Page 1

Groupon Clones in Vietnam

Collective Buying via the Web

Tai Tran, updated 24.10.2011

Page 2

• 24.10.2011

– Slide 4, a few more sites

– Slide 26 - 31 on financial information

Updates

Page 3

Terminologies

• Idea from Groupon.com, a

portmanteau derived from

"group" and "coupon"

• Use Groupon logo as

representative of Groupon &

Groupon clones in Vietnam

• Merchants in this research are

usually retailers

• CC: credit card

• COD: cash on delivery

• VP: pay & receive voucher in

providers' office

Disclaimer

• Information from this slide is

solicited from public sources

only

• The author does not benefit

from promoting any service

mentioned in this slide

• This slide does not necessarily

reflect the investment view of

the author

• This slide does not necessarily

reflect the investment view of

the organization where the

author works

• Disclosure: the author is not

working at a venture capital

firm

Page 4

Page 5

Big 4 (updated July 2011)

Page 6

Traffic

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

Page 7

• NhomMua.com

– Leader

– Free COD

– Heavy advertising

– Experience from industry investor (Rebate

Networks)

• Hotdeal.vn

– Fast follower

– Free COD

– More mature segment

• MuaChung.vn

– Selective deals

– Focus on menu sets => benefits for the

restaurants

– Educate user to use e-payment (VCCorp's

SohaPay), intentionally charge COD

– User base from VCCorp's sites

• CungMua.com

– Fast follower

– Mid-end vendors

– Efficiency

– Launch inCard.vn

• Zing Deal

– (used to) promote Zing Xu (payment

system), but was forced to offer free COD

– User base from Zing's sites

• KhuyenMaiVang.vn

– Experienced sales force from 5giay

• 51deal.vn

– SMS code: buyer pay after using service =>

buy without painstaking research

• Everyday.vn

– BTA

– Rebate unused vouchers after expiry dates

• Others notable

– CungMuaSam.net

– NecDeal.com

• Many other are declining: vndoan,

runhau, supersale, phagia, muale…

• Why hasn't PeaceSoft, VTC and FPT Online

joined the hype?

– My speculation: PeaceSoft wants to focus

on its core business - eBay clone, and

maybe it is too busy with integrating

ChoDienTu to eBay and NganLuong to

PayPal

A few notable sites

Page 8

• Deal aggregators

Secondary sites

Page 9

• 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

Limitations of clones in Vietnam

Page 10

• Acquired by Groupon.com or Living Social

Exit strategy

Page 11

The Groupon Business Model

Page 12

11/2008

•Launched in Chicago, founder: Andrew Mason

•$1m seed investment

2010

•150 North American markets, 100 EU-Asia-South America markets

•35m users

•Acquire global clones in EU, South America, Sing, Japan, Russia, Hongkong, Philippines, Taiwan, Malay

•1500 employees

2011

•Turn down Google's $6b acquisition

•File for IPO $11b

•Break-even Q3 2011

•8000 employees, 4000 sales

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

3. Accel $30m, 2009

4. Digital Sky Tech $135m, 2010

Page 13

• We provide mostly free web services

• We have large user communities

• How do we monetize the user base besides selling ad?

Web service

providers

• We offer products / services

• How do we market besides traditional marketing

channels?Merchants

• How do I discover good deals?

• How to I explore good products & services?

• How do I explore my connections' preference?Customers

Demands

Page 14

Page 15

Model

Ad on Site

Offer discount

if threshold

(min number of

buyers) is met

Discount

voucher

Merchants

Customer

(also web users)• Payment

• Pageview

Customer

Bring the voucher to Shop and redeem

product/service

Merchants

• Offer product/service

• Hope to retain the customers

Revenue

less

Groupon fee

Win-Win-Win for all 3 parties

Page 16

Win-Win-Win what?Groupon Merchant Customer

Boons • Source of Revenue

• Low cost of building

a website (users

focus on deals rather

than user

experience)

• Share viral costs with

users (users share

the news among

themselves via

Facebook, chat)

• Sell big lots

• Flexible marketing channel

• Revenue upfront

• Some customers do not

redeem the voucher before

expiry => revenue without

offering service. 25%

vouchers are never redeemed

~ $1.2b (approximately

$300m free cash for

merchants)

• Discounts

• Explore

preferences of

connections

Disadvant

ages

• High payment &

delivery cost (next

slides)

• Drive down margin • Pay upfront

Risks • Obscure pricing &

service quality from

merchants may hurt

the reputation of the

web provider

• Can't handle the flood of

voucher redeemers

• No guarantee customers will

come back after using the

discount

• Ambiguous pricing

• Inconsistent

service quality

Page 17

Value proposition to merchants

Network of Subscribers

Access to

Network of

Subscribers

Vast

Distribution for

Promotion to

Potential New

and Return

Customers

Consumer

Profile

Targeted Deal

Distribution

and Access to

Customer

Demographics

Assurance

Contract to

Deal

Activation

No Upfront

Cost to Run

Deal

Develop

Promotion

and

Editorial for

Merchant

No additional

promotion cost

to increase

brand

awareness

Customer

Service to

Manage

Deals

Merchants can

focus on

servicing

additional

customers

Page 18

Industries Groupon focuses on

Restau-rants

Fashion

Beauty Travel

• Small-value items

• New companies / new branches

• High customer acquisition cost

• Companies without full-pledged

retail network

• Low cost of goods sold (CoGS)

• Travel & spa: flexible CoGS

• Restaurants: meal set should be

optimized so that buyers would

order more

• High-value items

– e.g. iPad

– For promotion

campaigns

– If offered as deal: attract

huge amount of users

– Given for free as

promotion

• Users give up personal

information for a chance

to win the item

• Marketing for the site

Page 19

Page 20

Categories

Page 21

• Merchants need to be

consulted on

– Number of vouchers

– Threshold

– Discount rate

– Duration of campaign

– Deal design

• Which items

• Menu set

Economics of merchant

Page 22

Customers demographics

Early adopters

Likely Facebook

user

Office professional

Disposable income

Urban females

Page 23

• 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%

Charges

Full Price $40

Discounted Price $20

Merchant receive $14

Physical goods:

fixed, CoGS, profit

on large quantity

Service: low CoS,

can be profitable

Groupon retains 30%, or $6

Selling cost Delivery cost Marketing cost Management cost

Page 24

• 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

Payment

Page 25

Cost Management

• Underdeveloped e-Payment

industry

• Collecting payment, refund,

rebate is too costly

• For smaller sites: if threshold

(minimum number of buyers) is

not met, the deal becomes

invalid and cost incurs without

revenue

Business model sustainable?

• Winner takes it all?

– No

– This is retail business. There is

room for followers

• Issues (criticism)

– Positive cash flow vs. loss in

income statement?

– Ponzi scheme?

• The current business model is

too costly to sustain

• Innovation is needed to further

develop this model

Money

Page 26

• 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

Financial

Page 27

Page 28

Page 29

Vietnam 2010 (VND trillion)

F&B 19.3

Household

goods &

services

4.3

Transport

7

Hotels &

caring 4.4

Healthcare

3.7

Market Sizes

Page 30

-125%

-100%

-75%

-50%

-25%

0%

25%

50%

75%

100%

2009 First 3

quarters

2010

2010 First 3

quarters

2011

Per Revenue Ratios

Marketing% SGA%

Acquisition% Net profit%

Brief Financial Analysis

If Groupon further cut marketing expense by 35%,

the company would immediately be profitable today.

05

1015202530354045505560

7.5 8.5 9.510.511.512.513.514.5

Pri

ce p

er

Sh

are

MRP

Sensitivity to market

Key assumptions

• Revenue 2011E 1.5b

• The company retains break-even

state in Q4 2011

• Risk-free rate = 10-year US

government bond rate

• Negative beta

Page 31

-53

590.49 495.46

-25

0

25

50

75

100

125

150

175

200

225

250

Market Cap ($b) P/E Share Price 24.10.11 Revenue most recent quarter ($b)

Page 32

Rivalry:

high

Threat of new

entrant: high

Buyer

power

(customer):

high

Substitute: moderate

Supplier

power

(merchant):

low

• Cost to launch a new website is

low

• Focus on developing sales team

• Existing users/communities

from other sites in the same

company: a requirement

• Positive cash flow

Numerous merchants

Low switching cost

Numerous deal hunters

Low switching cost

Five forces

For customers:

• Coupon books

• Direct promotions

For merchants:

• Ad on Google (search engine)

• Ad/coupon on Facebook (social

media)

• Direct promotions

Page 33

Comparisons

Page 34

• Groupon Store: self-serving store for merchant

• Groupon Now: what to buy today with Groupon,

location-based

New Services

Page 35

International Expansion

CityDeal in

Europe

Darberry in

Russia

Qpod in

Japan

uBuyiBuy in

Hong Kong

SoSasta in

India

Groupoer in

South Africa

Twangoo in

Israel

Gaopeng in

China with

partnership

from Tencent

Page 36

FutureOpportunities

• Young population, eager to try new

experience

• Post-crisis frugality

• Herd behavior

Values

brought to

Vietnam

• For the first time, e-commerce goes mass

• Educate e-payment

• Attract attention from users, media,

investors

2011: educating market

Market size $30m

2013: mature market

Market size $100m

Page 37

Success drivers

Clear strategy

Strong sale

team

Reduce cost of

delivery

Backed by

existing comm-unities

Quantitatively consult merchants

on logistics: optimal deal size,

discount, maximum number of

vouchers, duration

Page 38

• A Harvard Business School research

– Merchants with discounts is more likely to be profitable

– Voucher services grow: customers over-rely on vouchers

Research result

Page 39

• 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

Reference

Page 40

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

Tai Tran