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I think it comes down to a few factors: 1) Their sales and marketing expenses are incredibly high. 2) I think the kind of deals Groupon does only work for som
by suresk 14y ago
I think it comes down to a few factors:
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.
- jmilloy 14y agoIt's strange to see both 1 and 3. If the expenses are inherently incredibly high, then there couldn't be a low barrier to entry. Why are groupon's expenses so high, then?
- taybin 14y agoMismanagement can cause 1 as well.
- VonGuard 14y agoFrankly, I think ya'll hit the nail on the side, but not collectively on the head. Take a little from column A, little from column B, and we can see the real problems with Groupon. As one commenter said, they only work for certain merchants with high markup. This is why there's so many Chiropracters and massagers on these deal sites. Trouble is, all those services are once a year kinda things. Thus, you get one massage on Groupon or Amazon or whatever, and then next week they;re hawking another massage, are you gonna get it? 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.
- robk 14y ago1) Newly funded companies have fresh pots of capital to invest in online marketing. The auction dynamic of most online marketing tools means a new entrant drives prices up for everyone. 2) Other new entrants have local advantages (existing salesforce, merchant relationships) which are harder for Groupon to counter. 3) New entrants often heavily discount in their launch phase, further hurting Groupon competitively.
- Retric 14y agoIt's expensive to setup and run a car factory, but while it's expensive to run massive call centers they are fairly cheap to setup. Thus, low barrier to entry.
- MattRogish 14y agoAlso, LivingSocial has turned out to be not nearly as valuable as Amazon thought. I don't know if that means this is a terrible business, but it certainly implies that it's a very tough one.
- neya 14y agoThank you for your valuable insight. All of your points are pretty valid :)
- modarts 14y ago"1) Their sales and marketing expenses are incredibly high." 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.)
- Tloewald 14y agoI think that Groupon's customer churn has always been huge, one of the reasons many investors though it was not a good bet.
- jskopek 14y agoThat points to a bigger flaw in the Groupon model, namely that most businesses who try a promotion end up coming out disappointed. There are a number of reasons for that - bad planning on the retailer's end, excessive promotion fees for Groupon, and so on. 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.