These websites got my attention because of similar product buying sites like woot.com and its Aussie equivalent catchoftheday.com.au. Lately Groupon, a social buying site recieved a lot of press and VC funding with its $1 Billion valuation.

I quite like these websites and the idea behind them. As they offer discounts and better deals than if you bought these products or services directly from the supplier. I have used the Entertainment book for a few years now, and really enjoy the savings that you can get. Ironically, you do need to spend money in order to save money! In addition, it introduces you to new services, entertainment and dining venues which you would have never thought of. It gives you ideas of things to try.

I’ve bought goods from catchoftheday before. Occasionally, I receive emails from friends and facebook updates from my social network about JumpOnIt and Scoopon. Both these sites seem relatively new and tend to have a female skew (well at least within my social network!).

Group buying sites for services

The premise of these newer group buying sites that are emerging is that they focus on services and need a critical mass of buyers. Living social is another example.

Initially these kind of websites focused on products – a supplier or manufacturer may have a surplus of stock which they needed to offload. Hence, they could list on catchoftheday or some other website offering daily deals. It was great for the tri-parties involved. The supplier (seller) could quickly get rid of stock and convert it into cash. The website (deal maker) instantly got a lot of traffic from people visiting the site looking for a  deal and a cut of the sales. Lastly, the consumer (buyer) won by buying a product at less than market value (commonly known as a bargain).  These websites have proved popular for quite some time, though I’ve only come across them recently in the last year or so.

I love the idea of focusing solely on one product and offering a superior price for it. As these sites have been built up over time with a loyal following and because the products already existed and needed to be offloaded, there didn’t need to be a threshold level that was required to be reached to sell the product.

This brings me now to the service group buying sites. The way that these sites work is that they require a minimum number of people to buy the service before the deal is “on”. e.g. for today’s deal you might need 20 people to buy the massage service before you can obtain the discount. So it encourages people to tweet, facebook, email and generally share it. I think its perfect for today’s social status obsessed environment. People want to share news about a bargain, and encourage their friends to buy it to help them.

I look at some of these daily deals, and I can see that they can easily smash the required number. For example, yesterday Spreets featured a deal @ Doctor Pongs that for $10 you could get $40 worth of food. A saving of 75%. When I checked it with 11 hours to go, there was already 230 people that had bought the service and it only needed a threshold of something like 30!

Behold The Threshold

A key question is whether these service based sites require a threshold number to be reached. Many businesses have multiple coupons and promotions which they use to bring customers through the door. The idea is that these are lead generators. They might take a hit the first time the consumer uses the coupon, however these discounts are more like advertising. What they are hoping for is:

a) an increase in volume in a short period of time (weeks or months during the promotional period)

b) reaching new customers to consider buying their product/service (marketers like to call this “consideration”)

c) however, it really boils down to repeat transactions and selling them more stuff (upsell, cross-sell, monthly or yearly subscriptions, add-ons, etc…)

By having the threshold, it is easier to sell to the business involved i.e. that you need 30 people before the deal is on. This also makes it worth their while to be involved. The more people that buy the product, the more viable and better priced that discount can be and the better the business can absorb that initial hit. What it creates is an economies of scale. It also allows the business to have a crude prediction of demand for that discount.

The other subtle yet important factor is that if you know that you are going to save money in a transaction, aren’t you compelled to spend slightly more? I know I am the type of person that thinks since I’m saving 25%, I might as well spend $40 more!

However, for these websites to be successful, the thresholds needs to be relatively low. Because most consumers like me, will wait til the threshold is almost within reach. In this Scoopon example below, it is tipped @ 20 people. It is within the range where I would consider buying. It is also worth noting that you do not get charged unless the threshold is reached.

Some other Australian examples

The main reason I started writing this post is what I noticed about these sites. So that was Scoopon above and Jump On It above.

Take a look at OurDeal.com.au

Here is Spreets.com.au, a newer site built by Pollenizer and Booking Angel.

Yes thats right, they all look the same!

I showed a friend of mine, who said exactly the same thing. Its like they’ve all been built on the same CMS (content management system), or by the same design team (doubt it on both counts).

However, more likely, they’ve managed to figure out what is the most optimal way to sell these services and some of them may have just borrowed some elements from each other.

I’m out like buying services on my own,

Matt Ho.

]]> http://inspiredworlds.com/2010/06/09/group-buying-sites/feed/ 2 http://inspiredworlds.com/2009/10/30/u2-concert-on-youtube/ http://inspiredworlds.com/2009/10/30/u2-concert-on-youtube/#comments Thu, 29 Oct 2009 23:23:50 +0000 Matthew Ho http://inspiredworlds.com/?p=773

Youtube concert

At approximately 2.30pm on Monday AEST, U2 staged the first live streaming Youtube concert online. And I witnessed it!!

U2 is easily one of the world’s best known bands. It’s probably not the first band to stream a concernt online, but the first of the major bands to do so and to such a large audience. I’m by no means a huge fan of U2, but I wanted to be part of this historic and momentous event. Plus I got to watch a concert for free!

I tuned in for about 2 hours and watched it in between doing work. I had it streaming in the background and witnessed an awesome concert unfold. They played a lot of songs that I was familiar with but didn’t know the names of and got me reacquainted with a lot of their music.

There was a bit of lag at times (about 3 or 4), but overall the streaming was smooth and there were heaps of different camera angles. Considering that there were in excess of 1.3 Million channel views, that was a pretty impressive job by Youtube. Their cloud servers must have been running at max capacity!

Monetisation Streams

As I was watching it, I was talking to my friend @dacheah about the monetisation possibilities. I feel that this was a public demonstration of Youtube’s streaming capabilities. This was a free concert, but imagine how much advertising, publicity, and album sales were made in the lead up, during the concert and post concert.

On the right side of the streaming video, you could purchase a download of the album off iTunes. Or donate to Bono’s Red charity or find out new information about their new album. These are just the direct actions you can take. By using iTunes it allows people to make an immediate purchase and receive the album on demand, an even cheaper distribution method.

But what happened indirectly?

They were able to bring in people like myself who aren’t big U2 fans into their music. Created new fans and advocates of the brand.

Given all that is happening in the music industry with the profileration of free downloads and pirating, there needs to be alternative money stream. Stream the concerts for free and entice people to purchase singles, albums and merchandise.

However, I think the biggest play would be to charge people access to live streaming concerts. This could be Youtube’s monetization model, have people pay $5  -10 to watch a world class concert. You could potentially have a subscription service as well, whereby people pay a yearly fee and get access to number of online streaming concerts. I’d also pay for this.

The ability to use streaming online video is now quite easy. We used it for our basketball game via Livestream (formerly Mogulus).

Back of the Envelope numbers

Using some general online stats that only 10% of people would pay for an online service, lets assume that 130,000 of the 1.3m viewers would have tuned in @ $5 a pop (lower end of the scale).

$5 per viewer x 130,000 number of viewers = $650,000  Revenue

Video Costs

1. Streaming costs

Youtube offers branded channel but their not cheap. If you advertise more than $80k with adwords, you can get it for free. They also have free accounts as well at the public level. But I feel that its going to be bundled together with streaming, storage space  similar to how Livestream and Ustream do it. Let’s do a yearly calc based on Livestream current costs:

1 Channel with 25GB streaming, HD up to 1.7 MPS: $350 a month

20 premium channels with 200GBs streaming, HD up to 1.7 MPS : $1,250 a month

I assume that there will be an option in the future for premium users for 1 Channel with 200 GBs available for larger concerts. It could possible use Google App Engine or Amazon EC2 which will bring the cost down. However, lets go with $1,250 since this is a publicly available cost. Give that 130,000 viewers watching video could potentially smash the server, lets multiply the cost of streaming by 5 fold to be ensure there is enough capacity to handle the extra traffic.

I’ve chosen a yearly fee because the band will want to maintain it and possibly do a number of concerts.

$1,250 per month x 5  x 12 months = $75,000

Note that this is a variable cost because it can be cancelled or use more/less bandwidth. But you will probably want to retain it and the more concerts you do, the more the cost will be spread.

2.  Camera crew for 2 hour concert

Camera crew will be needed for full day to prepare, stream and record,  dismantle stuff. This staff is in addition to existing sound crew. I don’t want the regular sound crew worrying about online streaming in addition to the concert as well.

This could be you streamed online....

Lets say 5 are needed – one in the booth to check video, three camera people to give different shots (upclose, in the crowd, pan wide), maybe an extra sound guy. That’s 5. I use 8hrs for a full day required for a 2hr concert.

$80 p/h  x 8hrs x 5 staff =  $3,200

3. A couple of IT and social media guys

On standby to monitor streaming, computer/servers crashing, social media feedback, commenting, drive traffic – 3 staff. I’ve chosen the figure $120 an hour to get more quality staff with experience.

$120 an hour x 8 hrs x 3 staff = $2,400

Total costs

$75,000 streaming + $3,200 camera crew + $2,400 IT staff = $80,600

$650,000 Total Revenue – $80,600 Total Cost = $569,400

That’s approximately $570,000 profit.

I haven’t included advertising costs, but this could be done in conjunction with their concert promos i.e. a URL at the bottom of the concert poster, twitter updates / facebook updates, email, radio. The cost of this should not significantly increase current advertising spend.

Of course not all bands are going to have this kind of fan base like U2. Smaller bands can cut costs by hiring less staff, opt for a smaller online account, but I dont see how they couldn’t take advantage of this.

Plus you also need to add in the profit from ticket gate receipts, album sales, tshirt sales, iTunes downloads, etc….

Final Thoughts

Online streaming simply provides an additional revenue stream for music bands via concert. I’m sure some bands and event planners are concerned that people might not turn up to a concert if shown online for $5 instead of a concert ticket price of $130. But nothing beats seeing something live.

However, there is going to be a significant number of fans that can’t afford the ticket price, cannot make it due to work / commitments or are simply living overseas. Surely this can be monetized! Your providing them with the chance to also participate in the concert, be a part of the crowd, and sing along.

Side note: Youtube has also introduced paid search for video,  and the videos shows up as a sponsored link. There is also Google Music Search, which produces results for all the different music services.

I’m out like Mogulus,

Matthew Ho.