Why Groupon Works

Google’s recent reported $6 billion bid for Groupon — rebuffed, for now — took observers by surprise and worried the company’s investors. James Surowiecki analyzes the deal and Groupon’s business model. “Groupon, by contrast, is a much more old-school business. It doesn’t have any obvious technological advantage. Its users don’t really do anything other than hit the ‘buy’ button,” writes Surowiecki. “And its business requires lots of hands-on attention: thousands of salespeople to sell to and service local businesses, copywriters to come up with the right pitches for customers (Groupon’s clever ad copy is one of its selling points).” Despite these caveats, Surowiecki points out that “[t]hese days, the Web is full of good, solid businesses that may not be remaking the world but that are helping give people what they want. If that’s what Groupon ends up being, well, there are worse fates.” [%comments]


MRB

Good for them. You don't always need to reinvent the wheel.

KewZee

"...help give people what they want" is exactly the selling point Groupon provides me. The service gives me deals in things I'm interested in (such as restaurant discounts, show tickets, etc.) that I wouldn't find anywhere else. Today, it's $51 for 51 issues of the Economist, WITHOUT any current student prerequisites. See if anyone can find a deal that good for that magazine elsewhere.

jonathan

groupon's bigger problem is that summarized in a piece in this newspaper recently and confirmed by a number of people I've spoken to about the cost of using them: it's really high. Like really high, like losing money high unless you put a really big value on what you may get from a new customer you bring in for future repeat business. This is true for businesses like restaurants who have a cost of goods and services and less true if you're dishing out extra capacity at a show. This suggests they won't have much repeat business from their business customers without lowering margins.

David

@jonathan (#3) - According to GroupOn, a majority of their customers want to be featured a second time so I guess your last suggestion may be wrong.

Jason Roth

I question whether Groupon's ad copy actually works, or if it's simply the nice, lound-and-clear, clickable offer that does the trick. (I.e., I believe the copy style neither helps nor hurts.)

Their copy is ponderous to read, clearly written by the frustrated artist and/or humorist type who would prefer to babble than sell. Way more copy than is necessary, and most of it is tedious, unfunny blather.

Rob T

GroupOn is a great service but they are very good at getting you excited by 'a deal' that is only a deal if you would have bought the product or service anyway. For example, am I going to the local symphony because I love the symphony or rather because I think the the symphony is Ok but the tickets were 57% off?
The tipping part can 'suck one into to purchasing' as well of course.

Ulysses

The ad copy is unreadable. It's the same "ironically detached" template with every single one. I'd hate for that to be my job. For the most part you don't need to read it to get the gist of the deal, and in some cases you may want further details than the raw numbers on the coupon, but in those cases there's usually better information located within the discussion.

Fran

I love Groupon and I love Google, but I am glad Groupon turned them down. Groupon has a great business model that so many other companies have imitated. They offer great deals and have excellent customer service. Their ad copy is for entertainment, but personally, I get all the info I need from their easy to understand banner at the top detailing the deal. Groupon is the ONLY daily deal site I subscribe to.

Tom Kelly

Groupon's profits will be competed away. There is absolutely nothing about it that cannot be easily duplicated- and for way less than 6 billion. Groupon's CEO may go down as making one of the most bone headed decisions in the history of business to turn down Google's big bucks.

casey

My assumption is that somewhat over 50% of Groupons purchased never get used... which cuts down that loss really quick.

I don't think Anyone believes they are going to save $18,000 when they buy an Entertainment Book. (I buy one even though I probably use less than 1% of coupons)

Leslie

I agree with Tom Kelly here - good for Google bad for Groupon investors. Many supply-side providers will not return because the campaign either cost too much or it met their goals for promotion (note Ezzie, kind of). Groupon's gimmick won't work when the suppliers peter out. On the buy side, the novelty wears off and Groupon purchasing certainly looks less attractive when all that's left is discounts on tax preparation. Some markets like NYC may be large enough to keep supply side interesting, but in 2nd tier markets like Minneapolis, Groupon is a flash in the pan - a dazzling one - but still short lived.

Otter Pop

If Groupon's cut is 50%, and most sale items/services are discounted by 50%, then in order to break even marginal cost needs to be <25%. Seems a rather expensive promotion otherwise. Of course, it would be handy if you need to dump inventory.

East Bay Broker

In this economy, lots of small businesses are just another month away from bankruptcy. The house is leveraged, the credit cards are at their limit. Can't Groupon become the ultimate hail mary pass? " I need cash NOW; paying 75% profit (50%-off coupon; 50% "fee" to Groupon) to someone else in exchange for a cash infusion NOW is worth it. If that high risk play gets me through to the other side; great. If not, I'll know I tried everything."

The gap between hail mary pass and fraud is just a matter of intention.

Even if Groupon can argue in court they can't be responsible for knowing that their biz partners were highly unlikely to survive to redeem the coupons, I'm not sure they could survive the PR disaster.

Ron Welby

Look guys they are kicking butts all major markets. Go after them or stop complaining. One more market traditional media let slip away! A number of my clients are using competitors to gain back market share! What are you doing?!