group-buying services

Sorry GroupOn But Group-Buying is Doomed

By Mark Evans in Social Media 6 Comments Tags: ,

Group buying 1I’ve never been a fan of group-buying or, for that matter, understood the group-buying phenomenon. In simple terms, it’s e-mail marketing on steroids, playing to the consumerism and hunger for deals that afflict too many people.

The problem with group-buying is there doesn’t seem to be a long-term win-win proposition. For consumers, the novelty of group-buying has to wear off after a certain period of time. At first, getting a massive discount seem like a pretty good idea. But, over time, the daily e-mails must get annoying, while many people never take advantage of the deals they actually buy.

For businesses, group-buying seems like a good idea as a loss-leader marketing tool but what’s the ROI as opposed to doing something that appears to do more for GroupOn, et al’s pockets?

In many respects, I believe group-buying is a digital version of the “Emperor Has No Clothes” in which people and businesses are getting sold a bill of goods. And as further scrutiny of GroupOn’s pre-IPO balance sheet increasingly seems to indicate, group-buying may not be the best economic proposition based on the idea that it takes huge amounts of marketing to motivate buyers.

It is fascinating that people forget that online group-buying is not a new concept. It popped up during the original dot-com boom but failed. The leading player was Accompany, which was co-founded by Toronto native Jonathan Ehrlich, raised $50-million before it disappeared. It would be interesting to see what he thinks about the latest wave of group-buying players.

My take is that group-buying as it stands right now is going to radically evolve into new and different models that are more consumer and business-friendly, while still giving some group-buying players the ability to make money, although the profit margins may be smaller. As much as GroupOn currently dominates the market, I would suggest its future prospects are, at best, uncertain.

In that vain, The Next Web has an interesting story on Munch Me, which is a new group-buying venture aimed at the restaurant industry.

What do you think? Is group-buying here to stay?

More: Business Insider has a post suggesting that group-buying isn’t dying, it’s just getting started. It talks about mobile being a big factor

Why I Wouldn’t Buy Into Groupon’s IPO

By Mark Evans in Social Media No Comments Tags: , ,

Groupon logoIf you could buy into Groupon’s $750-million IPO would you do it?

Most people would probably say “Absolutely” given Groupon’s strong brand and its dominance of the group-buying marketplace. Not me.

There’s no doubt Groupon shares will pop after they start trading but this will be a matter of supply-demand and the reckless enthusiasm of retail investors as opposed to a focus on fundamentals. You also have to remember IPO offerings tend to be priced to generate a first-day pop so investors feel better about their purchases and the company gets to bask into the glory of a successful offering.

But don’t be fooled by GroupOn’s market stature or the sexiness of its IPO. Groupon smacks of the crappy IPOs that suckered too many investors during the original dot-com boom.

Why the skepticism? Fundamentally, I don’t think Groupon is a good business with solid fundamentals. Its balance sheet clearly demonstrates it is spending way too much money on marketing to acquire new customers. In the first quarter of 2011, it lost $146.5-million after being $413-million in the red in 2010.

Second, it’s a business that will have a difficult time scaling. The company has more than 7,000 employees, and the more it grows, the more employees it will need.

Third, the marketplace is ultra-competitive and the barriers to entry are low. While Groupon is the market leader, there are plenty of strong rivals, including many who raised large amounts of venture capital. It means Groupon will need to continue to aggressively spend on marketing to grow or even maintain market share.

Fourth, I’m not convinced the group-buying phenomena will maintain its sexiness or appeal. For consumers, group-buying has been a novelty but pretty soon that will start to wear off. At the same time, many Groupon customers will fall off the bandwagon after realizing they haven’t taken advantage of the services they have purchased.

For companies, Groupon won’t make a lot of sense because offering deep-discount to attract customers on the belief they will stick around to buy products or services at regular prices isn’t a good way to do business.

Finally, the struggling U.S. economy will have a major impact on consumer behaviour. U.S. consumers have taken a cautious approach to spending so it’s uncertain whether they will be attracted to the kind of deals Groupon is offering, even if there are attractive discounts.

For more on Groupon’s IPO, check out VentureBeat, which has a cool infographic via Online MBA about the company’s history. BusinessInsider also has a good post looking at Groupon’s financials.

GroupOn IPO, Anyone? Count Me Out

By Mark Evans in Advertising/Marketing, Social Media 2 Comments Tags: , ,

GrouponSo, GroupOn is jumping hard on the IPO bandwagon in a deal that values it at $30-billion. There’s no doubt it will attract a flurry of investors hungry to get a piece of the action.

This group will not include me. Why? Despite GroupOn’s high profile and 83 million e-mail subscribers, I’m not convinced it has a rock-solid business or enough of a competitive edge to justify its valuation,

Truth be told, GroupOn is an e-mail marketing company that has enjoyed first-mover advantage to become the industry leader. These days, however, there is no lack of competition. The barriers to entry are low, many players are also well-financed, and niche players are appearing to make competition even that much intense.

Another thing that would trouble me as an investor is whether GroupOn’s service will remain appealing to companies using it to drum up more business. Sure, there are success stories of how a muffin maker attracted thousands of new customers by offering a free muffin via GroupOn. But there are also lots of stories about companies that have taken a financial bath because they were forced to offer incredible deals to satisfy GroupOn’s needs.

In other words, consumers love GroupOn because the deals seem so good – assuming they actually take advantage of the purchases they make – while companies struggle whether GroupOn makes sense economically.

At the same time, GroupOn has demonstrated it is a business that can’t easily scale. Last year, it had $710-million in revenue but it also employs 7,000. To support its growth, GroupOn needs to hire more people. At the same time, GroupOn also needs to aggressively spend on marketing to attract consumers and businesses.

There is no doubt GroupOn is an interesting business experiencing strong revenue growth. With a $30-billion valuation, however, I’m far from convinced it is a good investment or a slam-dunk long-term business proposition.

For more thoughts on GroupOn’s IPO, check out Business Insider and GigaOm’s Mathew Ingram who asks if “Is Groupon Selling Tickets to the Bubble Parade?” while highlighting that GroupOn continues to spend aggressively on marketing while it racks up losses.

For some other thoughts on the GroupOn IPO, check out this video. What struck me was someone who asked why GroupOn was in a rush to do an IPO because “we’re way beyond paying the mortgage here”.

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Is Group-Buying a Fad or a Reality?

By Mark Evans in Social Media 4 Comments Tags: , ,

A decade after its inauspicious debut, group-buying has become all the rage. GroupOn is worth a gazillion dollars and rejecting multi-billion takeover offers from Google, while LivingSocial is looking to raise $400-million. At the same time, a slew of group-buying services seem to be popping up here, there and everywhere.

It begs the question of whether consumers have discovered a new religion or whether group-buying is a fad that will be here today and gone tomorrow.

Before everyone dismisses the fad thesis, it is important to remember consumers like new and shiny as much as they enjoy good deals. But does group-buying have staying power? Once the novelty has worn off, does group-buying have enough to keep people engaged? Personally, the daily e-mails from GroupOn got tiring so I unsubscribed. The deals looked good but most of them weren’t relevant or didn’t seem worth the effort to buy them.

Perhaps the suggestion group-buying is a fad is overly dramatic but there is no doubt the market is over-heated, frothy and saturated with players looking for easy money. Maybe GroupOn and LivingSocial have staying power and maybe they’re worth their current valuations but the shininess of the group-buying marketplace is going to lose its lustre soon.

In the name fairness, here’s an interesting chart from ForeSee Results, which showed, by far, U.S. consumers prefer to hear about deals via e-mail, while social media services rank near the bottom, which is not surprising given social media is a soft sell landscape.

More: Here’s an interesting article in WebProNews asking whether GroupOn has peaked.

The Groupon Bubble is Going Burst

By Mark Evans in Social Media 26 Comments Tags: , , ,

Right now, Groupon is the cat’s meow – a fast-growing business with a valuation of apparently $6-billion. It’s the hottest thing (aside from the iPad) in the high-tech world, and attracting scores of wannabes.

But for all of Groupon’s success, it makes me nervous. Why? I’m not convinced Groupon has staying power. Sure, it’s uber-popular but how much longer will consumers be captivated by the flurry of deep-discount offers hitting their inboxes? Groupon is a novelty, it’s entertainment but is it the future of e-commerce?

My take is probably not. My sense is Groupon’s popularity and star power has peaked even though sales may continue to grow for awhile. I think consumers will start to lose their enthusiasm for group-buying as they discover that while the deals may be on the surface attractive, the number of services and products actually used is far from what they purchased. In other words, the numbers don’t really work.

At the same time, I believe many companies will start to question the attractiveness and economic sense of group-buying services. It’s sexy right now to give it a whirl but is there really a healthy ROI in offering discounts of more than 50% for products and services. Do enough customers who take advantage of these offers become regular customers to justify the cost of using group-buying services?

In fact, the entire group-buying phenomenon is fascinating and bubble-licious at the same time. It smacks of the original dot-com in which scores of start-ups launched themselves into a marketplace only to see the market suddenly retract.

For consumers, group-buying is attracting because we’re still getting over from the hangover of the economic downturn. Many people are still trying to behave like they should be frugal, although this doesn’t mean doing anything drastic like cutting off your cable or eating all your meals at home.

Groupon and other group-buying services let consumers eat their cake and have it too. They let people believe they’re saving lots of money while still satisfying their need to buy stuff – much of it they don’t need. When the economy starts to see a firmer recovery, you have to wonder if the allure of group-buying will begin to fade.

If I were Groupon’s founders, I would have taken the $6-billion offer from Google in a heartbeat. A bird in the hand is worth two in the bush, and my take is the group-buying “bird” is going to fly away.

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