Group buying set for consolidation as Cudo put up for sale

Group buying site Cudo is up for sale for more than $60 million, according to reports, less than 12 months after it was launched by Nine Entertainment.

According to The Australian Financial Review, investment banking firm Macquarie Group has distributed an information memorandum to potential buyers of Cudo including Groupon, Living Social and Yahoo!7, which owns Spreets.

Cudo was founded last year in a joint venture between Microsoft and Nine Entertainment, with a reported investment of $800,000. It attempted to create a point of difference through a combination of web marketing and television advertisements.

It’s believed Nine and Microsoft have valued Cudo at between $60 million and $80 million, although Cudo chief executive Billy Tucker could not be reached for comment.

According to Telsyte, Cudo was the second-largest company in the online group buying category during the June quarter, with a 16.7% share of revenue.

The online group buying market has exploded since the first local sites – Spreets and Ouffer – appeared in February last year.

Telsyte estimates the market jumped from $71.8 million in the March quarter to $123.9 million in the June quarter, predicting it will turn over $400 million across 2010-11.

The growth of the industry has led to a vast array of niche markets including cars, beauty, travel and wine.

But Telsyte senior research manager Sam Yip says as the market becomes more crowded, more general group buying businesses will either merge or fold, as seen by Cudo.

Yip says sites need to ensure their niche remains clearly defined or risk falling over.

“We’re still in the early days of group buying… But I see opportunities in travel and accommodation, leisure and recreation,” he says.

Yip’s comments come on the back of an announcement by group buying site Group Buying Escapes, which is part of the RewardsCorp Group and has been operating in the online travel niche since March.

“We have sold over 44,000 low-season room nights in our first 12 weeks… and have immediate access to a market that grew by 72% in the June quarter alone, posting $123.9 million in turnover,” RewardsCorp Group managing director Randall Deer said in a statement.

Rather than put itself in direct competition with its larger rivals, Group Buying Escapes negotiates deals directly with the likes of Groupon, Scoopon, Spreets and Living Social.

“Group Buying Escapes formulates a partner-specific group buying channel strategy, which maximises returns and diminishes any risks that could occur when running offers through group buying channels alone,” the company said.

Meanwhile, other niche group-buying sites say they’re confident about competing with their larger counterparts. Robbie Rankin, co-founder of CarJoy, is one of these.

“A car is pretty much the biggest purchase you’ll make other than your house,” Rankin told StartupSmart.

“The Catch of the Day-style group-buying sites are quick and dirty, giving you the cheapest deal, [whereas] ours is more about personal service and building relationships.”

Similarly, Liquid Deals operates in a niche within a niche, offering nothing but quality wine.

“The reason we entered the niche area with wine is purely because so much wine is already transacted online, so people don’t have a problem buying wine online,” co-founder Geoff Drucker says.

“The good thing with wine is that we can get the wine in and we can send it anywhere in Australia, whereas if you’ve got a beauty salon in Bentley or Essendon, it’s going to be hard to aggregate deals that will appeal to people.”