It’s often said the real money in a gold rush is made by those who sell the picks and shovels. A great example of this is yesterday’s announcement that Dealised, who provide software for group buying services, has raised $5 million in investor funding.
Undoubtedly we’re in a gold rush for group buying sites with new services being launched weekly. One thing that many observers don’t understand about group buying sites is they aren’t really technology businesses, but sales driven directory services which have more in common with the Yellow Pages or the a giveaway local newspaper than Google, Facebook or Microsoft.
Technology though is important to these businesses as they need to track and publicise their deals which is what Dealised does. By offering this as an off-the-shelf service, it frees up capital and makes life easier for the dozens, if not hundreds, of group buying services being launched around the world each week.
Reducing barriers to entry is one of the things the tech industries are extremely good at – as the early group buying sites like Groupon and their local counterparts have found – and it’s something that all businesses need to keep in mind.
The wave of group buying start ups is part of a broader wave of disruptive businesses that are entering all parts of our economy. As we see cloud services remove the cost of buying equipment and software, it becomes easier for new, hungry entrepreneurs to find opportunities.
Another interesting aspect of Dealise’s business model is that the business itself is a spin off from the Spreets group buying service which was sold to Yahoo!7 at the beginning of the year.
Overlooked in most of the coverage at the time was that the sale only covered the group buying operations and not the Dealise technology. This freed up the founders and their investors to focus on developing the Dealise software without the distractions of running a daily deals site with its troublesome sales staff and pesky customers.
Most importantly, it kept the software platform which is the most scalable part of the business in the hands of the founders. This has given them the opportunity to build something that can be resold to thousands of other businesses.
In the tech industry we’ve seen examples of this in the past, the best example is when Bill Gates and Paul Allen licensed their MS-DOS software to IBM rather than selling it outright which allowed a massive new industry around IBM compatible computers to develop with Microsoft getting a payment for every computer sold.
While we may not see Dealise become the next Microsoft, it’s worthwhile considering some of these lessons, certainly both the gold rush and the licensing aspects show how we shouldn’t jump for what appears to be the easiest money.
Our industries may not appear to be in a gold rush, but those reduced barriers to entry are affecting everyone from booksellers to manufacturers and café owners. Have a look at some of the software your competitors are using, it’s no longer business as usual.