The Dubai Department of Economic Development (DED) is weighing a plan to regulate daily-deal websites in the emirate after the stellar growth in the industry over the past two years.
Websites such as Groupon and Cobone say they have been in discussions with the department over a framework of rules covering the advertising and marketing of promotions.
Retailers in the UAE currently have to seek approval for any promotion or free-gift offer they introduce, but group buying websites remain a grey area.
"We have been working with the DED very closely," said Samer Choucair, the chief operating officer at Groupon Middle East. "We are meeting with them almost every week, to try to come up with a mechanism that works.
"Because we are not a store, a shop that wants to run a discount - we are running 15 to 20 discounts every day - we can't follow the regular process a store would."
Currently, only the Ministry of Health imposes any sort of rules on the websites, which have to gain approval for deals on medical-related products and services. The discount level offered is also not allowed to be advertised on a medical deal as opposed to every other deal, which clearly displays how much money is being saved.
It is unclear what steps the department is considering and how heavily it will regulate the industry, because the DED was unavailable for comment yesterday.
Groupon said it had obtained a licence to run group buying promotions during the Dubai Summer Surprises (DSS) event so that it was not liable to pay any fines.
Analysts said the introduction of rules or regulations might hamper the ability of group buying websites to do business because of the fast-paced nature of offering new deals each day.
Said Alexander Kappes, the chief executive of Groupon Middle East: "We have a very good relationship with the DED. We are always talking to the DED.
"We are the only group buying website in the UAE that has permission to run group buying websites during DSS. There have been cases where competitors have been fined for running a promotion during [the event]."
"There was a phase this year when there were complaints about group buying, and I guess that's what sparked this," said Matthew Reed, a senior analyst at Informa Telecoms & Media.
"By definition, daily deals are a fast-moving area, so the admin in having to get things approved could make it difficult to run a business that's based on fluidity," Mr Reed said.
Other daily-deal websites said they could offer deals during DSS and had been working with the DED for some time on putting in place regulations so that customers were protected in the discounts and promotions process.
"I think it's a positive thing for the industry that the Government get involved," said Paul Kenny, the chief executive of Cobone, who added that regulation was not imminent. "But as it's a new industry in the Middle East, I think it's important that the Government listens to the companies rather than look at a top-down approach. There's a self-regulation that already exists."
Mr Kenny said that any quick-fix regulation might inhibit the growth of the industry and called on companies in the group buying sector as well as e-commerce generally to sit with the Government to come up with a credible solution.
"Get everyone in the room and we can self-regulate with direction," he said.
Daily-deal websites have become more popular in the UAE over the past two years as advertising and marketing has increased. The market is now dominated by three players - Groupon, Cobone and LivingSocial.
In June last year, LivingSocial, which is one of the biggest players in the United States, bought local start-up GoNabit for an undisclosed price.
Cobone was also one of the first start-ups in the UAE and says it now has a subscriber base of more than 1.5 million customers in the Middle East and handles more than 100,000 visits per day.
Groupon, another US company, has had a tumultuous time since entering the regional market last year, receiving a barrage of complaints from customers, but it says it has now turned a corner with improved systems in place. It also claims to be the biggest player in the Emirates.
"DED and consumer-rights departments have a mandate to protect the consumer. Part of that is regulating how sales and promotions work," said Mr Choucair. "However, given we are an online-marketing-service provider, it's a grey area for us," he added. "But the reality of the matter is that today there's no regulation for what we do. They are working on it, with us and other companies, on something that makes sense and is feasible for both sides."
twitter: Follow and share our breaking business news. Follow us
iPad users can follow our twitterfeed via Flipboard - just search for Ind_Insights on the app.
