals
– CungMuaSam.net
– Focus on menu sets => benefits for the
restaurants – NecDeal.com
– Educate user to use e-payment (VCCorp's • Many other are declining: vndoan,
SohaPay), intentionally charge COD runhau, supersale, phagia, muale…
– User base from VCCorp's sites • Why hasn't PeaceSoft, VTC and FPT Online
• CungMua.com joined the hype?
– Fast follower – My speculation: PeaceSoft wants to focus
– Mid-end vendors on its core business - eBay clone, and
maybe it is too busy with integrating
– Efficiency
ChoDienTu to eBay and NganLuongPage 7to
– Launch inCard.vn PayPal

8. Secondary sites
• Deal aggregators
Page 8

9. Limitations of clones in Vietnam
• Underdeveloped e-payment market => high cost of
COD
• Lack of financial tricks e.g. trade credit, ACSOI
• Limited access to fund raising sources
• Mapping, location-based and logistics are not fully
utilized
Page 9

10. Exit strategy
• Acquired by Groupon.com or Living Social
Page 10

11. The Groupon Business Model
Page 11

12. The original Groupon.com
More of a Sales company than a technical
product. Technology is NOT important
Funding
1. Keywell $1m, 2007
2. New Enterprise Associates $6.8m, 2008 2011
3. Accel $30m, 2009 • Turn down Google's
4. Digital Sky Tech $135m, 2010 $6b acquisition
2010 • File for IPO $11b
• Break-even Q3 2011
• 150 North American • 8000 employees, 4000
markets, 100 EU-Asia- sales
South America markets
• 35m users
• Acquire global clones in
11/2008 EU, South America,
Sing, Japan, Russia,
• Launched in Chicago, Hongkong, Philippines,
founder: Andrew Mason Taiwan, Malay
• $1m seed investment • 1500 employees
Page 12

13. Demands
Web service • We provide mostly free web services
• We have large user communities
providers • How do we monetize the user base besides selling ad?
• We offer products / services
Merchants • How do we market besides traditional marketing
channels?
• How do I discover good deals?
Customers • How to I explore good products & services?
• How do I explore my connections' preference?
Page 13

14. Page 14

15. Model
Ad on Site Discount
voucher
Offer discount
if threshold
(min number of
buyers) is met
• Payment Customer
Merchants Revenue • Pageview (also web users)
less
Groupon fee
Merchants Customer
• Offer product/service Bring the voucher to Shop and redeem
• Hope to retain the customers product/service
Win-Win-Win for all 3 parties
Page 15

16. Win-Win-Win what?
Groupon Merchant Customer
Boons • Source of Revenue • Sell big lots • Discounts
• Low cost of building • Flexible marketing channel • Explore
a website (users • Revenue upfront preferences of
focus on deals rather • Some customers do not connections
than user redeem the voucher before
experience) expiry => revenue without
• Share viral costs with offering service. 25%
users (users share vouchers are never redeemed
the news among ~ $1.2b (approximately
themselves via $300m free cash for
Facebook, chat) merchants)
Disadvant • High payment & • Drive down margin • Pay upfront
ages delivery cost (next
slides)
Risks • Obscure pricing & • Can't handle the flood of • Ambiguous pricing
service quality from voucher redeemers • Inconsistent
merchants may hurt • No guarantee customers will service quality
the reputation of the come back after using the
web provider discount Page 16

17. Value proposition to merchants
Network of Subscribers
Develop
Assurance Customer
Access to Promotion
Consumer Contract to Service to
Network of and
Profile Deal Manage
Subscribers Editorial for
Activation Deals
Merchant
Vast
Targeted Deal No additional Merchants can
Distribution for
Distribution No Upfront promotion cost focus on
Promotion to
and Access to Cost to Run to increase servicing
Potential New
Customer Deal brand additional
and Return
Demographics awareness customers
Customers Page 17

18. Industries Groupon focuses on
• Small-value items • High-value items
• New companies / new branches
• High customer acquisition cost – e.g. iPad
• Companies without full-pledged
retail network – For promotion
• Low cost of goods sold (CoGS) campaigns
• Travel & spa: flexible CoGS
• Restaurants: meal set should be – If offered as deal: attract
optimized so that buyers would huge amount of users
order more
– Given for free as
promotion
• Users give up personal
Beauty Travel information for a chance
to win the item
Fashion
Restau-
• Marketing for the site
rants Page 18

19. Page 19

20. Categories
Page 20

21. Economics of merchant
• Merchants need to be
consulted on
– Number of vouchers
– Threshold
– Discount rate
– Duration of campaign
– Deal design
• Which items
• Menu set
Page 21

22. Customers demographics
Early adopters
Likely
Urban
Facebook
females
user
Disposable Office
income professional Page 22

23. Charges
• Groupon.com charges 50%
– Full-price service $40
– Discounted price $20
– Groupon retains 50% of $20
– Merchants receive $10
– Groupon.com charges lower fees for less prominent ad space
• Most Groupon clones in Vietnam charge 15-30%
Full Price $40
Discounted Price $20
Merchant receive $14 Groupon retains 30%, or $6
Physical goods:
Service: low CoS,
fixed, CoGS, profit Selling cost Delivery cost Marketing cost Management cost
on large quantity
can be profitable Page 23

24. Payment
• COD: cash on delivery
– Customer places order, Groupon calls to confirm
– Groupon prints voucher
– Pay cash at customer's site
– Groupon hires a logistics service
– Some offer free delivery, some charge
– 90% orders in Vietnam
– High cost
• Bank transfer through large banks
• ATM, Internet Banking
• e-Wallet: NganLuong, MobiVi, Payoo, baokim, Soha Pay
• SMS: 51deal, phagia
Page 24

25. Money
Cost Management Business model sustainable?
• Underdeveloped e-Payment • Winner takes it all?
industry – No
• Collecting payment, refund, – This is retail business. There is
rebate is too costly room for followers
• For smaller sites: if threshold • Issues (criticism)
(minimum number of buyers) is – Positive cash flow vs. loss in
income statement?
not met, the deal becomes
– Ponzi scheme?
invalid and cost incurs without
revenue • The current business model is
too costly to sustain
• Innovation is needed to further
develop this model
Page 25

26. Financial
• Basically broke-even Q3 2011
• Free cash flow $60m in Q3 2011
• Sales growth slowed - a sign of profitability
• Cutting marketing expense and acquisitions in Q3
2011
• IPO
– Valuation $11.4b
– Proceeds mostly likely to fund international acquisition
and product development
• "Media attention" is an intangible asset not
reflected on the balance sheet Page 26

27. Page 27

28. Page 28

29. Market Sizes
Healthcare
3.7
Household
goods &
services
4.3
F&B 19.3
Vietnam 2010 (VND trillion)
Transport
7
Hotels &
caring 4.4
Page 29

30. Brief Financial Analysis
Per Revenue Ratios Sensitivity to market
Marketing% SGA% 60
55
Acquisition% Net profit% 50
45
Price per Share
100% 40
75% 35
30
50% 25
20
25% 15
10
0% 5
0
-25% 2009 First 3 2010 First 3
quarters quarters 7.5 8.5 9.510.511.512.513.514.5
-50% 2010 2011 MRP
-75% Key assumptions
-100% • Revenue 2011E 1.5b
• The company retains break-even
-125% state in Q4 2011
If Groupon further cut marketing expense by 35%, • Risk-free rate = 10-year US
the company would immediately be profitable today. government bond rate
• Negative beta Page 30

31. Market Cap ($b) P/E Share Price 24.10.11 Revenue most recent quarter ($b)
250
225
200
175
150
125
100
75
50
25
590.49 495.46
0
-53
-25
Page 31

32. • Cost to launch a new website is
Five forces Threat of low
new • Focus on developing sales team
• Existing users/communities
entrant: from other sites in the same
high company: a requirement
• Positive cash flow
Supplier Buyer
power Rivalry: power
(merchant): high (customer):
low high
Numerous merchants Numerous deal hunters
Low switching cost Low switching cost
For merchants:
• Ad on Google (search engine) Substitute: For customers:
• Ad/coupon on Facebook (social moderate • Coupon books
media) • Direct promotions
• Direct promotions Page 32

33. Comparisons
Page 33

34. New Services
• Groupon Store: self-serving store for merchant
• Groupon Now: what to buy today with Groupon,
location-based
Page 34

35. International Expansion
CityDeal in SoSasta in
Europe India
Darberry in Groupoer in
Russia South Africa
Qpod in Twangoo in
Japan Israel
Gaopeng in
uBuyiBuy in China with
Hong Kong partnership
from Tencent
Page 35

36. Future • Young population, eager to try new
experience
Opportunities
• Post-crisis frugality
• Herd behavior
• For the first time, e-commerce goes mass
Values
• Educate e-payment
brought to
Vietnam • Attract attention from users, media,
investors
2011: educating 2013:
market mature
market
Market Market
size $30m size $100m Page 36

37. Success drivers
Quantitatively consult merchants
on logistics: optimal deal size,
discount, maximum number of
vouchers, duration Reduce
cost of
delivery
Strong
sale
team
Clear strategy
Backed
by
existing
comm-
unities
Page 37

38. Research result
• A Harvard Business School research
– Merchants with discounts is more likely to be profitable
– Voucher services grow: customers over-rely on vouchers
Page 38

39. Reference
• Eliason, Frezgi, Khan, 2010, 'Group Buying White Paper', Harvard
Business School, accessed from
http://www.slideshare.net/HackStartups/group-buying-white-paper
• Groupon S-1 Analysis
http://www.slideshare.net/MartinNew/groupon-s1-analysis
• Groupon Analysis http://www.slideshare.net/elissegaynor/groupon-
analysis
• Groupon filing to SEC
http://sec.gov/Archives/edgar/data/1490281/000104746911008598/
a2205238zs-1a.htm
• Groupon's IPO Roadshow http://www.businessinsider.com/groupon-
ipo-roadshow-slides-2011-10?op=1
Page 39

40. Tai Tran
1. Blog http://taitran.vn
2. LinkedIn http://www.linkedin.com/in/taitran
3. Facebook http://www.facebook.com/taitran
4. Google+ http://gplus.to/taitran
5. LinkHay Money http://www.linkhay.com/tien
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