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 don’t like them because their name sounds like an STD.
Oh, really, Jill? You — a Lehman Bros refugee — have the audacity to predict what will succeed or fail? You look a bit like Ann Coulter…I wonder if you haven’t stolen a page from her playbook insofar as sensationally outrageous comments often get the author more ink.
Hey BC Cloutier (or should I call you ‘Groupon Employee #867!’) – yes, even someone who used to work for company that failed has opinions, too. Stunning, eh? I’m sorry you don’t appreciate that freedom.
On a Groupon point, do you realize I received over 25 spam offers that were similar to Groupon deals. “Great Deal” fatigue has already set in to the general population.
Brilliant. Full respect for standing up for yourself.
Either way, people should learn to respect opinions on their merit and analysis, rather than value them based on the source. Personally, I think your analysis of Groupon is pretty good. They do have one significant advantage (so far) though – they have capital and have gone on an acquisition spree. They’re staying ahead by eliminating competition (or rather gobbling it up), but they will run out of capital at some point.
My guess is they probably ran out of capital already, and the investors poured in more money rather than stop their losses. This is not a bubble, its a ponzi scheme designed to hurt investors.
A very amusing send up of Groupon, indeed. Spot on, too, based on my (limited) experience never purchasing a Groupon, despite checking my daily mailing at least twice a week.
@Groupon employee #867 – Ad hominem arguments aren’t particularly helpful to those of us seeking informed opinion.
@Pranay – To your point, see this (if you haven’t already):
http://finance.fortune.cnn.com/2011/06/03/hey-groupon-why-the-rush/
Excellently said Jill. I’m a student and I wrote a paper myself for one of my business classes entitled “Groupon’s 6 Billion Dollar Mistake.” I think you touched upon a very important point which was “who are the people to value these deals?” Sure, 70% off a “speed reading” class sounds like a great deal, but why was a speed-reading class valued at $200 in the first place?
Other factors that I believe will lead to Groupon’s downfall include the fact that the market is just way to easy to penetrate. The emergence of hundreds of similar sites as soon as groupon’s concept took off is indicative of the fact that the barrier to entry is extremely low in this realm. Amazon’s 175 million dollar investment in LivingSocial, Google’s plans to create a similar service as well as AMEX’s plan to create a group buying concept, will only propel this downfall even more.
Lastly, Groupon does not have a real social aspect to it, which unfortunately for them, won’t commit its users to their site. And what I mean by that is when you speak about Facebook having a 50 Billion dollar valuation, it’s conceivable as we are all locked in to Facebook – I’m not leaving anytime soon and either are you because that’s where our network is. However, with deals I’m going to where the best deal is, and nothing else matters – taking away any real competitive advantage.
Whether group buying is the future or not, I can’t say I strongly agree with Jill, as only time will tell and there hasn’t been enough statistical proof that it won’t last. However, in the event that group buying is the future I can say with almost certainty that Groupon won’t be the “Band-Aid,” “Xerox,” or household name in this realm..
Thanks, Sam. Excellent post. Great points. It seems that the only people really defending Groupon are Groupon employees who are hoping to cash in (and I would probably be in the same boat if I were one of them). I think they know it has to happen fast before (another cliche) the bloom comes off that rose.
They are really going downhill fast – today’s Groupon in my email –
Up to 87% Off at Rose City Dental Arts in Pasadena
Sad.
I have bought probably 10 groups this year and while I agree that the prices companies set for items are random, the ones I bought were Things I would normally have bought. Yes I can get housekeeping for multiple prices but my normal lady charges $185 a visit and a recent groupon was for 65. So I saved money on something I would have bought anyways. Sure the car wash ones are lame but if they have something that people want it is a great deal. I stopped subscribing to the living social because it was so boring. Some people go to spas and restaurants often and if I can get a giftcard there then yay them. Everyones entitled to shop wherever they want so what’s the big deal?
Thanks Jill, very interesting read. I am in the tech/VC industry in silicon valley, and also follow Asia/China extensively. I am interested in your take on Groupon China? I have my doubts on their China strategy, but would like to hear your thoughts.
Hi Jill,
You say most of the deals are “crap” and things you normally don’t buy. Well, I think that’s one of the main ideas of Groupon, letting people access to services they normally would not be able to afford. Laser eye treatment for $500 worth $3000 for example. One could have never thought of removing their glasses because of the high price but now that they have the opportunity, why not? It’s the small, high end businesses that work well with this concept. You can not get a discount on Toyotas because this is the best selling car manufacturer in the world! With the discount or not they sell thousands of cars everyday.
As I said I think Groupon is about getting lower prices on premium services and making them available for the large public which in my point of view is quite good. Of course you can’t have a personal suited for you deal everyday, and that’s why you should subscribe to a deal aggregator website that puts together all the deals from group-buying platforms like Groupon and Living Social and you won’t be spammed by them.
Hey Boris,
I sort of agree that their business model is to prey on people who normally wouldn’t buy that shit – but shit is still shit. China is actually a stronger opportunity because, over the past 50 years or so, China hasn’t been inundated with these American style “bargains”. The people of China may actually believe they are getting “deals” when Groupon sends out their daily email to them – so they just might bite. But eventually cynicism will take over and they will realize it’s all bullshit and stop biting. In China – Groupon is a short-term buy but a long-term dud.
It seems you have a personal problem with Groupon…I mean, what company DOESN’T “prey” on people/consumers?!?!
It’s too soon for me to be able to predict if Groupon will fail or not, but I like them a lot. Through Groupon I was able to buy:
-improv classes that I had already decided I was going to take, but couldn’t afford (then all of a sudden, the Groupon deal showed up in my inbox!)
-a day at the spa as a bday present for my mother (and one for me)
-laser hair removal for $300 instead of $2400!!!
the point is NOT the make a purchase everyday, pick and choose things that you were considering buying, or things that you WOULD LIKE to get but could never afford otherwise.
sheesh.
Mel C… you bought those things? You are the first I know that actually pulled the trigger on the laser hair removal. I’m glad they were able to provide you with a service.
darn right I bought ’em! i actually know others who have as well. maybe us Toronto people are vain ; )
I really like the idea of expensive/high end services being so deeply discounted…it makes them accessible to everyone…and not just “the wealthy” 🙂
right now i’m patiently waiting for a mani-pedi Groupon from a decent spa to appear in my inbox!
whether the author has any grief or no, it’s funny how it’s turned out over the next nine months: http://www.bloomberg.com/video/74330222/.
also, it seems Mel C forgot that in this case, customers are the businesses that hope to promote their services through Groupon. the people who buy and redeem the coupons (gift certificates) are the product. Groupon isn’t in the business of selling coupons, it sells hope of bringing new customers to businesses selling other (fluffy and expensive) stuff. that may work for some, less so for others (see the linked video).
what’s worse, the product may be faulty as in the case of Mel C who himself admits he uses Groupon to buy services he couldn’t afford otherwise (plus a mother has only so many birthdays a year). in other words, as a customer returning (frequently, even!) for deals on normal terms, he’s toast.
What do you make of Groupon Now & Right Here. Leveraging impulse buying, less mark-up and no waste (unsued coups). Major improvement, but interested in others’ opinions.
no comments on this???
Your Title Got My Attention (Nice Job)
And while I may agree with some of your points your language gives off some sort of anger that distracted from the subject matter.
“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.”
Is There Something Wrong With A Local Business Making 20% Profit And Staying in Business, payng local taxes which runs many schoo systems etc etc…
What is your beef? Do You Hate Profits?
I do not hate profits. I love profits. But, here’s an example, this morning I received a Groupon offer for 90% off laser hair removal. It’s a $1,000 value for $99. A $1,000 value? Who prices it $1,000 (and who, the hell, pays it?). Does it really help things if I say this gallon of milk normally costs $5,000 – but if you buy it in the next 6 hours, I’ll give it to you for $1.79.
It’s just an overinflated, hype story right now and it’s going to come crashing down – like a lot of bubble companies. Exuberance is a great thing but when jobs and real estate and other fallout from overinflated failures hit Main Street, the lows are much worse than the highs.
That said, I wish them luck and I hope they really are helping local businesses. Once Groupon can offer $50 off $100 worth of groceries at Trader Joe’s (or my local non-chain grocery store), then I’ll know they’ve really got something.
plenty of people pay $1000+ for hair removal, they’re called “the wealthy” and thanks to Google, I can now afford to get rid of unsightly hair.
you’re attitude is…unappealing. good thing you’re pretty.
ciao, lady!
You mean Groupon – not Google. And normally I don’t like to have that sort of attitude – it is unappealing – some people just bring it out of you.
ah well, ok then. to each their own.
Hey Jill have you ever taken an economics course? Obviously you haven’t. A small owner doesn’t just set a price–it is set by the market around them. Let us imagine a town with two massage parlors. The first one offers a one hour massage for $300 while the second offers a one hour massage for $50. Is anyone going to go to the first? Taken all things are equal, no.
This is stories is one of the dumbest things I have read on the internet in a long time.
Are you nuts? Do you seriously believe the price set by the companies (before offering the Groupon discount) is the normal price they charge? It’s raised before the discount. They create special massages “just for our Groupon users” – that way they don’t have to change their price cards. And, all things are never equal in the world of massage or in the world of the salon (two of the biggest Groupon jokes). Supercuts will do a fine job cutting your hair – but ask all the ladies in the Beverly Hills salons to go to Super Cuts (or use a Groupon) – they would be horrified. They WANT to pay all that money because they think they’re getting a high level service. I don’t have a problem with that. I don’t have a problem with some getting $800 to frame a picture. But don’t set some price at $800 – give 54% off and call it a bargain. It’s really just $25 worth of stuff.
Oh no! it is a conspiracy!
what about restaurants? Are they apart of this conspiracy? when I enter their shop and tell them I am about to use a groupon, do they give me a separate menu with higher prices?
Come on, A.A., I know you’re just trying to get to the IPO stage at Groupon, and as an employee, you have to say your company is great, but you must realize, the groupon craze is a fad that will not last.
I don’t wish bad things on people and don’t wish to come off as angry or bitter, but your have such a hint of “assholeness” to them that I can’t help myself.
Hahahaha. Oh no! I am an employee for groupon? lol. You are so crazy! it is so funny. I am saying what you wrote was dumb, so I must be an employee for groupon… no. I am not. I agree that groupon will fail, that they should have taken the 6bill from Google, but all of your reasons are just… out there. How much money do you make spewing such crap about stuff you have no idea about?
Because who else but an employee or relative of an employee spend so much time defending a coupon site that’s the equivalent of Valpak. The reason I blogged about it was because of the over the top valuation and the IPO hysteria surrounding this site that offers spa treatments for 54% off.
I make more than an AOL blogger and less than a Daily Beast blogger.
Jill, dammmn ure too fine to be a media analyst AND to put up with these douchebag comments 😉
“Hey Jill have you ever taken an economics course? Obviously you haven’t. A small owner doesn’t just set a price–it is set by the market around them. ”
HAHAHAHAHAHAHAHAH
You are really stupid or a troll. Because ANYBODY who usually goes to these sites KNOW they change their prices. Last week my Groupon (I’m not from USA) had a 50% “deal” for a restaurant. Open buffet $20 for $40, but I KNOW their real real price is actually $24 because I go there. It’s just a huge, fat lie.
How can I make money throwing my opinion around even though I dont know anything?
Just keep doing what you’re doing – maybe one day someone will write you a check.
The main Gripe with Groupon:
Let me start with saying that I see little issue with the valuations of the Groupon items being discounted, i.e.. I find the offers presented represent real market prices or where the prices that I was previously familiar with.
What turns me off is the confusing terms and conditions, especially the restaurant coupons.
$14 for $30 worth of food, only one per table. One what? one coupon? one person?
NO WAY TO GET CLARIFICATION ON THIS. Since I cant eat $30 worth of food by myself, I ignore the coupon as its too much trouble to try to call Groupon or the vendor to figure out what the hell the deal is.
I agree that Groupon and it’s ilk are just like a web based Valpak, those crappy coupon books full of stuff you dont need….EXCEPT
The coupon books are basically good forever – or at least a year or so. While that lessens some of the impetus to “buy now” there is also a lot more clarity and you can look ahead and comparison shop, guaranteeing you can get a good deal.
The Groupon approach requires that you have to be a follower, subscribing to their daily ‘noise’ in the hopes of find a daily nugget which is something that you CAN use. Unfortunately, without the ability to ‘tell the system what you are interested in’ you are instead force to see crap you do not want continuously. This negative learning experience eventually has you canceling altogether .
On the vendor side, netting 25% on the deal ( Groupon takes 50% of the discounted price) is reason to make you pause. Of course, you can create fake product combination that did not previously exist (to make price comparison more difficult) and implement a tricky dance of conditions and clauses…but that just pisses me off and make me not buy.
But the biggest gripe is..
Why would I patronize YOUR store on a continued basis?
You generate a flood of new customers at an expensive premium – WHO ARE LIKELY NEVER TO RETURN
I would definitely short that stock..only place to go is down.
Jill,
You are right about the laser treatments, salons, spas, etc. Those little establishments can mark up prices to entirely negate the groupon discount.
However, I also agree with the person who posted that it makes things available to a new group of consumers. While most of us will never have or need a laser hair treatment or lasik eye surgery, most people would like to take their significant other or family out to dinner once in a while. $25 for $50 at a local, well known restaurant is a great bargain for family night out on a budget.
The difference between groupon and valupak, in my opinion, is that they offer lower cost goods and more well known brands. I see many home remodeling coupons, for example, in our envelopes from businesses I’ve never heard of. I am likely to never use them.
Online deals, however, cater to a bigger audience. I amy not need that home remodeling right now, but I would like to take my family out to a nice weekend dinner at half price or buy goods at a chain store. Today’s Groupon is $10 for $20 at Old Navy. While that store may not be your cup of tea, they carry many summer items that the American public loves to stock up on this time of year, like swimwear, flip flops, bags, etc. They would have needed these things anyway for the season, and Groupon is a great way to direct them to Old Navy, instead of say, Target.
Yes, some groupons are odd and complete waste of money, but remember that sometimes you can stumble upon a great deal for common products you most likely would have purchased anyway, not an impulse buy but a neccessary buy.
Hi Mandy,
My Groupon this morning was 51% off REO Speedwagon tickets (with opening act Rick Springfield!). While I’m sure there are REO Speedwagon fans that are rejoicing over this, it makes me feel sad for the band. I don’t know why.
I realize that is off point, but wanted to share.
Hey, I’m all for the Old Navy discount and if it’s truly $10 gets to $20 on ANYTHING in the store – any item, then that is real value. They can’t possible mark up every item to minimize the Groupon effect, so that’s great in my book. I just don’t think there are a lot of those offers out there. When they do pop up, it makes everyone go “Groupon is great!”. But now there are just too many clones. It’s possible Groupon got in early enough to survive – but the Google acquisition would have been a much better deal for them in the long run, I’m afraid.
But the IPO should be an entertaining ride.
Jill, I’ve been following this ‘conversation’ since last Summer when Teddy Bear Friends were ‘headhunted’ by Groupon to do a deal. I hadn’t heard of them before (we are in UK) and it took a great amount of time to research – they were as insistent as their offers in trying to sign us up. Do it now and reap the benefits – we can have the offer live tomorrow or the next day etc
I tried my best to do the figures and although I was very close to signing the deal I backed off as I felt we would only gain sales and not customers, i.e. cheapskate punters who would then move on elsewhere once they’d had their deal never to be seen again and lose us money into the bargain.
As we sell hard goods, i.e. teddy bears and baby gifts from known brands, that can be accurately price compared with other stores, we cannot just up the price by 50% and then knock it back down as it would be obvious.
I don’t know who Old Navy are but I’m guessing they are a retailer who sell hard goods and as such similar to us. Interesting to see what their take on it is.
Jill,
Thanks for good article and discussion.
\
Another issue that seems to have been lost — there is a good case to be made that Groupon and it’s myriad competitors present a real macro-economic threat to local community economies because they take out a pretty large slice of the local merchant transaction, out of town, often to another state. Many local communities are reliant on the local recycling of advertising cash (local papers take a cut, but recycle it into the community as rent, salaries, etc.) Group buying sites break this local ecosystem and drain cash out.
If it’s just one or two Groupons a month, that won’t amount to much, but there are hundreds of huge competitors jumping in, in total this could be a big effect on local economies.
Here is a quick write-up from last year…
http://www.slideshare.net/edlang/how-groupon-depresses-city-tax-revenues-and-how-to-counter-it