Let me start by saying that Groupon is not for everyone. I dislike shopping and rarely go into shops, only going into one to buy something when I need something specific. Retail shops don't like people like us (they would all go broke if everyone was like me). They need the buy-on-whim shoppers like my wife who would pop into a shop and buy a new outfit or shoes without a reason.
Having said that, I am a GRPN addict and make a purchase a week on average if not more. Finding interesting stuff at a deal is a high. Even if a portion of the 38 million active users feel the same way, GRPN has a future. Buyers fatigue is a fair argument and at times the daily mail can clog up one's inbox. Despite that, users like me still open the email at least 4-5 times a week (I know a few besides myself).
I give you three reasons why I like GRPN right now and a final vision of how I see GRPN after Google buys it over.
1) Competitors are dying: Amazon's loss attributed to living space puts the nail on the coffin. While entry barriers are perceived as low in this business, unlike other internet businesses where user growth is considered more important and the networking effect of users rising above a critical mass is what is considered as the holy grail, I believe that in this business merchant growth and relationship building is more important. Entry barriers are not low to build this and one needs to spend money over time to physically build this network.
2) Being the largest has advantages: With daily deal companies dying by the day, coupon buyers are learning the hard way that having bought a holiday package from a company that shuts shop leads to no-holiday!!! For larger ticket purchases consumers are shifting to the biggest and strongest financially. Good for GRPN.
3) Argument against merchants not returning to GRPN: Many analysts talk about the merchant losing money on the groupon and not using GRPN again. Having signed on to longer term deals with merchants, I disagree with the argument that merchants lose money in the long run. Contrary to that, I find that GRPN offers small merchants the cheapest way to spread awareness of their existence. As a Singapore resident, I have used massages, acupuncture, A/C servicing amongst other things and signed up with longer term packages for some. If the merchant is good in what they do, they will find GRPN the cheapest way to get long term customers. If they suck, then off course they will close down eventually.
In addition, I find that human nature being as it is, we get bored of the status quo and are a curious lot, so once the package we buy from the merchant expires we will try another out. Thus implying that the merchant will also keep looking for new customers and coming back to use GRPN for the next set of customers.
Here is an interesting example of a large merchant using Groupon. Pizza Hut in Singapore started 6 new items on their menu. The Groupon offered any of the 6 with a drink at $9.95 verses $19.80, a 50% discount. 5000 people bought this groupon in 2 days. Assuming GRPN makes 50% of the $9.95 or approx $25k on this, and that Pizza Hut works on a 300% margin (i.e. the cost of the meal is $4.97) then, is this not a great way for pizza hut to get awareness to consumers about their new menu? If I like the new food item will I not go back to Pizza Hut (I never go to pizza hut cause find their pizza's terrible)? A win-win for Consumer-GRPN-Merchant.
The Future of Groupon
It's 1:30pm on a nice day in New York and you are walking down the street wondering what to eat. The Italian restaurant 2 blocks away is having a slow day with tons of tomato sauce that will go waste if enough pastas are not consumed by 3pm. The restaurant plugs in 50 arrabiata pastas available at 70% off for the next hour and a half on groupon-google. Your google android phone flashes the groupon to you and within minutes the 50 pastas are sold out to consumers within 10 blocks. Google maps shows you the way to the restaurant. Half the consumers also have a glass of wine (by then google has figured out which Groupon consumer likes Italian food and also their preference of wine).
Groupon today mass markets stuff to their 38 million active customers and counting. Soon they will start sending targeted mails based on an individual's preference. Combine it with Google, and for a certain type of customer (the 38 million and counting like me), GRPN-Google will know exactly what I like to do and take over how I spend my wallet.
In other words, in the future GRPN will target a deal at you based on
- Individual: who you are,
- Time: what time of the day it is,
- Location: where you are at that time,
- Habit: what you like to do typically,
- Options: which merchants close by have spare capacity to utilize or items to sell
- Matching: what you are most likely to buy
Disclosure: I am long GRPN.