| >>It was the first big success in its space Success that is not sustainable is not success. >>and a lot if its downfall comes from how easy it is to copycat it. No, I don't think so. The real (and perhaps the only) reason Groupon is not sustainable is because the fundamental assumption that the business model rests on turned out to be false. Let me explain. The original idea was that Groupon would team up with a business and provide deep discounts to consumers to encourage them to try out that business. The assumption, which Groupon's sales folks used aggressively to push sales, was that a significant portion of those consumers would like the business so much that they would become repeat customers, thereby (in the long run) offsetting the cost of the original discount. In the end, the business would turn a profit. Except it didn't work that way. What ended up happening instead is that the vast majority of consumers never actually went back to the business. The reason is simple: while they could justify paying X dollars for the business's product or service just to try it out, they couldn't justify paying X times three or four. Because of this, most Groupon clients (the businesses) end up losing money, and never offer a second or third discount via GroupOn. This is why GroupOn has such a huge number of sales reps: they need an ever increasing number of clients in order to postpone the inevitable sinking of the ship. |
That's false.
in Q3/2011, 33% of Groupons merchants were people who were doing it for a second time. That number was up to 56% in Q1 of this year.
The deals are getting less lopsided-- $12 for $24 at a restaurant where it's challenging to eat for anything less than $50 is a pretty good buy for a restauranteur. With most of their costs tied up in fixed costs (real estate, etc), they aren't losing much (if any) on this a deal of this size.
You're also somewhat wrong when you say, "The original idea was that Groupon would team up with a business and provide deep discounts to consumers to encourage them to try out that business."
That was part of the original idea, but there are a few other benefits. 1) Filling empty seats for businesses whose costs are largely already incurred 2) It's an effective cash advance for the business- they recognize the revenue quickly (it's like a Kickstarter campaign).