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Group buying: A billion-dollar Web trend?

By Pete Cashmore, Special to CNN
Mashable's Pete Cashmore says group buying is a good idea.
Mashable's Pete Cashmore says group buying is a good idea.
STORY HIGHLIGHTS
  • A new breed of "group buying" Web sites offers discounts by gathering mass purchases
  • The market leader, Groupon, traces its origins back to 2008
  • The site offers one deal per day in the cities it covers
  • The more users a site gains, the more leverage it has to score discounts
RELATED TOPICS

Editor's Note: Pete Cashmore is founder and CEO of Mashable, a popular blog about social media. He writes a weekly column about social networking and technology for CNN.com.

London, England (CNN) -- Can we all get a better deal by making purchases together?

That's the idea behind a new breed of "group buying" Web sites -- at least one of which may be valued at more than $1 billion.

It's hardly a stretch to predict that group buying will become one of the biggest Web trends of 2010, and the market leader will be one of the most closely-watched sites of the year.

Groupon, which traces its origins back to 2008, has a simple premise: If enough people agree to buy something, they all get a big discount.

Today's deal for those in New York: Save 50 percent on a $20 purchase of cupcakes from "ChikaLicious Dessert Club." If 450 people agree to the deal, everyone saves money.

If that critical number is not reached, however, the deal is a dud. The site offers one deal per day in the cities it covers, and the number of cities in the network is growing fast.

It's a good idea for sure, but it might also be an incredibly valuable one. Web rumors this week suggest Groupon may be in the process of raising a new round of venture capital at a $1.2 billion valuation. The money follows a $30 million round that valued Groupon at $250 million. In layman's terms: Investors think Groupon is set to be the Web's next breakout hit.

Groupon's competitors are seeing big investment, too. Rival site LivingSocial recently raised $25 million. BuyWithMe has raised $5.5 million. How many group buying sites are there now? Possibly dozens: SocialBuy, Groop Swoop and Scoop St., to name a few.

The dynamics of group buying mean that Groupon has a significant early advantage, however: The more users a site can gain, the more leverage it has to score big discounts from businesses.

It's a hot market we should have seen coming. The top Web trends at the start of the year included the "real-time Web" and "location." With almost constant web connectivity provided by smartphones and free Wi-Fi at coffee shops, airports and bookstores -- not to mention the immediacy of Twitter and Facebook -- we've come to expect instant gratification online. Group buying meets that need.

Groupon is local, too, targeting deals to metropolitan areas. There's a further trend Groupon capitalizes upon: Social networking brings us together to share opinions and experiences ... why not deals too?

Is Groupon worth a billion dollars? Could the group buying market be worth multiple billions? Investors seem prepared to make that bet.

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