The Trouble With Groupon

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