Start-Ups Are in a Rush to Bring the Chat Room to the Smartphone

Apps from a wave of new start-ups allow multiple people to participate in the same conversation on a mobile phone, like a group chat room or conference call held by way of text message. The new applications, most of which are free, include GroupMe, FastSociety, Beluga, Kik, TextPlus, PingChat, HurricaneParty and Yobongo.

Several of these services have made their debuts just this week, right before the opening on Friday of South by Southwest, the technology and music festival in Austin, Tex. They hope to gain some attention at the festival, which attracts scores of technology enthusiasts, entrepreneurs and venture capitalists interested in seeing the latest innovative ideas.

Caleb Elston, one of the founders of Yobongo, which is based in San Francisco, said the timing of the app’s release, a week before South by Southwest, was “no accident.”

“It is the perfect storm of developers, designers and business people in a sphere where there is a natural social dynamic for networking,” he said. “Lots of services already help you connect with your friends, but the point of South by Southwest is to meet with new people that have your interests.”

The stakes can be high. The weeklong event has helped propel several companies, including Twitter and Foursquare, above the noise of the thousands of other companies vying for attention as start-ups.

And the group messaging start-ups face challenges even at this stage. Mostly, they must stay ahead of the curve of big companies like Facebook and cellphone makers, said James E. Katz, a professor at Rutgers University, who studies communications. The big companies, he said, might be looking to tweak their own services in ways that could eliminate the need for the upstarts.

“Those companies have shown themselves to be incredibly nimble and innovative when it comes to spotting new trends and jumping aboard,” he said.

Indeed, in early March, Facebook announced that it had acquired Beluga, leading many in the technology world to wonder if the flurry of interest around mobile group messaging services was over before it truly began.

At the same time, there is speculation that Research in Motion, maker of the BlackBerry, will bring its popular instant messaging service, BlackBerry Messenger, to Apple and Google smartphones. R.I.M. declined to comment on its future plans.

The desire for the new group messaging services, their creators say, stems in part from the popularity of Facebook and Twitter. As those sites have evolved and grown, the start-ups say it has become harder to cut through the clutter to have a meaningful conversation.

“Try having a conversation on Twitter or Facebook with you and 500 of your closest friends,” said Steve Martocci, one of the founders of GroupMe. “They are limited by their broadness. People can’t say what they want or express themselves.”

To address that, GroupMe limits the number of people allotted to a single conversation to 25, although users can participate in as many groups as they like.

Many of the applications seamlessly switch between allowing users to chat within the service and via SMS, to accommodate people who do not own smartphones and times when participants wander into areas with weak data coverage.

The services are a little different from one another. GroupMe, Beluga, Kik, TextPlus, PingChat all allow people to create groups and invite their friends to chat in a group session. HurricaneParty performs a similar function but with the specific goal of organizing a party or get-together. Yobongo allows its users to join a group chat with nearby people.

GroupMe and similar sites help transform the smartphone into a private social network, one that is ideal for trading inside jokes, organizing impromptu outings and coordinating plans at a larger event, like a concert or festival like South by Southwest.

Venture capitalists have been eager to cash in on the rush for these services. Kik, which is based in Canada, recently raised $8 million from prominent firms like Union Square Ventures, RRE Ventures and Spark Capital.

GroupMe, which introduced its service last May, raised $10.6 million from Khosla Ventures, General Catalyst, First Round and SV Angel, among others.

“People have noticed that there is a gap in the market,” said Charlie O’Donnell, a venture capitalist at First Round Capital, which was one of the first firms to invest in GroupMe. “The value proposition for location tools that tell everyone where you are or help discover new stuff is not the same. For a lot of people, the response is that ‘I already like who I know and what I have. I just want to talk to my close friends and family.’ ”

Many of the application makers say they are already seeing growth. GroupMe says it sends a million text messages each day — double the number a month ago. Yobongo, which began in early March, says tens of thousands of people have signed up for the service.

But most are still fleshing out their business models. GroupMe says it sees potential in allowing advertisers to show ads that may be helpful in making a group decision, like a deal for a meal or group outing. The service is working with several large music events, like Coachella and Bonnaroo, to be the official mobile application used to help festivalgoers keep in touch with friends that are also in attendance.

Jared Hecht, another GroupMe founder, said the interest of big companies in group messaging was an indication that the business might be lucrative. Even so, the company recently updated its application to sharpen the competition with its peers.

“Things always run hot and cold in the tech industry,” Mr. Hecht said.

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Small Business: In Groupon’s $6 Billion Wake, a Fleet of Start-Ups

Hundreds of start-up companies — imitators of Groupon, the group-buying Web site that offers daily deals on knitting supplies, skydiving lessons, barbecued ribs, pole-dancing classes and a smorgasbord of other stuff you may (or may not) want — are racing to find out.

Groupon’s competitors have been called groupies, copycats and clones. But who can blame them? In just over two years, Groupon has accumulated 60 million subscribers, more than $1 billion in venture capital and $760 million in annual revenue to become the fastest-growing Web company ever. In December, it declined a $6 billion buyout offer from Google.

So the race is on to emulate the company’s appealing business model: team up with a local merchant, send out an e-mail blast pitching a discount coupon for the merchant’s product or service, and keep half of the revenue that comes in.

Groupon’s closest rival, LivingSocial, has confirmed a $175 million investment deal with Amazon. Other Web heavyweights — including Facebook, Yelp, Travelzoo, OpenTable and the spurned suitor Google — are all adopting features similar to Groupon’s.

But most of the companies grabbing at Groupon’s coattails do not have a vast subscriber base or millions of dollars. Instead, they are relying on a strategy called fast following — the idea that copying a blockbuster start-up yields fewer risks and potentially great rewards.

Will it work? Among the hopefuls are these recent entrants, grouped by strategy:

FIND YOUR TRIBE If you are a member of any particular crowd, chances are a Groupon imitator is looking for you. Gay? Try Daily Pride. African-American? There’s Black Biz Hookup. Gluten intolerant? Gluten-Free Deals is coming soon. Own a small business? Here’s GroupPrice.

In November, Jodi Samuels, 37, and Allen Ganz, 43, introduced a Jewish group-buying site in New York City called Jdeal (Jewpon.com, Ms. Samuels said, was already taken). Recent offerings have included bargain bagels and half-price tickets for the Maccabeats, a Jewish a cappella group.

Ms. Samuels and Mr. Ganz think Jdeal can thrive alongside Groupon because they know their audience. In 2000, Ms. Samuels helped found Jewish International Connection, a nonprofit organization for young professional Jews who move to New York from overseas. In 2009, she and Mr. Ganz started MetroImma, a social networking site for Jewish mothers.

“We realized we’d immediately have traction,” Ms. Samuels said, “because we already had the young professionals and the moms, who are probably the two prime consumers of the daily deal sites.” Jdeal already has more than 8,000 subscribers and offers merchants a revenue split of 60 to 40, in the merchants’ favor.

Ms. Samuels and Mr. Ganz say Jdeal brought in more than $100,000 in revenue in its initial 11 weeks, and they predict $500,000 in revenue for the first year. They hope to expand across seven markets in the United States and Canada in 2011.

GO HYPERLOCAL Groupon has established itself in 500 markets across 42 countries. How do you compete with that? For dozens of entrepreneurs, it is a matter of fencing off some territory and building strong relationships.

That is what brother-and-sister team Rob and Wendy Jaffe are doing in Southern California’s Conejo Valley, a cluster of suburban communities where they introduced Conejo Deals in April.

“You get the Groupon and LivingSocial e-mails, and you say, ‘That’s a great deal, but I’m not driving 30 miles or 50 miles,’ ” said Mr. Jaffe, 48. “So the idea was to bring it to our community.” As a Little League coach, he started building his subscriber list during team tryouts, offering to donate a dollar to local schools and nonprofits for each parent who signed up. He now has 10,000 subscribers.

Wendy Jaffe, 49, thinks that, with local sites like Conejo Deals, merchants can reach more customers who are likely to return. “If you’re using a large company like Groupon,” she said, “you’re getting people into your business who will be there once for the deal. You’ll never see them again, because they’re not going to drive back 30 miles to pay full price.”

And if Groupon invades the valley? “I’m not worried,” Mr. Jaffe said. “They’re based in Chicago, and I’m here.” Local merchants, he added, appreciate that he visits them in person the day after a deal runs, bearing a spreadsheet and, more important, a check. Conejo Deals offers merchants a 50-50 split on each offer and has brought in more than $700,000 in revenue so far.

WAG THE LONG TAIL Groupon caters to the masses, which means avoiding the obscure corners of any particular product niche. For example, you might be hard-pressed to find a Groupon discount on allergy-relief shampoo for dogs. And so competitors are creating daily-deal boutiques with specialties like eco-friendly products, outdoor adventures and pet supplies.

PetSimply, which recently offered $10 off $20 worth of the aforementioned dog shampoo, introduced its first deal on Feb. 14. The site’s founders — Adam Jacox, 25, and Jason Casperson, 30, of Kissimmee, Fla. — say they have contracted with more than two-dozen retailers to introduce discounts on nutritional supplements, chew toys and gourmet dog cookies. PetSimply splits revenue evenly with most merchants and has attracted more than 10,000 subscribers so far.

The founders of PetSimply are both devoted owners of rescued dogs. In the process of building a company with $50,000 in seed money from family and friends, they are also trying to help neglected creatures. When subscribers refer their friends to PetSimply, a portion of the proceeds goes to animal charities.

The idea for PetSimply came after the company’s founders started keeping an eye on the daily-deal market — as consumers. “We got addicted and spent entirely too much money on Groupon and LivingSocial,” Mr. Jacox said. As niche sites began to emerge, he said, “we thought the pet industry would be a good place to go.”

RISE ABOVE THE FRAY Why jump into the gold rush when you can sell picks and shovels to the prospectors? Groupon imitators have created a system with plenty of secondary markets. Lifesta, a site that had its debut in July, lets remorseful buyers resell unused deal vouchers, charging 99 cents apiece in addition to 8 percent of the sale price. Agriya, a Web developer in Chennai, India, builds and sells Groupon clone sites for aspiring deal-mongers. Tickets for the first-ever industrywide conference, the Daily Deal Summit, are on sale for $495 a person.

One of the best-known companies in the secondary market, Yipit, aggregates daily deals from more than 360 sites, offering one-stop shopping for some 150,000 bargain-hunters on its subscriber list. Yipit adds about 20 new sites each week, said Vinicius Vacanti, its chief executive.

Last summer, Yipit raised $1.3 million in venture capital. The company is not profitable yet, but it is developing revenue streams, selling industry data reports and charging commissions on referrals. Groupon, for example, pays 2 percent of the gross revenue on each sale that Yipit brings in; smaller daily-deal sites pay as much as 40 percent.

Perhaps predictably, Yipit has attracted Yipit clones, at least 20 so far. Yahoo announced its daily deal aggregator in November and, last week, Microsoft unveiled Bing Deals, a service that has formed a partnership with a start-up called the Dealmap to cull bargains from social commerce Web sites and other sources. Could the fast-following trend take a chunk out of Yipit’s market, too?

Mr. Vacanti, 29, believes that specialization will keep him ahead. Unlike Yahoo and Microsoft, he said, “this is all we do and all we focus on.” For example, Yipit, he said, allows subscribers to specify categories of deals they want to hear about, a service Yahoo and Microsoft do not provide. At least not yet.

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