The Best Groupon Deal Ever: 86.2% Off On GRPN at NASDAQ

http://go.bloomberg.com/tech-blog/files/2012/08/livingsocial...

I think the primary reason for their "downfall" was not lack of barriers to entry (there were none at first, but once industry is established, there are as you mentioned), but a much smaller market overall. i.e., the "group coupon" model was very popular for a short time, much more so than its long term steady-state usage.

Perhaps Groupon could do some better segmentation of their users. They must have quite a lot signed up, so why not offer many more deals overall, and each user gets the three deals he is most likely to buy. Also, you take a much smaller portion of the revenue so the business can survive. This way, Groupon would earn more through increased volume (it is kind of unprofessional to send a customer a similar deal six times a month - if I didn't buy it before why waste your reach to show it again to me?) In essence they would be a highly-tailored ad agency getting a small commission on a huge number of sales.

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.

I remember reading some articles back in the day about the profit margins for merchants participating in groupon 50%+ off schemes (i.e. slim to negative) and that people would turn generally up to take advantage of offers but not become repeat customers.

They went through their childhood years thinking they were going to take over the world, and not too long ago Google offered $6 billion for those dreams. No wonder investors still had some hopes that this was something more than an ordinary business of an ordinary scale. It's not.

If anyone would like to keep dreaming, AMZN was running over $300 million losses on a ~$600 million revenue every single quarter around the year 2000.

Not necessarily, it only would work if you can get repeat customers. There are many groupons that my wife sees that she would never have done if there wasn't a significant discount. These "cherry pickers" are what cause companies to lose money and make a Groupon not worth it. There was a blog/article by a woman who owned a Chicago yoga studio who was told she should do a Groupon. You can see her point of view at http://blog.tulayoga.net/2011/08/why-i-wont-do-groupon.html

Merchant submits deal to their local section, when people buy the deal it would rise in the section.

Sales and customer acquisition are usually a lot harder (and more expensive) than throwing up a website and hoping customers find it.

I think there's a few reasons:

1. Groupons have to be sold over the phone to merchants in order for Groupon to get the margins and volume it wants.

2. Local merchants just don't have a lot of time to spend learning software and monitoring stats. They can talk to a sales rep over the phone more easily than set up a deal themselves.

I suspect with the accounting irregularities and the stuff I see lately as deals - laser eye surgery? toenail fungus removal? - that the $6B would never have gone through.

They sold these merchants a fairy tale about repeat customers - a too-good-to-be-true fairy tale that merchants failed to verify on their own, and got burned.

Now sufficient people have been burned that many merchants no longer take Groupon seriously. That's fine, and that's the system working as intended.

> "They should have allowed point of sale developers to integrate with the Groupon redemption system."

This is much, much bigger thing than you suggest. For one thing, most "point of sale systems" at small businesses are cash registers. They don't get firmware updates, much less an internet connection and programmability.

For point of sale systems of higher sophistication (a restaurant, say), these systems are highly custom, closed as all hell, and integrating anything into them without the express an dedicated intent of the original vendor is pretty much impossible.

This is also why all attempts to disrupt the restaurant reservation/management space have been so far unsuccessful. Integrating web-age software into extreme legacy meatspace systems is pretty much the hardest problem that could be presented to a consumer internet company.

Groupon can pull every engineer they have into this, chew on it for 2 years, and barely make a dent. Hilariously enough, the feature you're talking about is bigger than most companies.