Last Friday, with great excitement (coupled with a small amount of nervousness and a hint of embarrassment), we were finally able to unveil Antmart — Anthill’s take on the ‘group buying’ model.
In summary, it’s a group buying website (sometimes also known as a ‘collective buying’ or ‘daily deals’ site) developed specifically for business builders.
To make things clear, it’s not for the promotion of restaurant meals, day spas or free tans. It is not designed to show you the coolest things in your town.
It is for the promotion of deals for business owners — from stationary, software and hardware to event tickets, online learning tools and other products and services all designed to help a business grow.
(Please click here to check it out.)
Why did we do this?
Not so long ago, we invited our readers to suggest novel revenue streams for Anthill.
The responses were numerous, inspiring and triggered an avalanche of ideas.
One of these involved the creation of a Groupon-esque service.
If you haven’t yet heard about Groupon and the many daily deal sites that have followed, perhaps check out some of Anthill’s earlier posts on the company and the business model it spawned.
Sites like Groupon work by offering a heavily discounted product or service for a short period of time (like a day or week, or some other clearly defined window) on the condition that a minimum number of people sign up for the offer.
If this minimum number of people sign up for the offer (i.e. it ‘tips’) then the deal becomes available to everyone — credit cards are debited and coupons are dispatched. If this predetermined minimum is not met, no one gets the deal — credit cards are not debited and coupons are not dispatched.
This reduces risk for sellers, who are able to offer quantity discounts with confidence, because the deal will only go ahead if their minimum sales volumes are met to make the discounts feasible.
Most ‘daily deal’ sites make their money by keeping a third to a half of the dollar amount the customer pays for the coupon. They also keep revenues generated from unredeemed vouchers. This later makes the model feasible for the smaller group buying sites (and extremely attractive to the big ones).
For example, a $80 massage could be purchased by the consumer for $40. The deal site and the retailer would then split the $40. That is, the retailer gives a massage valued at $80 and gets approximately $20 from the deal site for it.
Why this model? Why now?
The rapid success of sites like Groupon (which Google recently offered to buy for $6 billion) and its Australian equivalents (Spreets, for example, was recently acquired by Yahoo!7 for $40 million) is derived from their ability to ‘incentivise’ consumers to promote their deals for them.
As explained, if not enough people sign up for the deal, the deal becomes unavailable (and everyone misses out).
The model, therefore, exploits a consumer’s desire to get the deal by encouraging them to share the deal through social media platforms, such as Twitter and Facebook, and other peer-to-peer recommendation services.
In essence, it creates a reason for consumers to promote the deal and then gives them the tools to do it.
In the context of Anthill, our audience is ‘socially connected’. It is constantly on the look-out for a better deal. And we already had the merchant channels, the critical mass and the infrastructure to give it a red hot go.
The decision to launch our own ‘group buying’ service was, therefore, not a difficult one to make.
Why would the seller do this?
In this recent article by Tim Morris, co-founder of underpants subscription service The Pantless Postman, Morris explains why his company used a similar service and outlined the marketing benefits.
To summarise, there are five common reasons why a business will employ the model:
1. The seller has stock to liquidate
This requires very little explanation.
The seller is overstocked on a certain item that it can’t shift. Rather than write-off the goods as losses, it elects to sell the item at a massive discount. This is possibly how organisations like Dealoftheday.com.au publish such amazing, although eclectic deals.
The seller might break-even or even sell at a loss. Either way, its motivation is to clear stock.
2. The seller wants (or needs) a spike in sales
Some businesses are able to sell their products and services with a large margin built into the price.
This allows them to occasionally offer a large discount to prompt a spike in sales — perhaps to cover short-term cashflow issues, to meet quotas or to simply sell more ‘stuff’.
For example, a particular item sold for $200 retail might cost only $20 to produce or service. (In the case of a product, this cost is unlikely to include operating costs, just costs of goods sold.)
The item might be offered for $80. The site and seller split the revenue (say, $40 each) and the seller walks away with a $20 profit.
If the seller does not do this too often (which may hurt the perceived value of the item or cannibalise full price sales), this technique offers a compelling way to trigger a sales spike and raise awareness of the product or service.
3. The seller wants the exposure (perhaps to accelerate adoption)
This is a powerful motivator for most sellers, as a way to complement traditional advertising.
A business might be launching a new product or service. It simply might wish to remind people what it does.
In the case of the former, the seller will use this model to rapidly acquire a customer base, which hopefully finds value in the product or service and spreads the word.
Some sellers employ this method at a break-even price point — and even at a loss — because it is much easier to influence consumer adoption of just about anything new once people start using it. The seller might also plan to make money from ‘the trail’ (more on that below).
In the case of the latter, the model can be used to complement existing advertising for the reasons described in the second example (above). Indeed, most people use the model for a number of these reasons combined.
4. The seller makes its money from ‘the trail’
In this fourth example, the seller is able to offer a product or service at a cheap rate (sometimes, again, at a loss) in full knowledge that a certain percentage of buyers will become long-term clients.
For example, some organisations generate trailing revenues from a sale, such as telcos and web-hosting companies.
Others use the cheap deal to get a foot in the door and then use that relationship to sell a broader range of products or services.
Either way, the modus operandi is ‘sell cheap now to turn profits later’.
5. The seller has something ‘free’ to ‘give away’
This fifth example is usually prompted by several of the motivations above.
The seller might have a free coupon or ‘gift’ that it uses to trigger a longer term relationship. The obvious example involves the offer of a ‘trial’ service (i.e. “Get one month free!” or “Download the coupon to get a free $50 credit!”).
In this instance, the offer on the deal site might involve a gift of the free item.
However, the gift will only become available when a minimum number of people sign up.
This naturally incentivises potential customers to spread the word. The seller, therefore, gains additional exposure for the business, create a customer-base (as with the third example) and/or makes money from ‘the trail’ (as with the fourth).
In this instance, the seller pays the deal site a flat fee per ‘customer’ acquired.
This is obviously of value to organisations that have already established how much it costs them to acquire a lead, the percentage of conversions from lead to customer and the average life-time value of a customer.
So, why are we excited, nervous and embarrassed?
It’s probably obvious why we are excited.
As far as we’re aware, Antmart is the first website of its kind in Australia. (One of our readers was able to identify a US company also running a B2B deals site. Thanks Jen.)
We’re nervous because we know that rigorous use of the site — by real people in the real world — is likely to show-up cracks and weakneses. We also don’t know whether or not the model will be embraced by business builders (although early signs have been reassuring). Indeed, this is why we carefully labeled the site BETA. (See top right of Antmart’s home).
So, why are we slightly embarrassed?
To quote Scott Handsaker of Eventarc fame, “If you’re not slightly embarrassed about your new web product when you launch, you’re too late.” (Nicely said Scott.)
We’re probably a tad early off the mark, in terms of Australian awareness of and familiarity with such sites, but it’s always been Anthill’s approach to launch and test in real time.
Sure, we’ll make some mistakes along the way. In fact, we plan to reveal the ‘learning experiences’ of our first week next Tuesday.
But if there’s one thing that defines our readers (yes, you Anthillians) it’s that when we get it wrong, you’re not afraid to tell us.
And that’s just the way we like it!