Kgbdeals and Mobile Spinach Hunt for Opportunities in Troubled Daily Deals Market

10/25/11Follow @jpruth

In spite of companies crumbling in the daily deals space, New York’s kgbdeals and San Mateo, CA’s Mobile Spinach believe they can survive in this now-brutal sector. Kgbdeals, part of directory assistance company kgb, acquired New York’s TheDealist last Wednesday to expand its reach with customers. Before kgbdeals could uncork the champagne, a rival deals site staggered on stage in a financial stupor.

Last Thursday, BuyWithMe in New York and Boston fired about half of its staff, a move which raised questions about the company’s future and the prospects for the daily deals market as a whole.

Patrick Albus, CEO of kgbdeal USA, says his company remains focused on growing in spite of the possible extinction that others in the deals space face. “There is a shakeout of smaller players going by the wayside,” he says. “This industry can’t support as many players as there are out there today.” He says about 200 deals sites have shut down so far this year while others are looking for white knights to ride to the rescue. “We get calls from various deals sites looking for us to acquire them,” Albus says.

John Vitti, co-founder and chief marketing officer of one-year-old Mobile Spinach, says some startups in the daily deals sector tried to chase the money by copying early players such as Groupon. Mobile Spinach offers a type of mobile currency that companies such as Foursquare can offer to their users for offers with local merchants. Mobile Spinach raised $1 million in a funding round led by Blumberg Capital in January. Vitti believes his company’s angle on deals, which it thus far does not use a sales staff to promote, will help it survive where others have withered. “A lot of people are going after a cookie-cutter approach,” he says. “[They] get sales reps, hit up merchants, and slap up a website.”

Vitti says it’s hard to break into the market with that worn-out strategy these days. “You’re doomed to fail if you keep repeating that model,” he says. But daily deals can endure, he says, if the surviving players bring dynamic ideas to the table. Though there have been questions about Groupon’s value, Vitti says the industry might benefit if that company’s pending IPO takes off. “It could help validate the space,” he says.

Albus says he will also watch Groupon’s IPO, but remains cautious about the number of companies trying to break into daily deals. “There is a tremendous amount of opportunity but not for hundreds of players,” he says. Albus sees an opportunity for kgbdeals to grow, organically and through select acquisitions, as the daily deals market consolidates. Parent company kgb launched kgbdeals in March 2010 and currently offers deals from such merchants as restaurants, spas, and salons in four countries and more than 100 cities.

Though kgbdeals is open to acquisitions, Albus says the company wants financially healthy candidates. That means companies that are wheezing and dogpaddling to stay afloat are out of luck. Kgbdeals also wants companies that will help it enter new geographic markets or bring fresh talent to its operations. “A lot of players don’t meet those criteria,” he says.

TheDealist, Albus says, was an attractive acquisition in part because its co-founders will enhance kgbdeals’ leadership team. Financial terms of the deal were not disclosed. “Eli [Brill] and Isabella [Chung] have very strong backgrounds and understanding of the deals space,” Albus says. In May, kgbdeals also acquired deals site What’s the Deal in Washington, D.C.

To be fair to those struggling to survive in the daily deals sector, kgbdeals did not appear magically from the ether like many startups. Kgbdeals has a staff of 150 in the United States, 400 around the world, Albus says, and continues to hire. The company is backed by its parent, kgb, which Albus says has been in the directory-assistance business for some 20 years. “We know how to scale businesses, we have long-term relationships with just about every wireless carrier and cable provider,” he says.

Thanks to kgb’s history in directory assistance, Albus says the company has a database on most merchants in the country, which is being leveraged for kgbdeals. “We’ve used that information to target where our sales team focuses,” he says.

Parent company kgb operates other businesses such as 542542, an answering service that responds to questions sent via text message, and maintains its own venture fund for investments in information services companies. Albus believes kgb’s knowledge in marketing and its other resources give kgbdeals an edge that other smaller players daily deals sites may have a hard time matching. “Some of these fly-by-nights are looking for the next round of funding to stay open,” he says. “We don’t have that [issue].”

João-Pierre S. Ruth is the editor of Xconomy New York. He can be reached at jpruth@xconomy.com and followed on Twitter @jpruth. Follow @jpruth

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