Why I think Groupon is set to fail

by Robert Weatherhead, posted on 18 August, 2011 at 3:04 pm, filed under Social Media. Bookmark the permalink. Follow any comments here with the RSS feed for this post.

groupon set to failI’ve been saying this for a while, to anybody who will listen. I have a major issue with Groupon. Or should I say, with the furore around Groupon and the ludicrous valuation placed on it by both Google, and their predicted IPO.  

Now I don’t claim to be any form of start-up expert, entrepreneur, investor, or anything more than an observer of the start-up market. But to me, when somebody tells me about a new idea or business that is gaining traction or flirting with investment I think of two things:

a. Is the idea unique? Or at least sufficiently unique to have clear competitive differences.
b. How easy is it to copy?

If you have an idea that you think is going to be the next big thing these are, in my opinion, the questions you should be asking yourself.

If you aren’t unique, investors are going to be going to need to know what gives you the competitive edge that will generate returns. Groupon, to a certain degree, had this element. An adaptation of the age old coupon or discount voucher, but with the group buying element and scale. Couple that with their new media and social engagement and they tick this box.

The second point however, is where I think they will fall down. I struggle to think of anything they have got, which can’t be easily replicated, and probably done better. When you look past the coupons, realistically all they have is a distribution list, which they have had to work hard to build up. Focusing on this element I can see numerous companies and types of business who already have this.

• Google have gmail, an abundance of email subscribers who they could deliver an initial promotional message to, and build their own list. Why they felt the need to bid $6 Billion for Groupon (and why Groupon turned it down!) is beyond me.

• All of the main mobile phone operators have the telephone numbers (and emails in some cases) of a customer base far greater than Groupon could ever build. O2 have already launched priority moments in an attempted land grab, and Orange could easily extend their Orange Wednesday’s cinema deals into other areas.

• Classified companies such as Yell.com have heritage as a service locator that could be utilised quite easily.

And what’s more, none of these companies would need to make significant profit from such a venture as it would be an additional secondary revenue stream, or even just added value for their customers.

And as for signing businesses up for the coupons themselves, none of these companies would struggle too much given they all have existing business relationships to call upon. Groupon has needed expand its sales force by 35% in Q1 2011 and 37% in Q2 2011 to sign businesses up; these companies already have them in place with no further investment required to achieve sales. And in the case of Google, as the kings of the self-service platform, they could just integrate a solution into their Adwords platform and businesses could find it for themselves.

From recent commentary and the release of Groupon’s Q2 performance, it appears I might be along the right lines. There are many worrying numbers in the list, but most notably $24.08 cost per new customer and only $17.55 revenue per customer. It doesn’t take a genius to work out this isn’t the route to profitable success!

So what do you think? Is Groupon part of the most recent dot com bubble? Or am I just jealous I didn’t come up with the idea in the first place!

Rob Weatherhead is a Digital Marketing Professional covering Social Media, SEO, PPC and everything in between.