Their base model, the "groupon" is so very different than a coupon. The "cash up front" nature of this model is where they can build support via the companies who supply them. The hard part for the "newbie" GRPN user is getting over the fact you have to pay up front for the discount. Once that issue is understood and the fear is overcome, GRPN's users tend to use it more and more. I don't see many problems from the consumer/user end... it is on the merchant side where it seems to be failing. The return rate for merchants who offer a groupon (or similar offer through a competing deal aggregator) is very low and not improving much. They're determining, for the most part, that they gave away too much for the boost in business they see after the deal is done. The problem I see on the consumer side is the lack of diversity of product categories. While on the face there are many categories, the vast majority of deals that are truly deals fall into the high-margin services, such as yoga classes, massages, dental treatments, hair salons, etc. Groupon has been trying to fix this by pushing various "goods", but the competition there is intense, margins much lower, so the deals aren't really deals at all.
One of the key elements of this service is for the business who's offering a discount to build a relationship with the customer using it. If the business is a restaurant and they reduce portions or service because the person has a discounted meal, well that's a failure of the business. If they understand that this one meal is a "loss leader", in the same context as a grocery store who sells milk below their cost to attract customers, then they'll do better, IMO. I agree with all you said. The problem is that the merchants haven't, at least thus far, done that well enough.
As to "competing with AMZN", it's my opinion that it's way too early in the process to see it this way. Yes, they must create distribution facilities and build the proper management infrastructure for their product to be viable. This is true of any business... True, but Amazon has one heck of a head start and has spent countless billions. Even powerhouses Walmart and Costco are suffering at Amazon's hand. I don't see how Groupon will stick around and have the capital to build as needed to be competitive with mainstream goods.
I appreciate your skepticism but I think you've been off base on how to view companies like this one. Certainly, you have missed the last 30 or 40 points in FB by not believing in their approach. I have to wonder if you aren't missing the boat here with GRPN as well!! Thanks. I have missed the last ten points or so, but unwound all positions a few quarters ago when they began to increase the ads in their feeds (for I knew this would boost revenues, at least temporarily). My stance on FB remains the same... unless users begin to spend with the advertisers, the advertisers will ramp up spending only so far. It's been sort of like QE for the past year... more ads and popularity bringing in more advertiser revenue, but without the underlying support of real users buying the products. |
