Irecently had a conversation with a friend of mine who stated: “Everyone was so excited about Groupon some 5 years ago, but look now, it is all gone.”
I thought for a while and then I replied: “Yes, but also no.”
Here is my reasoning and I want to share it with the intention of opening a conversation on the way we consume in this smart phone era.
First of all, Groupon was and perhaps still is an interesting company that managed to disrupt the retail promotion and discount industry for a while. The principle upon which Groupon was base remains fairly easy to explain.
Step 1:
Find enough merchants interested in getting more clients and in exchange ask for some sort of promotion or discount.
Step 2:
List the promotions and the discounts in an app (web app as well as mobile app) able to consolidate and filter the listing according to the customer’s preferences.
Nothing too fancy in terms of business model, but certainly very much possible once the mobile application distribution became part of our daily routine. Prior than Groupon nearly nothing like that existed in digital form.
When I came across Groupon in 2011, my first critic to the business model was that such scheme tends to reward new “quick bite” clients, as opposed to (A) establishing long-term relationship and (B) build a database of loyal customers.
Here is why:
Loyal customers that have spent years purchasing or consuming from a specific merchant would have seen new customers getting better pricing and offers, generating a brand dilution.
At the same time, these new customers were usually “sharks” hungry for the lowest possible price and nothing more than that, hence good for some “quick cash”, but not great in terms of long term strategy.
One of the most tangible signs of the unsustainability of such business model was the occasional drop in quality from when it came to the merchant’s products and services.
Many cases broke into the news, such as a small cupcake company that after listing their offer on Groupon found themselves obliged to bake over 20 thousand cupcakes, which for such a small company was nearly impossible. Other cases that I came across with, involved a far lower quality in the food offering during offer time, such as smaller portions or different ingredients.
Lastly, merchants started restricting more and more the usage of the discount, removing the best selling items from the listing and locking the prime time out of the promotions.
Despite so, at the end of 2011 Groupon went public and collected $700 million in capital through an initial public offering (IPO), becoming the second largest IPO in history after Google’s one in 2004.
At that time Groupon was valued $13 billion, but the real monetary value struggled to be seen and appreciated.
It was a clear demonstration that finance and economy work and are perceived on two separate and completely different grounds.
A few years later the “fairy tale” of Groupon was over. The company tried to relaunch the same logic with an app called Fave, which works pretty much the same way, but narrows down the segment of the offers to substantially only Food and Beverage and Lifestyle.
Back to the argument with my friend. So is Groupon finished, or is Groupon very much alive.
Groupon is finished
Groupon managed to collect a number of media fiascos and handled them really poorly. That was a major impact to the business performance that until now is in a loss. A remarkable case was the tv commercial aired during the Super Bowl in 2011. In a mix of politics, human rights and cheap advertising, Groupon managed to stand out as greedy and opportunistic. Groupon was also under attack for a number of law investigations with regards to fair trade, including a class action in South America.
At last, the price of Groupon shares dropped by 80 per cent in the market from the $20 at the time of the IPO down to $4 in 2016.
Groupon is alive
The other side of the story is that Groupon has forever disrupted an industry, promotions and discounts, that was back then still running on punch cards and rubber stamps.
They managed to innovate a tradition as old as trade itself, by making discounts and promotions across merchants, instantaneously available to global consumers.
The legacy of Groupon might not be called Groupon nowadays, but from the ruins of a — once upon a time — innovative company, which was indeed financially overvalued, many other startups sprang globally and managed to innovate further the way we transact on a day to day basis.
Stefano Virgilli
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