1. Groupon is bringing offline local businesses online. The same way Google brought small advertisers/small businesses online.
2. Groupon could be a useful way for business to get some cash up front for future customers. That cash may help small businesses expand, instead of taking loans to expand.
3. Groupon cost of small businesses could be useful marketing cost since Groupon deal reaches out to many local customers.
Further, this article itself mentions "Note massive competitors like Google, Facebook, Walmart, Opentable, etc. already doing their own versions of daily half-off deals". As people have said "imitation is the best form of flattery". So many Groupon clones show that there is a demand for such a service from both small businesses and consumer sides.
However, some of the accounting practices of Groupon and the way Groupon used recent investment money seems unusual and have raised a lot of eye-brows.
1: This isn't exclusive to Groupon, and I'm not sure they're doing anything that CitySearch and AOL weren't doing in 1998.
2-3: Purely anecdotal but I've heard too many horror stories of small businesses being screwed by their groupon deals, essentially losing money on the discount and not attracting enough repeat business to justify the deal in the first place.
The problem with the model is that it attracts customers who are focused on price, not value. That's at odds with the proposition behind many specialty stores and boutiques (eg vinyl records, hair salons, upmarket clothing, etc).
Groupon as a standalone business just digitizes those local coupon books that used to come in the mail or be sold at bulk for ten bucks or whatever. That's a good web based business but not a great one.
There are also many stories of businesses that did well. It probably depends on the kind of business, and exactly what the deal is. The local NPR station did a story on this a while back, and looked at a couple businesses and how it worked for them.
One that was a success was a small auto repair shop. They did a Groupon deal for $30 oil change for $10, so they were only getting $5 out of it which doesn't even cover the oil. They expected to get about 90 customers. They got 2277.
After three days of not sleeping and throwing up everything he ate, the owner snapped into action and bought a second car lift, added more staff, and scheduled appointments for all those people (which had people scheduled out for 8 months).
Overall, it worked out. The owner told the reporter that before this, he was driving a '93 Ford F150. Now he's got a Mercedes convertible and his wife has a BMW, both paid for. Sales are up $200k over the previous year, and half of the people from the deal have become repeat customers.
Compare this to the other business they looked at. This was a cafe that sold crepes and coffee. They were trying to get people to think of them also as a dinner place. They did a Living Social deal that for $40 let you come in six times (no more than once in a given month) for two entrees and a bottle of wine or a drink of your choice.
They got 1200 takers.
Like the auto repair deal, this one is a loser, depending on the customers buying other things to turn it around. Unfortunately for the cafe, the customers with the deal did not buy other things. They would not buy appetizers or desserts. They would just come in once a month for their six months, get their two entrees and a drink, and that's it. The owner says she lost $100k.
This was a cafe that sold crepes and coffee. They were trying to get people to think of them also as a dinner place. They did a Living Social deal that for $40 let you come in six times (no more than once in a given month) for two entrees and a bottle of wine or a drink of your choice.
They got 1200 takers.
Like the auto repair deal, this one is a loser, depending on the customers buying other things to turn it around. Unfortunately for the cafe, the customers with the deal did not buy other things. They would not buy appetizers or desserts. They would just come in once a month for their six months, get their two entrees and a drink, and that's it. The owner says she lost $100k.
This blows my mind. The cafe owner should know exactly how much she is spending for each deal that is purchased. It's a marketing expense; each deal also has some estimated upside (repeat buyer, up-sell on the original visit, etc). By not placing a limit on the number of deals sold, the owner gave herself an unlimited risk. Why not just place a reasonable limit on the number of deals, thus capping the potential exposure to an acceptable level?
I'm curious if Groupon has some minimum discount levels, because I frequently hear that people lost a lot of money on Groupon, and logically if you're going to lose a lot of money on a coupon you're offering, you won't offer it. Obviously some reduction in margin is necessary, but if it actually costs money to provide the service after the Groupon, that's a bit past the point of reasonability. The same rules that apply to traditional coupons should apply to Groupon because it's a similar target audience -- coupon clippers have never really been known to be "great customers".
Is there a reason so many businesses provide such deep discounts to Groupon? Are they just caught up in the hype, and Groupon can demand huge discounts because so many merchants want to use it?
If everybody else is offering a 70% discount and you're offering a 15% discount, chances are people aren't going to bother looking at your offer. Also since there is a certain amount of hassle and risk (if its a business you've never used and heard nothing about) in using Groupon from the customer side of things, I'm guessing most people won't bother if the discount is to small. Saving 15% just isn't worth it, especially if you're saving 15% at place you're not even sure you really want to go to.
1. This is good, as long as these local business are being educated on the benefits/risks vs just being told it's good overall.
2. Groupon deals are used as a marketing tool to (hopefully) attract long-term customers/develop buzz. Merchants lose on every deal so I don't know what you mean by "cash up front".
3. Look at #2
Imitation may be the best form of flattery, but it may also just indicate that everyone is jumping into a hyped up market. Look at the aftermath of all the social networks. Except that Groupon doesn't benefit from user loyalty effects.
IMO, it's unsustainable growth in it's current form. I think they can develop a profitable business (as they did before), but sustaining that hyper growth curve....not so sure.
I don't understand what Groupon hoped to gain with it's "first-mover" advantage. Everyone I know (including me) who buys groupons does it just because they give the best deal for a specific business, not because I'm somehow loyal to Groupon. I will just as readily use Living Social or Buywithme or whatever other coupon site is out there. Until they fix this, the market will just be saturated with more and more players. Race to the bottom.
When a deal appears for a business on Groupon, people buy those deals that day and visit that business later on. That's what I meant by "cash up front".
Yes, I agree with you that barrier to entry is very low. However, Groupon has so many businesses lined up (since they have maximum reach) that Groupon can choose the best deal to offer to customers. That's the advantage Groupon has compared to others.
1. Groupon is bringing offline local businesses online. The same way Google brought small advertisers/small businesses online.
2. Groupon could be a useful way for business to get some cash up front for future customers. That cash may help small businesses expand, instead of taking loans to expand.
3. Groupon cost of small businesses could be useful marketing cost since Groupon deal reaches out to many local customers.
Slightly old but interesting read on this: http://www.evanmiller.org/is-groupon-the-next-google.html
Further, this article itself mentions "Note massive competitors like Google, Facebook, Walmart, Opentable, etc. already doing their own versions of daily half-off deals". As people have said "imitation is the best form of flattery". So many Groupon clones show that there is a demand for such a service from both small businesses and consumer sides.
However, some of the accounting practices of Groupon and the way Groupon used recent investment money seems unusual and have raised a lot of eye-brows.