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Australians spent $504m on group buying sites in 2012, a rise of 1.4% on the year prior, leading some industry experts to predict that group buying is here to stay.

According to a new Telsyte study, in Q4 2012 Australians spent more than $130m on group buying sites and the combined revenues of the top five deal sites saw a growth of more than 9% year-on-year.

Groupon and Scoopon showed the strongest performances, seeing a combined 40% year-on-year rise.

Yet despite this growth, the past twelve months have been somewhat tumultuous for group buying sites around the country, with many laying off jobs and others folding completely.

In fact, between Q4 2011 and Q2 2012 the industry experienced consecutive quarters of decline

But the industry seems to be clawing its way back and Sam Yip, senior research manager at Telsyte, attributes much of this to increased mobile transactions, new merchants, increased customer satisfaction and growing consumer confidence in the main sites.

While Yip believes the industry will remain steady at around $500m this year, he is predicting further consolidation of group buying sites in Australia due to changes in market conditions and increased competition.

Deal sites fading fast

The group buying industry only came to in Australia in 2010, but in the three years since there has been aggressive competition and heavy consolidation. 

At its peak there were 80 active group buying sites in Australia, but today Telsyte estimates this number to be closer to 30 and by the end of the year Yip predicts only 15 will remain.

The top eight players make nearly 90% of the revenue. Right now there are 15 that make about $1mil and they’re in a good position to continue. In a year’s time it will just be that 15 most likely.

Currently, the top five players in the industry include Groupon, Scoopon, LivingSocial, Cudo and OurDeal. Together these sites generate more than 78% of the market revenue.

According to Yip, a large part of the problem is that all the group buying sites offer very similar products and many aren’t prepared to become retail platforms. This opinion is supported by former owner of Cudo, Billy Tucker, who left the company in December 2011 saying that group buying was a victim of its own hype. 

The hype for competition in such a small market like Australia has led to an overpopulation of group buying websites, all offering an undifferentiated service. 

The key to succeeding in 2013, Yip believes, is to move from offering deals to offering products, while also investing money into geographies that have previously been untapped by deal sites, like Asia.

The year ahead

Despite many people speculating about whether group buying sites can make it long term, Yip is confident the industry can maintain its place within the e-commerce world, telling Zdnet that he believes the sites will continue to evolve.

What we’ve seen in the last 12 months is more traditional retail products being sold on these sites. 

These sites are becoming not just strong on local service deals, but in retail products across a whole range of categories be it electronics, fashion, or homeware - that is where group buying is heading. 

[Image credit: Groupon]

Claire Brinkley

Published 10 March, 2013 by Claire Brinkley

Claire Brinkley is Econsultancy Australia's news and insight reporter. Follow her on Twitter, Google+ or connect with her on LinkedIn

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