Saturday, December 18, 2010

Thoughts on Groupon

WSJ has a long-ish, somewhat breathless, article on Groupon. I did read it with interest, as Groupon has been slowly impinging on my awareness. I have been somewhat skeptical, though. Part of that is because my introduction to Groupon was through an article that talked about Groupon nearly bankrupting a local coffee shop. The other reason is that I have gotten to the point of bargain-hunting fatigue--I am tried of promotions, and coupons, and marketing, and deal-seeking. I still want to get things for the lowest price possible, but I want to expend the least amount of energy doing it. So I tend to prefer the Sam's Club, Wal-Mart and Amazon model: reliable, everyday low prices.

Another reason for my resistance was somewhat theoretical and ideological. I am against the "high cost of modern living" (whatever that means). So I am really only interested in commercial innovations which take cost out of the system. My initial reaction was that Groupon doesn't do this at all. However, in reading the article, I see that it does have some potential, in that it creates very, very targeted advertising. The cost-per-ad-impression is quite high, but the value per ad impression is literally orders of magnitude greater than in traditional advertising, even compares to Google's search-based advertising.

So based on the fact that is is more theoretically intriguing than I thought, my sister's success stories (note: she is much closer to core demographic than am I), and the general buzz around it, I will check it out. In the meantime, a few thoughts:
  • From a purely financial perspective, I question passing up the $6 billion from Google. To recoup that, they would have to make $100 in profit (not revenue) from 60,000,000 people. Conceivable, yes, but it is a pretty big hurdle. From a risk-reward point of view, I have my doubts. In fact, I wonder how they are funded, because I would think that if it was the typical VC route, their investors might have brought a lot of pressure to bear.
  • In light of the above point, maybe the founders should look again at all those Forbes magazine covers.
  • It is an easy model to copy. I would think a Google, Amazon of Facebook, maybe even Yahoo, could take them on, and leverage deep pockets to cut better deals with merchants.
  • I like the part about fanatical customer care.
  • Some of the Groupon 2.0 stuff--stores, non-curated, merchant-controlled Groupon pages--sounds like dilution to me.

2 comments:

  1. I've been receiving the daily emails and have yet to see anything worth using. It's just a email filler at this point. I think I may disconnect from Groupon.

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  2. When i first signed up last fall I found one great deal for me on Groupon and 2 on Living Social. Since then I get their deals every day and it's always just more of same, nothing that hits my sweet spot at all.

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