Groupon

Think before you discount

Until recently, “social media fatigue” has been the most dangerous “condition” that we social media marketers have had to combat.  Now, however, with the recent trend toward frequent deep discounts and coupon offers, we are risking an even more serious condition of “offer fatigue.”

Social media fatigue is of course of concern to social media marketers, but I think it will continue to be seen most often as simply an unfortunate side effect to the incredible advances that social media has brought to human connections and access to information.  Offer fatigue, on the other hand, has serious consequences for our brands.

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The Heart of Groupon’s Business Model

The heart of Groupon’s business model for their clients is not direct profitable commerce (it is only profitable upfront for Groupon). As many understand Groupon is not an ecommerce business. The business proposition that Groupon offers its clients is lead generation.

A very, very small percentage of Groupon clients make money when they generate all those sales. The business model here is aggressive acquisition through an engine that generates a huge amount of “hot” leads with credit cards ready. The challenge is to convert a workable percentage of those ‘loss leader” buyers into profitable customers and have a metric that covers the upfront investment.

There is a reason that the majority of their customers are small, local businesses. They do not have the upfront capital necessary to use more traditional acquisition models, and more importantly they are less sophisticated in the modeling abilities used to determine life-time value of a customer…. especially a customer acquired through aggressive discounting. So for now the growth is miraculous since so many are jumping on the bandwagon with Groupon recommended discounts that cannot possibly end up profitable for those making the offers.

If Groupon’s strategy is to grab the real estate now, and worry about how to evolve the model so that the businesses making the offers can truly benefit, then let’s wait and see how that is accomplished before final judgement is passed.

I am not saying that Groupon will not survive, and they certainly have a business model, although their sales for the year seem to be grossly overstated in many circles. I simply believe passing up what was offered by Google showed tremendous hubris and that I believe they will come to regret the decision… even if they never voice that regret or remain successful.

Ted Rubin

“Google’s Groupon Bid Rejected” BIG mistake?

Groupon is getting way ahead of themselves and I think their rejection of Google’s bid is a Big mistake. My 2011 prediction… Google buys Twitter!

Richard Bashara says: Ted I’m going to agree with a “but,” look at Facebook. Zuck’s had how many chances to sell FB? You can’t deny that Groupon has set a trend. Perhaps trying to stay on top of the wave could pay off.

And if Google doesn’t buy Twitter, I’d be quite surprised. Who knows, maybe Twitter will try to stay independent though. As a publishing tool, it’s clearly becoming more active than Digg or Reddit.

Ted Rubin replies: Twitter is incredibly concerned, as they should be, about how to sustain and monetize what they have. Google is incredibly worried about Facebook and how to penetrate and participate in Social Media/Marketing. Solves a critical problem for both.

As far as comparing Groupon to Facebook, I think the projectory of their growth is where it ends. Facebook competitors have many more barriers to entry than competitors to Groupon, and they control the hearts and minds of their members. Groupon exists only as long as they can provide such unsustainable discounts. With Google… the value of their local search and local relationships/workforce came in to play and made them much more valuable than as a stand-alone. IMHO

Ted Rubin

Analyzing Groupon Profitability: 7 Factors for Group Buying Success

I’ve had a lot of conversations lately about the strategy of group buying sites (or daily deals, flash sales, etc.). Groupon is the leader in this space…so much the word is becoming a verb. The questions I often hear are: How do you know if Groupon (and group buying deals) are right for a type of business? What are the factors that make Groupon a profitable strategy?

How do you evaluate and analyze the profitability of Groupon?

Already there are a lot of competitors with Groupon, and several more that are headed toward even more niche group buying capabilities, focused by interest, small city, or people groups. The group buying strategy will continue, and so will the conversation about this. But the model of giving a significant (50%+) discount on goods and services has its dangers. So it piqued my curiosity to analyze this from an economic perspective.

On the plus side, this is a pay-for-performance approach to customer acquisitions. And it’s a sudden and (mostly) predictable burst of new customers and revenue.

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