Harnessing mob power

For some people the idea of selling 150,000 thongs might seem slightly daunting, but for Colin Fabig it’s just another day at the office.

As the CEO for Living Social Australia and New Zealand, Fabig is heading up one of the major players in the hotly contested group-buying website space.

The business model is simple: offer subscribers incredible deals each day for everything from store vouchers to restaurant meals. The customer walks away with a great deal and the company providing the deal receives both volume and the opportunity to generate repeat business or upselling.

Fabig said he had originally launched a site called jumponit.com with colleagues James Gilbert and Adam Rigby.

“We launched Jump On It and then we were spotted by Living Social, which is the world’s number two group buying company based in America,” he said.

“They started talking to us about launching their own website in Australia, because they had been trying to find people to join the Australian group. We helped them set up their business so that we had two sites going live from December last year.

“Living Social is now the biggest daily deals site in Australia. We have more than 1.9 million subscribers and we service 45 markets a day in Australia and New Zealand. People can sign up for email alerts in Sydney, for example, in seven different areas such as the northern suburbs or southern suburbs. We only look for companies with hyper local offerings – if you want to eat at a Thai restaurant you might not necessarily want to go across town to do it.”

Fabig said the company’s success was based on the fact it provided a win-win for both consumers and companies offering their products.

“It is a win for the customer, they get great deals, convenience and a price incentive,” he said.

“On the merchant side it is a good thing for them because they don’t pay anything up front. They basically give up some of their profit and we take that profit and give it to the customer. The merchant reaps the benefit of advertising and gets hundreds if not thousands extra people into their store.”

The numbers involved are quite extraordinary. Living Social sold 20,000 Mothercare vouchers in a single day, adding to other deals such as 150,000 pairs of Haviana thongs and 50,000 tenpin bowling games.

“People love good deals, and if we get a good group together we can negotiate a good deal,” he said.

“If we get a good price with small margins we can pass that over to the consumer and they go crazy and buy.”

Fabig said that services such as restaurant meals or massages, with a traditionally high margin, worked well on the site.

“If it is a massage, for example, it usually costs $99 but we need to get a 60%-70% discount to give to the customer,” he said.

“So if it goes down to $39, of that we would take around half of that – around $19. The massage company would just about break even on the customer because it would cost around $19 to deliver the service, but the whole idea is that they have been delivered a customer that they can try to keep and get them back for repeat business or upsell them why they are there.

“More than 85% of our merchants are re-running three to four months later after they have had their first wave of customers.”

The company has achieved almost $100 million in its first year, and plans to double that this year with moves into other product lines such as hotel rooms, where companies could mitigate spare room inventory with special deals.

“We see the future at the local commerce level,” Fabig explained.

“For example, in the northern suburbs of Sydney we have around 50,000 people on the list who receive an email every day and look forward to getting a deal. Every day those people are buying too, because they love a deal. Any local commerce which is advertising in local media, there is no reason why we can’t approach them and make an offer. We are the first really local digital channel that is actually local.”

Although there are a number of competitors in the group-buying website arena such as Cudo and Scoopon, Fabig said the challenge was to achieve first mover advantage and then maintain that position. He said the company’s rapid increase in size (it now has more than 200 employees) was driven by a need to meet the growth.

“Whoever got to a particular market first would basically own that market,” he said.

“For example Cudo got to Newcastle first, and they are the leaders there. We are the leaders in Sydney and Scoopon are the leaders in Melbourne. 

“Whoever got to the city first generally got a head start so we had to catch up on some of them. We need to be in front of the merchants to ensure we are getting the best deals. We are much bigger than everyone else, and I think that has made a big difference.”