Early Mint, Facebook employee launches AppSumo, a Groupon for software

Group-buying site Groupon’s model of offering a unique deal a day for local businesses brought it a valuation of more than $1 billion in 18 months. But can the group buying model work for something even more intangible like software?

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AppSumo, a startup from an early Facebook and Mint employee, is testing that out. It’s a site that packages software subscriptions and gives a group discount on them for a short time.

“The problem I had seen many startups run into is how to acquire new users,” said founder Noah Kagan. “It’s difficult enough for startups to get new customers. But then 97 percent of them will use it for free and the startup will only be able to convert two or three percent of users to paid.”

Kagan has been going around to local startups and getting them to offer paid subscriptions on the cheap. He’ll bundle them together around a theme like productivity, advertising or design and offer a sale that lasts a week. (The time limit is a little longer than the one-day limit most group deal sites impose, since Kagan says software isn’t as much of an impulse purchase as, say, a spa treatment or restaurant.)

The bigger question is how to convince consumers to pay for software. Apple has successfully forged a path with its tightly-controlled app store, although developers have wrestled for years with whether to charge up-front or offer their work for free in exchange for ads in the app. Google has its own Android app store and plans to launch a Chrome web app store later this year. A Groupon-like model is yet another experiment.

Kagan founded the site after leaving Gambit, an offers startup he co-founded that has been trying to find its way since Facebook banned it from the platform last fall. He’s bootstrapped AppSumo so far.