I 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.
Sure, 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 Groupon. Groupon’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.
Jill Kennedy – OnMedea
I think if you have a basic knowledge of what stuff should cost you can find deals that make sense, things that you actually want to buy.
If you mark up an item 60%, then sell it for 40% off the marked up price, you’re losing money, not making 20%. A $10 marked up 60% becomes $16. Mark 40% off of $16 and you’re now selling it for $9.60.
Good point, bob. Thanks for the correction. I’ll just fix that little item. I blanked out on the math.
Have you VISITED groupon?
Your comparison from Valpak tells me you checked out the website once after your friend told you to, the deal that day wasn’t worth buying and you never went back.
Yes, Anonymous, I have visited Groupon. I do realize that there is potential for more targeted deals based on a profile of the things that I might want – but unless it is something that can be marked up in a big way, it is crushing to small businesses. A lot of people, I’m sure, love Groupon but it’s similar to saying “What do you mean you didn’t like Black Swan?” Some people like to buy a bunch of crap that they don’t need (at a great discount). I don’t and wish Groupon was more like Coupon and had 40% off milk at the store.
I aggree with you Jill. I have bought Groupons before and every time I present them I always feel like I’m getting teh “groupon deal”, it always feels like the quality is less because they know I got it a ta steep discount and they dont’ make much money.
It’s so true.
I agree with most of what you say. I must add that once people realize how much money they waste when they forget to redeem their Groupons, Groupon will be doomed. Whether this is before people get sick of all the competing offers in their inboxes and start ignoring them, I don’t know.
Now Jill there are times when I do need to buy picture frames. The problem is the 50% off price is often the same price it would be if I bought the same frame from Target.
Great analysis. When I found an offer that was semi-interesting – discount on window washing – I decided to give it a shot and went for the offer. Of course, I like most others, assumed that the offer I got was for the whole cost to wash my home’s windows — I’ll admit it — I got roped in and probably would have noticed that was not the offer if I read the fine print.
But, when I called to have my windows cleaned, the $40 for $80 worth of window washing meant that I’d have to pay $120 for $160 worth of window washing; definitely not a super sexy offer, nor one I’d consider. In the end, I’m going to eat my $40, and will end up washing my own windows one of these weekends. Groupon will get $20, the vendor will get $20 and I walk away having learned a big fat lesson.
Until I can get 1/2 off an In-N-Out Burger combo or my mortgage payment, I’ll likely be staying far away.
Great analysis.
The markups are what really blew me away. It’s the oldest trick in the book to set the price high then knock off 50%. How have people not learned this tactic by now?
You’re exactly right about lack of grocery/car groupons. It will never happen. By the rules of their system, Groupon cannot give deals on things You Would Have Bought Anyways. It would ruin businesses. In rare cases, my wife and I DO find groupons for things we would have bought anyways(say, movie tickets). Needless to say, I’m sure we’re the worst possible customer for the theater.
I don’t know if this will last.
In Cincinnati, they have had some good groupons, such as $25 for $50 in merchandise from Nordstrom Rack and $25 for $50 from a great local restaurant.
There will always be one or two that pop up that are okay but it’s just not going to be sustainable in the crazy growth model that they think will continue.
What Groupon (and deal sites for that matter) actually lacks is the possibility of personalizing its service and offer deals to different consummer targets. If instead of sending an email with the deal of the day every day, Groupon sent mails with deals that may results interesting to every consumer, it could become a far more interesting service. Regarding the IPO that was announced, investors apparently see big potential in the deals industry, which will most likely continue its expansion and improve over time.
I could not agree more and I have reviewed this from the merchant side where the deal is really questionable especially for restaurants… earning only .25 on the dollar on a 50% off deal is a lower unless it increases loyalty moving forward. Not sure merchants will continue with service once they understand the real economics.
What are your thoughts about Open Table from an investor perspective… seems overpriced with new competitors on the horizon like Village Vines. P/E for OPEN is thru the roof.
hey Alan,
I actually like Open Table and use it frequently. I’m in L.A. and here, New York and Chicago it’s actually a valuable tool. smaller cities there probably isn’t much value. I can see a really great European application. But it’s for rich people who spend money dining out. The valuation is high but not as crazy as Priceline.
@Jill: you are quite right: Groupon is almost spam as it intrusively promotes deals and stuff you don’t have a demand for.
people may look into it once, twice but the third time they don’t even bother – except maybe the Natural Born Clickers (80% of all ad clicks are from 16% of the population
http://www.comscore.com/Press_Events/Presentations_Whitepapers/2009/The_Click_Remains_Irrelevant )
The best deal from Groupon: invest your money in the IPO and try to sell it the very first day as you might make 15%. Don’t keep the shares as it will drop.