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The Trouble With Groupon

1000Memories, Aaron Cooper, Accel Partners, Amish Jani, Andrew Hyde, Andrew Mason, Andy Sack, Ashton Kutcher, Aydin Senkut, Ben Silverman, Bin 38, Bob Davis, Bob Iger, Brad Feld, Brad Keywell, Brian Kempner, Brian Totty, Chris Hughes, Christopher Steiner, Dan Nova, Daniel Gaisin, Danielle Hootnick, Darren Schwartz, Dave McClure, David Brown, David Cohen, David Jesse, David Kirkpatrick, Demi Moore, Demo Day, Diego Gutierrez, Dustin Moskovitz, Edmond Yue, Eduardo Saverin, Emmett Shear, Eric Lefkofsky, Fergal Mullen, FirstMark Capital, Founders At Work, Francis Duong, Gaurav Tewari, Gerald Levin, Gerald Poch, Greg McAdoo, Greylock Partners, Harjeet Taggar, Harry Weller, HBO, Highland Capital Partners, Irena Goldenberg, Jared Polis, Jason Child, Jason Fried, Jeff Bewkes, Jeff Weiner, Jeff Zucker, Jessica Livingston, Jessica Mah, Jill Kennedy, Joanna Shields, John Hsin, John Palfrey, John Walter, Jon Miller, Jr., Justin Kan, Justin.tv, Ken Pelletier, Kevin Efrusy, Khan Manka, Larry Wilson, Laurence Albukerk, Lawrence Lenihan, Li Ka-shing, Loopt, Manish Patel, Manka Bros., Mark Cuban, Mark Zuckerberg, Matt Cohler, Matt Nichols, Michael Arrington, Michael Gaiss, MySpace, Nick Marsh, Nicolas Carlson, OnMedea, Owen Van Natta, Paul Buchheit, Paul Cianciolo, Paul Graham, Peter Barris, Peter Bell, Peter Thiel, Reddit, Richard de Silva, Richard Heitzman, Rick Heitzmann, Rob Soloman, Robert Morris, Ron Conway, Rudy Adler, Rupert Murdoch, Sand Hill Road, Scott Shane, Scott Switzer, Sequoia Capital, Sergey Nazarov, Shabbir Dahod, Shawn Broderick, Sheryl Sandberg, Sterling Phillips, Sumner Redstone, Tapzilla, TechCrunch, TechStars, Ted Leonsis, TextPayMe, Toy Story 3, Trevor Blackwell, Y CombinatorI believe Groupon is headed for failure.

Even if they somehow survive, I fear they are doomed to be a company we all view with complete indifference.

I don’t write this lightly.  I was amazed and sort of proud that they had the balls to turn down Google’s $6 billion offer.

Founders and senior management becoming fabulously wealthy excepted, there really is no upside to signing away your soul to a giant soulless corporation (take that Manka Bros.!) if you have a solid business or at least unique concept that absolutely cannot fail.

I was rooting for this upstart that had the guts to resist billions.  I signed up and started to get the daily deals that were offered – “40% off a facial ($75 value!)”; “Pay $10 for $20 worth of hair products (not my brand)”, etc… these horrible “deals” kept coming and coming and I kept NOT BUYING.  Now I believe they should have sold.

Groupon is not a terrible business – a little annoying, a notch above Spammer – but it’s basically a business that pushes all this crap on people that they don’t need (and from my experience, mostly stuff that I don’t even want).  The brilliance they have is that they make you think you’re getting these amazing deals and you’d better buy soon or they’re gone forever.  Consumers will wise up to this fairly quickly.

1000Memories, Aaron Cooper, Accel Partners, Amish Jani, Andrew Hyde, Andrew Mason, Andy Sack, Ashton Kutcher, Aydin Senkut, Ben Silverman, Bin 38, Bob Davis, Bob Iger, Brad Feld, Brad Keywell, Brian Kempner, Brian Totty, Chris Hughes, Christopher Steiner, Dan Nova, Daniel Gaisin, Danielle Hootnick, Darren Schwartz, Dave McClure, David Brown, David Cohen, David Jesse, David Kirkpatrick, Demi Moore, Demo Day, Diego Gutierrez, Dustin Moskovitz, Edmond Yue, Eduardo Saverin, Emmett Shear, Eric Lefkofsky, Fergal Mullen, FirstMark Capital, Founders At Work, Francis Duong, Gaurav Tewari, Gerald Levin, Gerald Poch, Greg McAdoo, Greylock Partners, Harjeet Taggar, Harry Weller, HBO, Highland Capital Partners, Irena Goldenberg, Jared Polis, Jason Child, Jason Fried, Jeff Bewkes, Jeff Weiner, Jeff Zucker, Jessica Livingston, Jessica Mah, Jill Kennedy, Joanna Shields, John Hsin, John Palfrey, John Walter, Jon Miller, Jr., Justin Kan, Justin.tv, Ken Pelletier, Kevin Efrusy, Khan Manka, Larry Wilson, Laurence Albukerk, Lawrence Lenihan, Li Ka-shing, Loopt, Manish Patel, Manka Bros., Mark Cuban, Mark Zuckerberg, Matt Cohler, Matt Nichols, Michael Arrington, Michael Gaiss, MySpace, Nick Marsh, Nicolas Carlson, OnMedea, Owen Van Natta, Paul Buchheit, Paul Cianciolo, Paul Graham, Peter Barris, Peter Bell, Peter Thiel, Reddit, Richard de Silva, Richard Heitzman, Rick Heitzmann, Rob Soloman, Robert Morris, Ron Conway, Rudy Adler, Rupert Murdoch, Sand Hill Road, Scott Shane, Scott Switzer, Sequoia Capital, Sergey Nazarov, Shabbir Dahod, Shawn Broderick, Sheryl Sandberg, Sterling Phillips, Sumner Redstone, Tapzilla, TechCrunch, TechStars, Ted Leonsis, TextPayMe, Toy Story 3, Trevor Blackwell, Y CombinatorSure, millions are buying (with Groupon keeping well over 50% of the proceeds) and it’s probably good for some of the small businesses that are participating (though I have heard of several disaster stories) – but it’s really just a sexier online version of Valpak – those blue envelopes of local coupons that we all get in the mail and we mostly ignore.

If Groupon really wanted to add value to my life, they would offer “50% off my Trader Joe’s bill”; “$5,000 off a 2011 Prius”; “$10 will get you $20 in cash”, etc.  Things like that would be valuable to me.  I would buy those.  But Groupon can’t offer these things because Trader Joe’s and Toyota would be crazy to do it (and wouldn’t even dream of it) and the shit Groupon actually has to offer isn’t really… real.  It’s just made up facts and figures to make you believe you’re getting a great deal.

Let’s say I own a Day Spa and offer $50 off a $300 massage.  What makes it a $300 massage?  I own the Spa, I set the price – there is no $50 value to be saved.  I could go to another spa and get a $50 massage and save $200 more than I would have buying the GrouponGroupon’s genius is convincing consumers that they are saving money on these great services when, really, the cheapest option is NOT TO BUY GROUPONS.  That costs zero ($0) dollars.

And now, because the business model is so easy to replicate, I’m getting offers from Groupilicious, CouponYou, My Little Deuce Coupon, CouponDeville, Grouper With A Squeeze of Lemon, etc. and it will never stop because local businesses will always try to drum up sales by knocking 40% off a price that they set themselves.  Buy it wholesale, mark up the price 100%, offer a Groupon for 40% off – still make 20% on the sale.  It’s not difficult.

Right now Groupon is sexy.  Even sexier after turning down Google.  They are hiring an army of MBAs in their 20s, everybody dresses down – it’s a real startup mentality, it’s Chicago, it’s exciting.  Hell, an IPO is coming!

But I look into the future, and all I see is Valpak.  Ever been to a Valpak office?  Not sexy.  Not exciting.  No roller skates, no ping pong – the only perks there are 20% off bagels when you buy one dozen.

1000Memories, Aaron Cooper, Accel Partners, Amish Jani, Andrew Hyde, Andrew Mason, Andy Sack, Ashton Kutcher, Aydin Senkut, Ben Silverman, Bin 38, Bob Davis, Bob Iger, Brad Feld, Brad Keywell, Brian Kempner, Brian Totty, Chris Hughes, Christopher Steiner, Dan Nova, Daniel Gaisin, Danielle Hootnick, Darren Schwartz, Dave McClure, David Brown, David Cohen, David Jesse, David Kirkpatrick, Demi Moore, Demo Day, Diego Gutierrez, Dustin Moskovitz, Edmond Yue, Eduardo Saverin, Emmett Shear, Eric Lefkofsky, Fergal Mullen, FirstMark Capital, Founders At Work, Francis Duong, Gaurav Tewari, Gerald Levin, Gerald Poch, Greg McAdoo, Greylock Partners, Harjeet Taggar, Harry Weller, HBO, Highland Capital Partners, Irena Goldenberg, Jared Polis, Jason Child, Jason Fried, Jeff Bewkes, Jeff Weiner, Jeff Zucker, Jessica Livingston, Jessica Mah, Jill Kennedy, Joanna Shields, John Hsin, John Palfrey, John Walter, Jon Miller, Jr., Justin Kan, Justin.tv, Ken Pelletier, Kevin Efrusy, Khan Manka, Larry Wilson, Laurence Albukerk, Lawrence Lenihan, Li Ka-shing, Loopt, Manish Patel, Manka Bros., Mark Cuban, Mark Zuckerberg, Matt Cohler, Matt Nichols, Michael Arrington, Michael Gaiss, MySpace, Nick Marsh, Nicolas Carlson, OnMedea, Owen Van Natta, Paul Buchheit, Paul Cianciolo, Paul Graham, Peter Barris, Peter Bell, Peter Thiel, Reddit, Richard de Silva, Richard Heitzman, Rick Heitzmann, Rob Soloman, Robert Morris, Ron Conway, Rudy Adler, Rupert Murdoch, Sand Hill Road, Scott Shane, Scott Switzer, Sequoia Capital, Sergey Nazarov, Shabbir Dahod, Shawn Broderick, Sheryl Sandberg, Sterling Phillips, Sumner Redstone, Tapzilla, TechCrunch, TechStars, Ted Leonsis, TextPayMe, Toy Story 3, Trevor Blackwell, Y CombinatorJill Kennedy – OnMedea

Permanent link to this article: http://mankabros.com/blogs/onmedea/2011/01/13/the-trouble-with-groupon/

74 comments

4 pings

  1. Shelton Busman says:

    There’s noticeably a bundle to know about this. I assume you created specific nice points in features also.

    1. Aaron says:

      Are you having a stroke? What you said makes no sense.

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  2. AHC says:

    How do you know Google offered them 6 B , and you beleive the news media ??
    Nobody offered anything for Groupon. These were just rumors , i can bet in a few months Google will come out and say these were just rumors

    1. Jill Kennedy says:

      Well, the Wall Street Journal said they did. Seems fairly credible.

      http://online.wsj.com/video/digits-google-offers-6-billion-for-groupon—atd/99EF11FD-7E45-44A5-8AAA-36FD249FBAC6.html

  3. Sean Phelan says:

    From the POV of the merchant, there’s a big difference between Groupon and ValPak.

    ValPak – hundreds or thousands of dollars a month outlay, with no guarantee of any coupon redemption

    Groupon – ZERO cash outlay, but you probably end up with 25% of your list price in hand. For small merchants who haven’t inflated their prices, this 25% is the real number.

    My take on the merchant’s perspective:
    VALPAK = ineffective/expensive coupon mailings
    GROUPON = cheap advertising.

    That’s a big difference for a smal business, conceptually.

  4. Chris says:

    The whole “set your own price, inflate the supposed value of your product, and then mark it down” scheme is everywhere in the retail business….just go to JC Penney, Sears or any of the department stores. Nothing that Groupon has done is unique…they just save money by doing everything electronically and being the middlemen who don’t have to do anything but market other peoples’ products. Funny thing is…many American consumers aren’t so sophisticated…oftentimes they will accept as fact whatever a seller claims. In other countries people are conditioned to barter and negotiate a price that is based on their conception of product value. In the US, we typically just bend over and take it…if we like the item (even in a fantastical sort of way).

  5. George says:

    Groupon is hot because the sales model was so new and many business have not tried that way of doing business. As these smaller business grow more savvy and the consumer base becoming more weary of the useless deals that you mentioned, Groupon’s way of simply giving dollar discounts and taking half of the proceeds needs to change. Deals will probably become more tailored to each individual business to the point where smaller businesses will have more control on running each deal than Groupon. That’s problem one. Another big problem with groupon business model is that all these new deals sites are breeding ‘dealer hunters’, which are consumers that are only motivated by deals. Sooner or later respectable businesses are going to catch this trend, where the consumers brought in by deals are not returning no matter how hard they try to keep them. Seems like prisoners dilemma, if all the respectable businesses stop running deals altogether, ‘deal hunters’ will slowly die out and become regular consumers again. Groupon will then really become Valpak, with unheard merchants and inferior products that are actually only worth half of their retail prices.

  6. Senor Fish says:

    I couldn’t agree more, Jill. They’re toast.

  7. mik says:

    Just read this post, and it’s hilarious. I hadn’t considered the Valpak similarities.

    The thing is, GroupOn DOES get some legitimately decent deals from some merchants…that said merchants immediately regret and tend to refuse to do business with GroupOn again. So yeah, they’ll either turn into Valpak, thus driving away consumers, or they won’t, thus driving away merchants. Neither is sustainable.

    1. Jill Kennedy says:

      Thanks Mik – the fall of Groupon just gets more and more stunning every day. I can imagine this investor road show they are on is a total disaster. Will they be able to put a positive spin on all this bad (some would say devastating) news that seems to be coming out day after day? I wouldn’t buy this IPO, would you?

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  10. jenna catao says:

    The biggest problem with dailydeal like groupon is the whole business model is bad for everybody. Everybody is trying to rip-off the other person.

    Groupon wants to rip-off business.
    Small business wants to rip-off customers.
    Customers want to rip-off business.

    They all want insane discounts and want to make as much money as they can without thinking about the quality of service and products.

    ———
    Groupon sales guy must be lying his ass off as to it is a good deal for business, which is not.

    Business want to recoup their discount so they will do anything to make the money back leaving quality of service in the gutter.

    And customers are their just to get as big as a discount and take-off because they have another deal coming next day. They are never coming back.
    ————-

    This whole daily deal 90% off industry is just bad idea for everybody involved. The result of gain and loss on every deal on customer, business, groupon is very complicated. Every business will have different results with this. Most likely negative.

  11. link wheel says:

    What was expected to be one of the hottest stock offerings of the year fell into deeper turmoil Friday, as daily deals pioneer Groupon Inc. said it was cutting its reported revenue in half, and its No. 2 executive left the link wheel company.

  12. is it down for everyone says:

    good !

  13. Pom Pom at Home Sale says:

    Your article has proven useful to me. It’s very informative and you are obviously very knowledgeable in this area. You have opened my eyes to varying views on this topic with interesting and solid content.

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