Groupon – boom or bust?
In June this year, online daily deal site Groupon filed for an IPO at a price that valued the two-and-half year old company at more than $20bn, hoping to capitalise on the biggest investor stampede into web start-ups since the dotcom bubble burst a decade ago. Groupon takes a commission from the merchants that provide the services, and in the first three months of the year its revenue totalled $645 million. But it incurred a net loss in the same period of $103 million, as it spent heavily to expand, both by acquiring customers and by signing up merchants, leaving many people speculating that the Google buyout offer of $6 billion in November last year may have been a great (lost) opportunity for Groupon.
Founded in November 2008 by Andrew Mason, Groupon offers members discounts on everything from meals at restaurants to sky-diving excursions. In 2009 the company was a minor player, confined to just 30 American cities, with 120 employees, 2m subscribers and just $33m in revenues. By the end of 2010 it had become a global success, with more than 4,000 staff, 51m subscribers in 565 cities worldwide and $760m in revenues . They claim they want to “do for local e-commerce what Amazon did for normal consumer goods” .
But is this kind of growth sustainable? With many new entrants coming into the market almost anyone can set up a daily-deals site and many already have. There are hundreds of clones in America alone, most specialising in certain product categories. More dangerously for Groupon, big online firms have begun to enter the market, including Google , Facebook and LivingSocial , and it’s very likely that retailers and loyalty schemes (like Nectar or Tesco’s Clubcard) will pose a threat too. Also, while Groupon is enjoying the spotlight shining on other hot social media companies (such as Zynga and Square), it requires resources those companies don't - a huge sales staff to enlist merchants and handle customer service.
However, according to a Bloomberg/YouGov survey of 1,166 consumers, 19% of people who aren't currently Groupon customers said they plan to buy from the site in the next six months. Meanwhile, 90% of respondents who bought a deal on Groupon in the past six months said they plan to do so again, the survey showed , although other studies show that existing Groupon customers are purchasing fewer and fewer deals . Despite criticisms that merchants don’t like Groupon, many do multiple deals with the company, and the number of merchants participating in daily deals is increasing.
Groupon had a lot of success in its early stages, but the model of group buying has limited barriers to entry. Whether it can turn its popularity into profit is another matter.