If Something Seems to Good to Be True, It’s Probably Not True. So What About Groupon?

Groupon: Runaway Success

Just a few short months ago the online discount service Groupon famously turned down an offer from Google.

The news raised more than a few eyebrows because of the amount of money the search giant offered to acquire the online group coupon service – a mind-boggling  $6 billion. Yes, that’s billion. With a B.

If you don’t already know what Groupon is, it works like this:

1 – A business offers a deal for its products or services with at least 50% off (thought discounts can be up to 90%).

2 – Groupon sends the offer round its database of users and they are asked to share it widely on social networks such as Facebook and Twitter.

3 – The business sets the number of customers needed to make the deal worthwhile for it – and the offer is only valid when that number is reached.

4 – Bargain hunters flock to your store/restaurant/business in an intensive, short period to redeem their vouchers.

The service so far is an astonishingly successful, runaway success story.

Baby faced boss man Andrew Stone decided not to check out with a hefty chunk of Google change in his hipper. Which suggests  he is super confident the service has a long-term future.

Perhaps unsurprising, since Groupon had revenues of $760 million in 2010; it’s headed for $4 billion in revenues this year; and has 70 million global subscribers.

The latest news on Groupon is that it is going to float on the US stockmarket – what is referred to in the states as an Initial Public Offering (IPO).

Bloomberg has reported Groupon is speaking to bankers about an IPO valuation of $25 billion (yes, the B-word again). That’s higher than the $23 billion Google achieved when it  went through an IPO and became a publicly traded company, subject to market regulation.

On a recent episode of This Week In Tech podcast, online luminary Jeff Jarvis asked a live crowd of tech lovers at The South by South West event: “How many of you use Groupon?”

His question was met with silence and Jarvis added: “Then why is it so big? I don’t get it.”

I share his bafflement. I struggle to understand how businesses can sell product at a fraction of the usual price and from what little money they take, then have to pay Groupon.

I also have doubts about how many of those bargain-hunters will convert to long-term customers.

When news of the Groupon IPO broke I put a question out on LinkedIn asking if other people shared my suspicion that it was grossly over-valued and likely to pop. Turns out quite a few long term web watchers and smart people whose opinion I value are equally bemused by Groupon’s success.

Maybe we have a shared cyncisim? Certainly I’ve always adhered to the view that if something appears too good to be true, then it almost certainly isn’t true.

I can’t shake that feeling about Groupon – but then, I’ve never used it, either as a business or a customer.

So I’d love to hear from companies or businesses which have used the service repeatedly and found it a great way to  build a new, engaged and loyal customer base.

Likewise I’d be keen to hear from any business owner or operator who has used Groupon – and definitely won’t be hurrying back to use it again.

If you have any thoughts or experiences to share, the comment section below awaits you!

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10 thoughts on “If Something Seems to Good to Be True, It’s Probably Not True. So What About Groupon?

  1. Pingback: If Something Seems to Good to Be True, It's Probably Not True. So … | Midia Social

  2. Hi Scott – this a good piece of analysis and I certainly share your puzzlement at the success of Groupon, it’s valuation and the raft of “me too” competitors that have sprung up with completely undifferentiated offerings. How many facials and fishy pedicures does the world need?

    I am aware of one firm of house cleaners in Glasgow that offered a deal through Groupon and that subsequently went out of business while trying to service the people who signed up for the deal. What was interesting was a) that the before price for this deal seemed to be grossly inflated to make it seem like a real saving and b) the headline and the fine print told very different stories about what was actually being offered.

    The cleaning company was apparently unprepared for the demand and found that it’s share of the money was uneconomical as staff dashed about the city to clean people’s homes. To add insult to injury, when Groupon issued the coupons for people to redeem they mistakenly directed people towards a similarly named cleaning business – it would be fair to say the owner of this business which had nothing to do with Groupon was spitting chips and that he would love to take action against Groupon for his own loss of business through his phone being tied up.

    There are any number of commentators who will say why Groupon might not be all it’s cracked up to be – and I would agree, but I do wonder if it is the ultimate recessionary business? Are hard pressed consumers who want a reminder of what the good-life used to be like being married up with hard-pressed business owners desperate for cash-flow (at almost any cost) to keep an unsympathetic bank manager off their back?

    It’s certainly going to be interesting to see what happens in the long run…

    • Cheers Murray – and wow.
      That is a stunning case study of what can go wrong with Groupon.
      I suspect there will be many more out there.
      One of our clients ran a massively discounted service, reducing one of its products from £690 to £105.
      However, they could not discount a £20 third-party service which was a necessary part of the packgage – and sought to make that clear on the actual offer.
      However Groupon managed to miss that detail when the offier was pushed out.
      The result was a number of disgruntled customers (who despite getting £690 worth of stuff for £125) were raging about the ‘extra’ £20 they had to pay.
      And guess who bore that brunt of that? (*clue* – it wisane Groupon!)
      Thanks again for the comment. I look forward to getting the full inside grift from you over a pint some time!

  3. The real problem here is business owners not reading what they are signing up to and throwing away their common sense. What most people don’t know is that Groupon takes 50% of the offer price. So let’s say you have a £100 service/product. Groupon want to offer that for £50. Of that £50, the business gets £25. So a product that was being offered at £100 now has to be serviced for £25.

    Too many businesses – just thinking greedily – went for it, either not realising the T&Cs or not tailoring the offer. And for that, I have some – but not a lot of sympathy. Businesses sign up for Groupon to make money. Groupon is in it to make money for itself. Let’s also bear in mind that companies can limit the amount of the offer – T-Mobile’s offer of 32GB iPads last week for £49 was limited to 1000 – so people not thinking things through – like in any aspect of business – can bite them on the backside.

    Groupon’s success is that it is a very simple concept – it’s nothing more than an email list with one email a day. Lots of people are skint, but people also like a bargain, so they dip in.

    Groupon can work for businesses – it’s a great way of filling hotel rooms and golf courses – but businesses need to think about what they are offering. I told a client of mine not to go with them as the basic deal was a killer. But we sat down and tailored a new package that sold 587 times, made money for Groupon and turned into a nice money maker for the client as well.

    You can make money from Groupon, but as with all things in business, you need to make it work for you and not just blindly run into it. But if any of the blind runners are reading this, I’ve got a social media course I can sell you for £10,000…

    • Hey Craig,
      I agree with most everything you’ve said.
      Groupon’s concept is head slappingly simple.
      It is a great way for a business to test the water with highly targeted discounts.
      No-one should rush in without first doing their sums and reading the small print.

      However, I’d still be amazed if the decision to turn down Google’s billions doesn’t come back to haunt them. And I’m still agog at that $25 billion IPO valuation.

      D’you reckon there might be the teensiest chance of a tech sector bubble? 🙂

      • The pundits say there won’t be a bubble2.0 but they would say that. Yeah, this stuff is being over-priced but Facebook will make the money and we’ll see a run after that where companies will fail to do as well. Groupon should have sold. Recessions won’t last forever and people will start to get fed up with some of the offerings. People will still be signed up but the emails will just be ignored.

  4. Like everyone says the business model is easy to understand and it’s no surprise given current economic issues that it’s doing well. That being said though my recent two experiences of using it have been far from ideal. I had a hotel break through it that had so many clauses in it that it was embarassing and we ended up leaving early!

    My second one though takes the biscuit. After ordering some photography I was then told that the business who took the orders couldn’t fulfill them. I was then informed by Groupon that I could not get a refund but only have Groupon credits! An issue I am still fighting now.

    I agree with Craig Groupon will rue the day they didn’t take the Google cash.

    • Hi Barry,

      Thanks for contributing. I certainly here more Groupon horror stories than successes.

      Of course, it may be that those who are coining it in thanks to Groupon (and they must exist!) aren’t shouting quite as loud as those getting the messy end of the stick.

      When this bubble bursts, I also expect they’ll regret turning down Larry and Sergey’s billions.

  5. Scoutmob is the ticket: no up front purchase required.

    I saw a few (Atlanta) business owners interviewed recently. There were very dissatisfied with Groupon: sudden intense flurry of bargain seekers with coupons in hand, driving in from across town, never to be seen again. The owners whinged on about not developing continuing, loyal, new customers (without mentioning differentiation or added value as enticements.)

    So it seemed that just like the coupneers, the businesses want more for less; that’s not a sustainable model in the micro or the macro sense. /..

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