Mercata vs Groupon

Everyone knows the success of Groupon, the darling of the next generation internet boom that spawned clones all over the world. But how many of you know that group-buying is not a recent phenomena? Group-buying started in the 1990s during the dot-com boom, with Mercata taking the lead, raising tens of millions of dollars and shutting down barely a few years later.

Group-buying is a great idea. Back then, Mercata focused on consumer electronic goods on a national level. This essentially competed them against all the big boys, Wal-mart included. And they failed. Wal-mart have their own sort of off-line group buying power, and it was a tough fight. Andrew Mason took the group-buying model, twisted it and fitted it to the local scene, and it became a huge run away success.

On the overview, its the same idea, but why did one succeed and the other fail? If you ask me, timing of market entry is key. But the point here is strategy. Groupon focused on the local scene, bringing small retailers and interesting vendors out onto the internet. Many of us use it to buy deals which we have never heard of, but find it to be real interesting (For eg, Groupon Sg recently featured a B747 flight stimulator). Mercata, on the other hand, focused on consumer and electronic goods which at the national level, was already cluttered with shops selling those products. The consumer and electronic goods manufacturer definitely would not take a loss marketing their product on a site simply because they have their own marketing team. Groupon, on the other hand, targetted those vendors who could take a short term loss on deals for online publicity in exchange for long term gain.

While timing of entry into the market is everything, so is strategy.

**UPDATED - A few hours after this post, Groupon files for a US$750 million IPO. Read about it here.