The Sanity Of Crowds

Why Groupon Might Need to Discount Itself

I've been wondering whether social networking and business collaboration are coming together.  Sites like Facebook and eBay benefit from community and the power of crowds.  But is there any community in Groupon?  There are two aspects that make me wonder if Groupon will ever become a verb, like Facebook, Google and eBay.

Where is the Group in Groupon?

I haven't any emotional association with any other buyers.  I'm not in competition with them, and clubbing together to get a group rate is not what Groupon is about.  I'm only interested because there's a discount.

But even then, the business model is based not on the buyers of services, but on the willingness of merchants to sell their products and services at up to 80% discount.  Since the  money the buyer pays is split 50/50 or thereabouts, sellers are virtually giving their stuff away.  They either have massive margins, or more likely they are hoping to generate more revenue from the same person buying repeatedly at normal rates.

The idea of Groupon is cool.  Who wouldn't want a meal for four at a classy restaurant with wine thrown in for £25.  But if the restaurant is losing say £75 on the deal, they have to make the same people come back and spend maybe £150-£200 to break even.  That's a high price to pay for a new customer.  It would be interesting to know how many bargain-hunters come back and buy again. (BTW, I haven't bought anything at all so far).

If buyers don't come back, then merchants will not invest in same idea again.  To grow Groupon will need to keep adding first-time merchants - newbies who are attracted by the idea of fast business growth but don't know whether the strategy works or not.  Isn't that how Ponzi schemes work?

Can Groupon maintain it's uniqueness?

Because there's no community, there's no loyalty.  For Facebook to be unseated, a new and better idea has to emerge that will shift hundreds of millions of people, because the connectedness is what is valuable.

So Groupon can be replicated, and co-exist with other similar services.  There is nothing stopping me from using Groupon for my beauty treatments, and some other coupon seller for my leisure activities.  In fact, I can see Facebook, eBay, Amazon and other services that have an enormous, loyal followship adding coupons to give them new revenue streams, without making a merchant cut their costs so massively.  The existing connectedness of people who "Like" a bargain will create a viral sales channel.

Whilst I'm not about to delete me Groupon account (hey, I love a bargain), I can't see myself every paying full price for my fish pedicure, now that I know I could get it for a fraction by waiting.