Groupon, which launched here on Jan. 11, convinces businesses to offer discount coupons on products and services in exchange for delivering at least a certain number of customers and advertising to a wider audience. At first glance, the market for Groupon would appear vast: India has some 12 million shops and nearly 1.2 billion people.
But all those shops actually outnumber the country’s broadband Internet connections (just 10 million). And those “brick-and-mortar” stores – or tin-and-board stalls, as the case may be – have been largely impervious to the advent of chains, supermarkets, and credit cards, let alone e-commerce.
As such, the horizons for Chicago-based Groupon’s new Indian affiliate, SoSasta.com, are limited for the moment to those few businesses interested in online advertising and the 1 percent of the population with fast Internet.
Huge India has minimal online market
“Our experience over the past few months is that the market in India is very, very different from the market out West,” says Ananya Bubna, Groupon’s managing director for India. “Indians prefer different things when they purchase online. No. 1 is travel and No. 2 is tech consumer electronics.”
Missing from that list is a mainstay of Groupon’s United States operations: restaurants. Mr. Bubna, a former Google employee now based in Calcutta, points out that in India there is usually someone staying at home to cook meals, whether it’s family or a maid. When his potential customers do go out to eat, they tend to go to familiar restaurants, rather than try new places.
Another difference: Credit cards are hard to come by, but couriers are cheap, so the site is offering to pick up cash payments at your doorstep.
Groupon’s US operations are reported to get about 50 percent commissions on sales – an achievement that may never materialize in India.
“It’s too early to say what kind of margins we are going to see going forward. We are not seeing those kind of margins yet,” says Bubna.
One of his Indian competitors, GroupOff, claims that Indian sites are unable to charge more than 10 percent – a figure that could not be confirmed.
“There’s no single dominate player and so many copycats of Groupon, that the picture is really hazy now,” says Mohan Rao, managing director for GroupOff, the company that owns the URL groupon.in. (He insists he is not cybersquatting.)
The other challenge, says Mr. Rao, is that e-commerce is so minimal compared to the vast brick-and-mortar marketplace that businesses do not really grok the concept.
“It doesn’t sink in actually. They would think it is a tool to increase their turnover, their sales, when in actuality it is an advertising medium. To explain this takes some effort,” says Rao. “It doesn’t work simply calling up to get them on board.... You need to physically visit the place.”
Finding a niche in India
Ashish Sinha, founder of the pluGGd.in blog about startups, agrees and argues that Groupon may find more success initially in India by approaching international brands that appeal to Indian aspirations.
“Groupon can come in and say we can give you a Gucci watch at 80 percent off, and there’d be a 1,000 buys in India,” says Mr. Sinha. Groupon has the brand name internationally to link up with other international brands, and they can use that to build a subscriber base in India.
“Once they establish themselves, then they can probably get into the service deals, things like spas,” he says.
Bubna says he is considering that sort of model, but also plans to plow some of the new money from last week’s announced acquisition of SoSasta by Groupon into online advertising. The Indian affiliate is also on a hiring spree – currently there are 28 openings listed on the website – and Bubna says that one of the new hires is a former ad manager at Google.
He says traffic since the acquisition has jumped fourfold, but he suspects most of those visitors were online marketers and journalists, not target customers. In the long term – some eight to 10 years out – he estimates the collective buying sector in India will reach $1.8 billion.