Coupon to Ride

It’s a balmy August afternoon in downtown Bangkok, and Tom Srivorakul, the affable managing director of Ensogo, Thailand’s largest “daily deals” website, is talking Groupon. This Chicago-based group-buying giant, which some analysts have valued at a cool USD25bn, he notes has yet to get a toehold in the Kingdom. “We’re clearly dominant, with an 84 per cent market share,” he says. “For Groupon to even come in and get fifty-fifty, on a par with us, they’d have to invest 800 million baht, just to catch up and make gains. As a business entrepreneur myself, I wouldn’t do that!”

Tom has every reason to be bullish. With about 600,000 members, Ensogo, founded just 15 months ago, is easily the biggest of about 30 daily deals sites battling it out for a share of the growing Thai daily-deals market. In June, the company was snapped up by LivingSocial, Groupon’s biggest rival in the US, for an undisclosed sum. The acquisition can only strengthen Ensogo’s position, as it gains access to the expertise and technology of its battle-hardened parent. Indeed, it would be a brave investor who entered the daily deals industry at this point – without something strikingly new to offer, at least.

Since the stratospheric rise of Groupon in the US – it became the second-fastest company ever to reach a valuation of USD1bn after YouTube – thousands of similar firms have sprouted up across the world. Essentially digital marketing platforms, the sites offer big discounts on various types of consumer product. As Groupon puts it on its website: “Groupon negotiates huge discounts – usually 50-90 per cent off – with popular businesses. We send the deals to thousands of subscribers in our free daily email, and we send the businesses a ton of new customers. That’s the Groupon magic.” Offers are only available for a limited period, made clear by ticking countdowns that ratchet up the excitement. And – at least in Groupon’s case – a certain number of people need to sign up for a deal for it to be “on”. For the consumer, it’s about getting a USD20 steak for USD10. For the merchant – who shares as much as half of the deal price with the site – it’s about getting new customers to try that steak.

In Thailand, there’s a striking uniformity about the sites vying for the Kingdom’s online bargain hunters. This is no coincidence, since most are powered by the same off-the-shelf software. Thailand’s offerings have also all done away with the “tipping point” element that is key to Groupon’s model. “That wouldn’t work here,” says Tom. “We surveyed over 4000 consumers and almost 90 per cent of them said ‘why do I have to wait for 99 others to come in – and while I’m waiting, what are you doing with my credit-card information?”

In this sink-or-swim market, the cast of players is changing rapidly. At least two earlier entrants, TikTokThai and o.ffer.us are already defunct. Some of the 30-odd incumbents will no doubt join them before long. Among the most successful sites are Deal Didi, which Google Double Click estimates received 510,000 page views in June 2011; S! Coupon, which managed 290,000; Dealicious, which notched 140,000; and Ncoupon, with 93,000. But none come close to the popularity of Ensogo, which enjoyed an estimated 6.1 million page views the same month. “While it is clear that Ensogo is performing well as the market leader, it is far ahead of the competition, unlike other markets where a plethora of sites compete at similar strength,” said social media consultant Jon Russell.

The company’s dominance is no accident. Tom Srivorakul and his two brothers have been key players in Thailand’s digital marketing industry for years. In 2004, they created New Media, the country’s first digital agency. They are also behind Admax Network, a digital advertising network reaching more than 86.3 million people over 4,600 websites in Southeast Asia. “The three of us, over the course of eight years, have raised over 20 million dollars in capital for various businesses,” said Tom. In short, they know what they are doing.

Ensogo’s sparkling offices on the tenth floor of the Abdulrahim Building on Rama IV Road in Bangkok have the upbeat air you’d expect at one of Thailand’s hottest new Internet companies. Young, casually dressed staffers are treated to massages on Wednesdays and catered lunches on Mondays and Fridays. They’re also free to avail themselves of a pool table, ping pong and video games. It’s all rather Silicon Valley.

Still, you’d be hard-pushed to find a Californian dotcom that accepts cash for its products in its reception area, as Ensogo still does. With the Thai e-commerce market several years behind the US and Europe, the company has had to provide as many payment options as possible for its customers – including cash. Buyers have even been known to take photos of deals on the website before coming to the office to pay for them. “That’s what we pride ourselves in. We’re converting a lot of first-time e-commerce users,” says Tom.

Building trust among wary Thai Internet users has been a hard slog for Ensogo, and Tom remains wary of the effect “cowboy” operators could have on this carefully nurtured market. “If other daily deals sites come on board and they’re fly-by-night operators, and they just ruin the trust and the education that the top five have spent a lot of capital on trying to build, that would be a real step back.” An advertising campaign on Bangkok’s Skytrain and plans for Ensogo kiosks – the first is set to open in September at the Siam Center – are aimed at cementing Ensogo’s status as a trusted brand. The strategy seems to be working. “Eighty per cent of our transactions are now on credit card, which is a good sign for us – that we’re earning trust,” says Tom.

Dr Ian Fenwick, founding partner of digital marketing agency digiAindra and consultant at Sasin Graduate Institute of Business Administration, was exploring the idea of creating a Groupon clone for Thailand when Ensogo announced its planned entrance – an intimidating prospect, given Admax’s already extensive reach. “They can place banner ads on websites across Asia… I don’t know what their transfer pricing policy is but they can do that within the company very easily. So we kind of got scared off.” Denis Nemtsev, a Russian entrepreneur behind Gotogezr, a recent entrant looking for investors, said barriers to entry were “already very high.” “One needs to have significant funds to spend on user acquisition and a plan for attracting merchants. Having great deals is crucial for success, but it is very hard for a new website to get these deals from well-known brands. I believe there is a space for three-to-five leading websites in Thailand, the rest will struggle.”

Indeed, there are also those that say the daily-deals emperor has no clothes at all. The astronomical valuation of Groupon, in particular, has brought out naysayers in droves. They claim the company, which plans a listing this year, is failing to get repeat business from merchants. Some point out that daily deals customers like huge discounts, but wouldn’t and couldn’t pay full-price for the same products – just because I’m willing to pay USD10 for a steak doesn’t mean I can pay USD20. The firm has also failed to turn a profit in its first three years of operation, despite rising revenues. And with Facebook and Google planning to get in on the daily deals act, that spells trouble ahead. Groupon, of course, is merely the most visible target. Many of these criticisms could just as easily be levelled at players in Thailand.

Nevertheless, this is a new industry and one likely to evolve rapidly. The consensus is that location-based “instant deals” will be the next big thing. Because of its size and acquisition by LivingSocial, which has already developed the requisite technology, Ensogo will almost certainly be first off the blocks in Thailand with these services. Says Tom: “I’ll be walking down Silom and I want a massage, for example – stressed out day. I’ll launch my Ensogo app on my mobile phone and I’ll say ‘anything near me right now offering a massage or a spa deal?’ and we’ll say: ‘fifty metres from you, down this soi between 2 and 6pm, there you go, 70 per cent off.” Still, the company won’t launch the service without full 3G support – and that has been a long time coming in Thailand. “You only have one chance to make a first impression and if you don’t get it right, people aren’t going to use it,” says Tom.

While the future looks bright for Ensogo, which can count on its size to ensure it continues to attract the pick of merchant brands, other players may be in for a tough ride. But, in this brave new world, nothing’s assured. “You never know what’s going to happen, because if somebody comes up with a clever twist, then I think everyone will jump,” said Fenwick. The problem, he argues, is that such sites promote disloyalty and merchants have no idea if customers have returned after trying a product through a daily deal. “Maybe the emperor does have clothes, maybe they all come back, I don’t know. All I know is 50 per cent of people in the US would not use Groupon again.”