Australia’s leading broadsheet publisher, Fairfax Media, seems to have declared war on a multi-million dollar industry it has failed to invest in itself.
According to an independent analyst, Telsyte, the group buying sector has grown from $63 million in 2010 to $242 million in 2011 with the industry expected to turn over more than $400 million next year. But a recent series of negative media reports in Fairfax outlets suggest the media giant is suffering from a severe bout of sour grapes.
Industry leader Cudo is owned by Channel Nine and Microsoft. After investing $800,000 in the business year ago, Cudo is reportedly already profitable with estimates putting its value at $60 million. Late last year, Yahoo7 paid $36 million to acquire the Spreets site, while Fairfax’s major competitor, News Limited, owns the fast growing OurDeal in partnership with Ten. The other major Australian sites are LivingSocial (which is partially owned by global internet behemoth Amazon) and Groupon.
Fairfax is the only Australian media player without a group buying presence — a large amount of advertising revenue that would otherwise be directed towards the likes of Fairfax and Sensis has been happily collected by other media players.
One incident last week was telling. Telsyte released its Australian Online Group Buying Study indicating that 94% of almost 400 advertisers surveyed were satisfied with their group buying experience (6% were “unhappy”, while 8% were “moderately happy”). Eighty-five per cent of merchants planned to advertise on group buying sites in the future, with many already organising future promotions.
But Fairfax, while noting that the study was undertaken, wasn’t impressed. A report on Friday entitled “Group buying sites miss the market” instead quoted retail consultant Brian Walker’s view that “Australian brands offering cut-price deals on group buying sites are missing the chance to build customer loyalty”.
While quoting from an older Telsyte report which stated that “the industry was growing at 72% every quarter and would be valued at about $400 million by the end of this year”, the report ignored other data noting most clients were satisfied with group buying. Walker, who told Fairfax that “research showed consumers felt more loyal towards a brand when they bought in a store”, did not refer to any evidence for the claims that appeared to contradict Telsyte’s study.
The item came days after reporters launched a separate attack on LivingSocial — headlined “Going for a thong … but little to show as group-buying site caught short” — with news the website was struggling to fulfill more than 100,000 orders for Havaianas sandals. Despite LivingSocial’s immediate promise to refund all customers, Fairfax was quick to note that “online forums have been inundated with complaints from furious shoppers”. Ironically, LivingSocial spends more than $2.5 million advertising on Fairfax websites, although sources suggest that this agreement may not be providing LivingSocial with the promised returns.
Still, criticisms of group buying extend beyond Fairfax. As SmartCompany has repeatedly pointed out, many small businesses have found themselves on the wrong side of the industry as customers pile on for the discounted deals but fail to return to buy more products at full price. In one example, Melbourne Middle East restaurant Sahara Nights sold 186 coupons on StarDeals providing a $28 discount — a total cost of $5208 in lost sales to the business. Proprietor Farid Melhem was ropeable, stating point blank that “you don’t make any money from them at all”.
Deals.com.au co-founder Adam Schwab defended the industry, telling StartUp Smart last week that the Havaianas stuff-up wasn’t representative of the broader industry. “I think companies have really tightened on that lately. Ultimately, it comes back to the deal and whether people can be offered a refund,” he said.
What is not in dispute is Fairfax’s failure to jump on board as a group buying player. Following multiple opportunities to purchase job ad behemoth Seek (which at one point this year exceeded Fairfax’s own market capitalisation), it also missed out on acquiring RealEstate.com.au when News Limited snagged a 44% stake in the ubiquitous portal in 2000 for just $2.25 million (the site currently has a market cap of $1.51 billion). Fairfax has lost upwards of $20 million in annual revenue to The Weekly Review, owned by its former sales manager Antony Catalano.
Fairfax haven’t been completely unwilling to make acquisitions though, spending upwards of $480 million purchasing radio stations from Southern Cross Broadcasting in 2007 before the onset of the global financial crisis. The acquisition has failed to deliver any synergies to the media company, with 3AW’s Neil Mitchell still writing for bitter rival the Herald Sun. With mounting debt concerns, Fairfax has been desperately trying to offload its metropolitan radio stations, but had been unable to do so, even at the knockdown price of $220 million.