Building an email list of millions of people seems like a formidable barrier to entry to me. Particularly so when the CPC cost for anything even vaguely daily-deal related has shot through the roof over the last couple of years and is in the $5-$10 range per click now. It usually takes several - several tens of clicks to convert to an email subscription, depending on landing page.
Not to mention the cost of hiring and organizing thousands of salespeople nationwide.
I don't recall precisely, but I believe that LivingSocial & Groupon are still far bigger by market share than the rest of the players put together... that's not what you get in a space where barriers to entry are low.
I think the primary reason for their "downfall" was not lack of barriers to entry (there were none at first, but once industry is established, there are as you mentioned), but a much smaller market overall. i.e., the "group coupon" model was very popular for a short time, much more so than its long term steady-state usage.
The beautiful thing about e-coupons is that they don't cost anything to issue so there's pretty much no risk to the merchant for trying another company. The only lock-in possible in this industry is customer satisfaction through value, which Groupon is notoriously bad at.
1) Their sales and marketing expenses are incredibly high.
2) I think the kind of deals Groupon does only work for some merchants - those with high margins, new businesses, and those that are really good at upselling once the customer gets in the door. There have been a lot of highly-publicized accounts of merchants who felt like Groupon deals ended up being very bad for them. The big hit the merchant takes sort of limits the amount and frequency of repeat deals.
3) A ton of competitors have sprung up, since there is a fairly low barrier to entry. In addition to some of the nationwide competitors, there are a lot of local companies like newspapers and tv stations that already have good sales networks and have been copying the Groupon model. This increases Groupon's sales costs and probably squeezes their margins since they may have to offer the merchant a bigger cut to compete.
I think it's a good concept and by being the most well-known business in the space they have a pretty significant advantage, but I also think it is a challenging market to be in and they are probably still overvalued.
I see this point being made in pretty much every Groupon related analysis. Why is it so expensive, and why isn't anything being done to cut down on these costs? I'd think that once customers have been acquired, the cost of maintaining them is a fraction of the acquisition cost; so the outlays on sales and marketing should decrease (from my admittedly layman perspective.)
Until Groupon solves this problem, I don't see an optimistic future. Building a product your consumers loves leads to repeat users and growth. Building something retails hate leads to Groupon.
Combine this with the fact that Groupon is reknowned for being slow to pay merchants. That's fine if yer paying back Wal-Mart, who has lots of money, but for small businesses that use these services, 3 months waiting for payment can be crippling. Read about Groupon's payment policies. They're assholes. Slow assholes.
And finally, none of this was ever proprietary or complex. Groupon had no firewalls or sandbags against competitors, and frankly, the way it treats its client businesses, it was bound to be fucked eventually.
My folks have a boutique ad firm in a small town. For the past year, they've gotten calls EVERY DAY from Groupon-like services, or even Groupon aggregators who act as middlemen for these services. It's a hugely growing market but never once has Groupon been at the table for one of these calls. They're being eaten alive.
Perhaps Groupon could do some better segmentation of their users. They must have quite a lot signed up, so why not offer many more deals overall, and each user gets the three deals he is most likely to buy. Also, you take a much smaller portion of the revenue so the business can survive. This way, Groupon would earn more through increased volume (it is kind of unprofessional to send a customer a similar deal six times a month - if I didn't buy it before why waste your reach to show it again to me?) In essence they would be a highly-tailored ad agency getting a small commission on a huge number of sales.
Thanks for the reply, I kind of agree with you on that one.
Not necessarily, it only would work if you can get repeat customers. There are many groupons that my wife sees that she would never have done if there wasn't a significant discount. These "cherry pickers" are what cause companies to lose money and make a Groupon not worth it. There was a blog/article by a woman who owned a Chicago yoga studio who was told she should do a Groupon. You can see her point of view at http://blog.tulayoga.net/2011/08/why-i-wont-do-groupon.html
They went through their childhood years thinking they were going to take over the world, and not too long ago Google offered $6 billion for those dreams. No wonder investors still had some hopes that this was something more than an ordinary business of an ordinary scale. It's not.
If anyone would like to keep dreaming, AMZN was running over $300 million losses on a ~$600 million revenue every single quarter around the year 2000.
But, like Milo Minderbinder, they'll make it up on volume.
think about it - that means that it would take 200 years of earnings to be worth their market cap (not factoring in uncertainty and all that)
I remember reading some articles back in the day about the profit margins for merchants participating in groupon 50%+ off schemes (i.e. slim to negative) and that people would turn generally up to take advantage of offers but not become repeat customers.
I think there's a few reasons:
1. Groupons have to be sold over the phone to merchants in order for Groupon to get the margins and volume it wants.
2. Local merchants just don't have a lot of time to spend learning software and monitoring stats. They can talk to a sales rep over the phone more easily than set up a deal themselves.
If Groupon sent you 100 deals every day that were "buy one get one free" or "$1.00 off" or whatever, it wouldn't be very interesting and they'd likely lose a lot of subscribers.
So, policing the quality of deals and working with merchants to make sure they are offering a deal that fits with what you are doing is going to be a significant source of overhead no matter what.
...the self-serving issue is the big issue though. Local merchants at this point in time still don't do web-based self-serve solutions much or at all. Maybe that will change as the world becomes internet-savvier in general, but it's where we are right now.
Sales and customer acquisition are usually a lot harder (and more expensive) than throwing up a website and hoping customers find it.
Also, they can do things like yelp does with stickers at merchants places. A lot of places have the "Find us on Yelp" stickers and I doubt Yelp went out to find & convince them to do that.
I haven't spent too much time thinking how I could make Groupon better but I don't think it's really that far out there to find a better/cheaper way of acquiring customers.
Merchant submits deal to their local section, when people buy the deal it would rise in the section.
you don't have to buy the deal to make it rise, just pledge to it; then when a minimum pledges are made it goes frontpage where the rank is determined by further buys
I suspect with the accounting irregularities and the stuff I see lately as deals - laser eye surgery? toenail fungus removal? - that the $6B would never have gone through.
The merchant talked me out of purchasing through Groupon when I called for details and honored the coupon price after I had the free screening. Everyone 'won' but Groupon
I chose the front desk as easier all the way around. I was shocked that the dollar amount I was quoted included tax (I'm in California).
As for cost/profit - it sounds like base cost in the facility is around $300 / eye, as this is what I was quoted as a 'redo' if it wasn't working well at the 6 month period. so $1800 - $600 = alot of 'profit' from a customer. the overhead for groupon rate seems negligible compared to the cost of acquiring new customers.
Groupon coerces local businesses into signing up with ridiculously high discount rates with promises that it's "getting people in the door" -- the gut reaction of the business is to sign up and then maybe some of those people will be repeat customers!
Except most Groupon customers only signed up because it was crazy cheap. A bouquet of a dozen roses for $10? They'll buy that. But a regular price bouquet at $40? Nah. Very few will be repeat customers, and likely not enough to cover the loss that Groupon's high discount cost the merchant. Also, Groupon takes anywhere from 40-60% of the deal, plus a "credit card processing fee" that's usually 3-4%.
Also, a big mistake (in my experience with Groupon) is that they do not have an API for merchants to use. They should have allowed point of sale developers to integrate with the Groupon redemption system. As it is now, the whole redemption system can be a royal pain for a small business to account for correctly in their POS system.
They sold these merchants a fairy tale about repeat customers - a too-good-to-be-true fairy tale that merchants failed to verify on their own, and got burned.
Now sufficient people have been burned that many merchants no longer take Groupon seriously. That's fine, and that's the system working as intended.
> "They should have allowed point of sale developers to integrate with the Groupon redemption system."
This is much, much bigger thing than you suggest. For one thing, most "point of sale systems" at small businesses are cash registers. They don't get firmware updates, much less an internet connection and programmability.
For point of sale systems of higher sophistication (a restaurant, say), these systems are highly custom, closed as all hell, and integrating anything into them without the express an dedicated intent of the original vendor is pretty much impossible.
This is also why all attempts to disrupt the restaurant reservation/management space have been so far unsuccessful. Integrating web-age software into extreme legacy meatspace systems is pretty much the hardest problem that could be presented to a consumer internet company.
Groupon can pull every engineer they have into this, chew on it for 2 years, and barely make a dent. Hilariously enough, the feature you're talking about is bigger than most companies.
Another factor is that many businesses that try these steep discount programs is that they are already on the rocks.
Another factor that bites merchants: refunds. Supposedly, when you mark a Groupon code as "redeemed", Groupon won't refund the customer's money without contacting you first. However, they sometimes still refund the money and try to deduct it from your final check (which, for most merchants IIRC, is 60 days after the close of the deal). This causes a lot of headaches for merchants that have hard costs with their deals (product, inventory, etc). Sadly, some number of Groupon customers request refunds even after redeeming their deal. They are stealing, basically, and the merchant is the one that suffers.
> api stuff (couldn't find a good quote to pull from your awesome points, sorry!)
That's true for a lot of those markets you mentioned, definitely. A full-fledged API would likely be difficult. There are other businesses that would benefit, though, particularly some franchise units that are starting to use web-based POS systems (per the last International Franchise Assoc conference I attended).
If you were a local franchisee of a tanning salon, and your franchisor-provided POS were Groupon-compatible, I'd think you would be more apt to sign up.
The merchant console for Groupon is actually very basic, there's not a lot to it. You sign in, view your deals, and can mark individual Groupon ID#s as "redeemed". We wrote some terrible code to mock it into an API for our franchisor system, using screen scraping and other monstrosities I am NOT proud of. Do not open groupon.py.
I'm not saying Groupon is doing well, but to suggest that they should have just sold to Google here is wrong; they still got their payout (the IPO) and they still have their company to boot.
People might be enticed to frequent a merchant outside of their normal shopping area to take advantage of a deep discount, but very few will permanently expand their shopping area.
I suspect most merchants don't see a permanent increase in repeat customers.