

Why is Groupon so important?  - plinkplonk
http://measuringmeasures.com/blog/2010/12/23/why-is-groupon-so-important.html

======
pchristensen
[Groupon employee speaking]

Group buying is still relevant in new markets. In established markets almost
every deal tips.

 _many merchants are not sophisticated enough to structure their deals
properly such that it is economically beneficial to them_

One of the services that the margin on the deal pays for. G wants the
merchants to have a good experience (95%+ report that they do) and continue to
use G as opposed to other deal sites. Deal makers here structure the deal to
maximize benefit to the business. That's why you'll get $20 for $10 to a
sandwich place, $10 for $4 at an ice cream shop, and $50 for $25 at a steak
house. This is with the insight of all the other deals made in your city.

 _Merchants must give blanket discounts, and have no ability to segment or run
comprehensive campaigns. In particular, merchants can not do things like
target existing customers with reward programs, and new customers with
enticement programs_

This is true for the "Daily Deal" which gets the most exposure and are
outsized deals. These are basically a marketing budget spend, but the money
goes to G and the customers instead of advertising media.

New personalization and deal feed features (currently out in limited markets)
let merchants put deals at will to previous and interested customers
completely outside of the daily email.

Also, G's intention is to get customers _to the business_ , not to take over
the business relationship. Businesses should have their own rewards programs,
etc.

 _We have three problems to solve; 1) long term economic viability for
merchants through assisted program creation, 2) segmentation and campaigning
for merchants, 3) relevance for customers._

#1 is already something we do. #2,3 exist to a limited extent but we're
working (a lot) on improving them)

 _What if we had a "personal fingerprint" for each consumer that is
subscribing or consuming from a stream, as well as the attributes of merchants
and their individual campaigns? If that fingerprint contained rich information
about their interests, demographic information, and so on, then we could both
assist the user in subscribing to only those promotions that meet their
interests, and assist the merchant in very fine grained segmenting and
targeting._

It's like you read our mind. But just as most small businesses aren't good at
or interested in marketing, it's the same for segmenting and targeting. I
think as a data-head, Bradford is overestimating how much merchants want to do
that. They just want a stream of customers coming through the door and Groupon
does that in a very hassle-free way.

~~~
trotsky
_G wants the merchants to have a good experience (95%+ report that they do)_

How does that match with the rice university study where 42% wouldn't run a
promotion again? It seems unlikely that half of your clients have a good
experience they wouldn't repeat.

~~~
pchristensen
I don't know about the Rice study. 95%+ is the number we get told by the
bosses, based on our followup surveys with them. I'm not sure what the real
truth is but based on the wild inaccuracies in the public numbers about
Groupon's business, I tend to trust the internal numbers. Pre and post-deal
experience and handling is part of what the fat margins get spent on, to make
sure that it is a good experience for the merchant.

EDIT: Found results in question -
[http://www.screenwerk.com/2010/10/01/survey-42-of-groupon-
sm...](http://www.screenwerk.com/2010/10/01/survey-42-of-groupon-smbs-would-
not-do-it-again/)

Caveats about the study: 1) It was sent to 360 total businesses (Groupon deals
with 10Ks of businesses) 2) 150 responded. 3) No mention of when these
businesses ran their deals - 6 months earlier or later would make a huge
difference in a company as young and fast-growing as Groupon.

Since people with a negative experience are much more likely to respond, this
should be taken with a grain of salt. Also, 42% of 150 means that they found
63 businesses that would not repeat.

------
nkurz
There seem to be two definitions of why Groupon is important: the first is why
the model works, and the second is why this particular company has a lock on
that model. I can mostly agree with the arguments for the model, but don't see
what particular advantage Groupon has as a company that would justify its
proposed valuations.

As a merchant, I've been in contact with Groupon and have looked closely at
their system. Everything makes sense to me about it other than the cost. To
use them, I'd need to be selling something at a 70% discount (their take is
half of the discounted price), which for me means selling for about 50% of my
cost to produce. For some businesses, this is a justifiable marketing expense,
but for me, I think there are better ways to benefit from giving away things
for free.

While there is considerable consumer loyalty to Groupon, I don't see any such
merchant loyalty. As soon as someone offers me a Groupon clone that offers to
take only 10% of the sales, I'm there. Why doesn't Google put its $Billions
into attracting merchants to a new site rather than buying an existing site
that looks extremely vulnerable to future competition? Is there some lock in
I'm not seeing?

~~~
pchristensen
The model works. No matter what Groupon does in the future, fat deals as
customer acquisition are a fact of commerce now. Black Friday is another
manifestation of this.

One reason Groupon hasn't had downward pressure on margins is that none of the
competitors drive enough customers to businesses. As far as the two-sided
market goes, no one else has the customers so merchants are still best served
by going to Groupon (unless, as in your case, the cost to acquire those
customers is too high).

------
johnrob
Groupon = online advertising for people who don't understand 'cost per user'.

The majority of small business owners fall into this category, and that's why
Groupon prints money.

------
angdis
I'm sure there's a market for what they're doing but don't forget: 1) it's a
freaking coupon 2) it's ONE coupon, un-targeted, delivered to a wide audience

In an era where print publications are becoming extinct, of course there's
going to be a growing market for ads that are delivered to a wide audience and
presented in a "legit" manner (eg not spam). This is a new thing only insofar
as it is now happening in electronic media rather than print.

~~~
eli
One key difference is the retailer gets all the money up front rather than
having to wait for you to actually buy something. In that sense it's more like
a gift card than a coupon.

~~~
pchristensen
Not up front. Don't know if the terms are public but merchants do have to wait
a little while to get the money Groupon collects.

------
geoffw8
Groupon, Facebook, eBay all build products that solve _big problems_ , felt by
your _average joe_. No explanation of product necessary. People like gossip,
people like stalking, people like a bargain. It is as simple as that.

------
Andrewski
<i>Advertising has become quite spammy and irrelevant. We've gotten away from
the core issue, which is not inherently spammy at all - merchants interacting
with people to retain their existing customers and win new customers. There is
noting evil about that, and the direction that advertising has taken for
decades has been largely disrespectful, manipulative, misleading, and lacking
in creativity. As a result, it has become quite boring.</i>

Advertising has always been misleading and disrespectful, at least going back
to the Romans. I had never heard about Groupon until today, and find it mildly
interesting, but the problem with it is that I have to pony up cash in advance
for something sigh unseen (usually a service or a meal!) and I guess I am too
cheap for that.

Rddle me this: how is Groupon different from one of those coupon books the
local school kids sell?

~~~
nkurz
The main difference from the merchants' point of view is that when they do an
offer with Groupon they receive half of the proceeds from the 'coupon',
whereas in for a 'discount book' they receive nothing. The Groupon offer is
thus better viewed as a heavily discounted gift certificate. Otherwise there
is little difference other than the scale.

As to whether you are too cheap to buy a coupon? Unlikely. More likely you are
insufficiently cheap for the idea to hold appeal, as you are OK with buying
the product you want when you want it, rather than jumping through all sorts
of hoops and advance planning to save a few dollars. You are welcome and
possibly correct to view this as 'wise'.

~~~
Andrewski
You might be right, in a sense. But on the other hand things like meals out
and skydiving lessons hold little appeal to me. Half off veggies or vehicle
repair could be more up my alley.

------
bTreated
Hi Brad,

You are 100% correct in your analysis here. One of the biggest problems from
the merchant's perspective is being able to be successful with these tools and
actually benefitting in the long run. They need a way to be able to test these
deals to see how they are working for their business and then measure if these
deals are driving traffic and revenue and continually tweak them. For services
based businesses, being able to fill last minute availabilities instead of
selling vouchers that can be used at anytime are also extremely critical to
sustainability. Without this, this advertising method won't be able to serve
these local businesses. These are the very things we are focusing on at
bTreated.

Thanks for the great food for thought!

Andrew Hersch COO bTreated

------
RBr
I've thought that Groupon is important because it has created a new online
sales niche. Creating new niches is extremely rare.

This seems almost too simple to be correct. However, Groupon has created a
niche / vertical / category that enables local deals to be promoted to the
masses in a new and interesting way online.

------
steveklabnik
Aren't AdWords limited to $20/click now?

EDIT: I cannot find a reference to this anywhere. I thought they were capped,
maybe it is just $50, and I am not yet fully awake.

~~~
kscaldef
I sort of doubt it. From my experience at Overture/Yahoo there were certainly
multiple classes of words where advertisers were willing to pay more than $20
(cars, jewelry, mortgages (at the height of the bubble), lawyer services
(particularly malpractice and mesothelioma, which was the highest priced
keyword for many years)).

OTOH, maybe Ad _Sense_ is limited to $20? Contextual advertising is a lot less
valuable than search advertising.

