Bulk buying your power to save a buck

Modern History of Group Buying

Ever heard of Groupon? That company that went public at a valuation over 10 billion dollars despite never having made a profit. If not, here is a very short description of how it works:

A company approaches groupon to offer a discounted Coupon code for one of their products. Say balloon rides. Groupon requires that all coupon codes are at least 50% off normal prices. Normal price for the balloon ride is $400, but with the coupon the price will be $200 paid to Groupon. Group will keep half of that money, and the business owner will collect only $100 of the originally $400 balloon ride.

Groupon was trading on a concept called group buying. The business owner wants a lot more customers and hopes that some of the discounted customers will become regulars or “buy add-ons” like $90 for champagne on the balloon ride. The customer just wants a cheap deal.

The same happens in electricity

The exact same thing happens in electricity. Somers on the Mornington Peninsula tried this out in 2010. The townsfolk signed a petition saying they would switch electricity retailer as a group to the lowest bidder. They got 15% off their rates, possibly similar to the rates that commercial buyers get for a chain of supermarkets.

A few Australian companies turned this idea into a company and got some press and as many as 250,000 households checked them out (it isn’t clear how many actually switched retailer though).

But how do they make money?

The world of electricity brokering is full of kickbacks. For every new customer that an iSelect or similar sends to a retailer, they get over $100. A company that promises to switch a large group of customers over would also be rewarded with a very large payday.

One such company The big switch started with electricity (it is now partnering with channel 7) and has since broadened it’s reach to a group buying campaign for health insurance. The health insurance kickbacks are over $300 per new customer, and home loan kickbacks can be over $1000.

Are we alone?

The concept of group purchase isn’t entirely new. Local co-operatives have existed for years in the United States and in Europe, but their local focus doesn’t give them the scale that the new campaigns have.

The UK has borrowed the big switch model and gotten significant press coverage and the attention of local MPs who were very pleased to see the campaign.

I couldn’t see similar schemes in the USA, but the concept is so successful here and in the UK I can’t see why it wouldn’t do well there too.

Big question for this week

Does knowing about the kickbacks change the way you view switch and save websites?

Mentioned in this podcast

The top wind farms

North Brown Hill: $690k
Macarthur: $560k
Waterloo: $550k

Transcribed from the recording by machine, then edited for punctuation and paragraphing. Names, figures and misheard words have been corrected where the original show notes or the rest of the series settle them; anything they could not settle is left as spoken, rough patches and all.

Hi there, it’s Friday, 20th of September, and you’re listening to WindFront, the weekly roundup of the wind industry from Australia and around the world. Today, I want to talk about bulk buying your power to save a buck. And I’ll run through the weekly top three.

Have you ever heard of Groupon? It’s a company that went public at a valuation of over $10 billion despite never having made a profit. If not, here’s a very short description of how it works. A company approaches Groupon to offer a discounted coupon code for one of their products, say balloon rides. And Groupon requires that all coupon codes are at least 50% off normal prices. So the normal price for the balloon ride, say it’s 400 bucks, and with the coupon, the price will be 200 bucks, and that’s paid directly to Groupon. Groupon will keep half of that money, and the business owner will only collect 100 bucks of what was originally a $400 balloon ride. But Groupon was trading on a concept called group buying. The business owner wants a lot more customers in hopes that some of the discounted customers would become regulars, or maybe buy add-ons like that $90 champagne for the balloon ride. And the customer just wants a cheap deal.

And the same thing happens in electricity. Somers on the Mornington Peninsula tried this out in 2010, the townsfolk also sign a petition, saying they would switch electricity retailer as a group to the lowest bidder. They got 15% off their rates, possibly similar to the rates that a commercial buyer might get for a chain of supermarkets. Now, a few Australian companies saw this idea and turned it into a company, and it got some press and managed as many as 250,000 households checking them out. That’s not clear exactly how many actually switched retailer.

The world of electricity brokering is full of kickbacks. For every new customer that an iSelect or similar sends to a retailer, they get over 100 bucks. A company that promises to switch a large group of customers would also be rewarded with a very large payday. One company like this. It’s called The Big Switch. They started with electricity, partnering with Channel 7. And have now broadened since that point to reach sort of group buying for health insurance. Health insurance kickbacks are over 300 bucks per customer. And home loan kickbacks are the biggest of all, they can be over a 1000 bucks.

The concept of group buying isn’t entirely new. Local co-ops have existed for years in the United States and across Europe, but their local focus doesn’t give them the scale that these new campaigns have. Now, the UK has borrowed their switch model and got significant press coverage and the attention of local MPs, and they were very pleased to see the campaign. And I couldn’t see similar schemes in the US. Maybe it’s my searchabilities, not up to scratch, but the concept was so successful here and in the UK, I can’t see why it wouldn’t do well there too.

So the big question for this week: does knowing about kickbacks change the way you view switch and save type websites?

Let’s have a look at the weekly top three earners this week. It’s a much lower week this week. In fact, Macarthur has been toppled from its top spot, North Brown Hill claims the top position of the solid performance of $690,000. Macarthur all the way down at 560,000 and 3rd place, Waterloo Wind Farm. So that’s it for the podcast this week. Until I see you next time, keep buying those green electrons.