

Groupon will have to move fast to retain its impressive lead - citizenkeys
http://www.economist.com/node/18388904?fsrc=scn/tw/te/ar/grouponanxiety

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hansy
On one hand I admire Groupon's tenacity to do their own thing when they
flipped Google the bird for their acquisition offer, but realistically, I
seriously can't see how they can survive for another 2 years tops.

Groupon claims their database will give them a lead based on consumer
preferences, but it's not like Facebook and Google don't have a clue either. I
give Groupon a very slight edge here, but not enough to warrant long-term
stay.

Groupon's huge overhead with their sales force may be their strength now, but
if the recession has taught us anything, it will cripple them in the future.

Also, from local businesses I have personally talked to, sometimes Groupon
sets them back so far that they brink on near bankruptcy. The massive amount
of volume some businesses get with almost 0 profit margin has closed many
smaller stores that have tried Groupon's service. The lack of repeat customers
is what absolutely kills these little guys.

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citizenkeys
Groupon has very big profit margins and lots of cash. From the article,
Groupon charges "half of the discounted price of a voucher". So if the
merchant has a deal for something that's $20 and requires 1,000 people to
accept, then Groupon's income is $10,000.

That also means the merchant's profit margin must either be at least 50% to
break-even on the deal after paying Groupon or hope that people buying the
deal don't show up to collect it. Otherwise, the merchants lose money.

What it comes down to is that Groupon can't charge those types of margins with
increased competition, nor will merchants be willing to pay 50% of the deal to
Groupon as they increasingly realize the deal isn't profitable for them.

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gojomo
The shop's margin would have to be 50% _on the discounted price_ , or assuming
the common case where the Groupon is half-off, 75% on the supposed 'original
price'.

I think most shops expect to make it up on either people spending more than
the Groupon on the one visit, or followup visits... so being negative on the
coupon itself isn't necessarily a deal-breaker.

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NY_USA_Hacker
Yes, Groupon, along with some other startups, has a problem because the
business they are in is a geographically local natural monopoly: In one city
everyone uses the coupon service that is most popular in that city because
that service has the most coupons from merchants in that city because that
service has the most users in that city. So, whatever Groupon does around the
world, they can be beaten in one city at a time. That is, a shopper and a
merchant in Peoria don't much care that Groupon is also in San Francisco,
Australia, and Brazil.

Similarly for romantic matchmaking, restaurant recommendations, headhunting,
real estate listing, plumber recommendations, etc.

