What 'Groupon clones' can learn from YouTube

The last time Google spent a ten-figure amount on a market leader and left the rest of its rivals in the dust, many rushed to change strategy. Did they make things worse for themselves in the process?

Caroline McCarthy Former Staff writer, CNET News
Caroline McCarthy, a CNET News staff writer, is a downtown Manhattanite happily addicted to social-media tools and restaurant blogs. Her pre-CNET resume includes interning at an IT security firm and brewing cappuccinos.
Caroline McCarthy
5 min read

If, as seems to be likely to happen, Google acquires daily-deals site Groupon at a multibillion-dollar valuation, it'll leave a very different market for this new and trendy form of e-commerce.

There are hundreds of other sites that do more or less the same thing; some are big, some are small. But under Google ownership, Groupon would have access to significantly better strategic resources, not to mention the Google text ads for which other companies have to shell out cash. It's already the market leader. Conceivably, Google could help it get even bigger.

So what might happen to all the "Groupon clones" that currently dot our e-mail inboxes? Well, let's look at what happened the last time Google spent a ten-figure amount on the biggest player in an otherwise crowded corner of the Web: when it purchased YouTube for $1.6 billion in late 2006.

To be sure, a video-sharing company is inherently very different in structure and management from a daily-deals broker. The former is technology- and resource-intensive, with many companies in the space needing to hire significant rounds of capital just to get a product off the ground and a sufficient number of engineers on-staff in the first place. A daily-deals site, as the proliferation of "Groupon clones" serves to exhibit, is a ridiculously easy company to replicate. In addition, there's reason to believe that consumers actually want a healthy amount of competition in the daily-deals market, for diversity if nothing else. And there are plenty of sites aggregating deals in a far less confusing experience than some of the "online video guide" sites that we saw emerge in 2006 or so.

But, taking these caveats into account, some lessons can still be learned.

Some video-sharing sites, unable to guarantee any kind of return to investors, just disappeared. Revver, which was one of the first video-sharing sites to pay content creators, sold for a fire-sale price to a company called LiveUniverse early in 2008 and now appears to no longer exist. It had raised around $12 million in venture capital from the likes of Draper Fisher Jurvetson and Bessemer Partners. Joost, a hyped peer-to-peer video hub that never quite got off the ground despite marquee founders and a ludicrous amount of funding, was ushered into the pastures of an advertising company called Adconion Media Group.

Some of YouTube's onetime rivals that are still around have adapted their business models, knowing they'll never be as successful as YouTube but hoping they can eke out a profit elsewhere. None of their fates is particularly clear right now.

One of the big video-sharing flops of the past half-decade, for example, was Veoh, into which high-profile investors pumped $70 million in venture capital. It ultimately filed for bankruptcy, laid off most of its staffers, and sold its assets to a company called Qlipso. But Qlipso says Veoh isn't dead yet: an October release from the company touted "content-themed viewing rooms, a virtual goods marketplace for Veoh's animated 3D avatars, and socially-interactive content-viewing parties during specific holidays, concerts, sporting events and other entertainment" that it claims is improving Veoh's numbers. Well, OK.

Or take the example of Metacafe. Back in the heyday of online video start-ups, Metacafe raised funding from Valley marquee names Accel Partners and Benchmark Capital and aimed for the same space as YouTube; its total funding now totals $50 million and the company is still alive, though it's beating the "premium content" drum and calling itself "the first online destination solely dedicated to showcasing the best entertainment-related videos." In September, it acquired the site Go211.com, a hub for extreme-sports videos. Dailymotion, too, has been trying to ink partnerships in order to keep a diverse library of "the best content from users, independent content creators and premium partners."

But rushing toward a change in strategy may be a hasty move. If video-sharing sites are any indication, the few that have managed to actually thrive rather than just survive in a post-YouTube-acquisition age have managed to carve out market niches that seem like they might be sustainable.

Take Vimeo, for example. The well-designed video-sharing site with an appeal to filmmakers and animators wasn't considered to have particularly high chances for survival: Several months before Google acquired YouTube, Vimeo's parent company Connected Ventures was purchased by InterActiveCorp (IAC), which doesn't quite have a Google-like history when it comes to groundbreaking internal projects, and founder Jakob Lodwick was ousted in mid-2007 after coming to blows with upper management. But Vimeo, which operates a paid service for access to higher-quality uploads and more storage space (among other things), has grown into a stable brand. Calling itself "a respectful community of creative people who are passionate about sharing the videos they make," it's still the top choice in video-sharing for many digital artists and producers.

Then there's Blip.tv, another would-be YouTube competitor that gained a following among video bloggers and creators of syndicated Web shows early on because of features that facilitated videos in repeat episodes rather than standalone clips. With YouTube the dominant force in hosting alone, Blip.tv evolved to offer "technology, business development, distribution and advertising sales" to paid clients, hosting videos on its own servers as well as syndicating them elsewhere.

Blip.tv's execs say that its advertising revenue quintupled from 2009 to 2010; in January, it posted 75 million video views and may see double that for December. So while it's nowhere on scale with YouTube, it's doing something right.

So when you look at the "Groupon clones" out there, it's obvious that, yes, at least a handful will survive. In fact, some may do quite well for themselves. Not $6 billion well, but well enough.

Some are aiming for niche markets: Scoop St. is focusing on New York instead of expanding, and BloomSpot caters to women under 40 who think they need a weekend getaway. Some are switching up the experience like HomeRun, which offers incentives and "points" to loyal users; or VillageVines, which only runs deals for restaurants and arranges the coupon redemption along with the restaurant reservation so that only the person who picks up the check is aware that a discount was involved (ideal for dates or business meetings).

Then there's LivingSocial, the only rival that comes within striking distance of Groupon in market share and one of the few daily-deals brokers that has raised a notable amount of venture capital--$49 million, plus perhaps a big new stake from Amazon.com depending on what the rumor mill's saying. Its core product is remarkably similar to Groupon's. So what does it do?

LivingSocial could find a weak spot in Groupon--its tighter grip on how to spread through Facebook connections, as some have pointed out--and exploit it. There seems to be room in many markets for a big, powerful contrarian. Hulu, for example, was talked about disparagingly before its launch as a botched attempt on behalf of big media companies trying to counter YouTube. The final product ultimately impressed: it doesn't let users upload videos. Much of its library is behind the Hulu Plus paywall. But it's an easy-to-use, reliable, and legal alternative to finding high-quality television shows and movies, somewhere that YouTube can often be convoluted.

But it shouldn't move too fast. One thing that seems to be clear from the experiences of the YouTube rivals is that a rushed turn in strategy can have results that are tepid at best.