Not long ago coupon inserts on Sunday’s newspapers were the easiest and probably most common way to save on thousands of products and services from free Big Mac’s at McDonalds to casual dinners at Olive Garden. But today the social media phenomenon has revolutionized the coupon industry. Sites, such as Groupon.com, provide to their subscribers a daily offer on restaurants, spa treatments, movie tickets, etc. via email or smart phone. Then they rely on social media to spread the deal. If a certain number of people sign up for the offer then deal becomes available to all, if the predetermined minimum is not met no one gets the deal that day.
From a marketing standpoint this could be one of the most effective ways to really benefit from all the social media fever that has taken over the retail industry. For businesses is a great way to really convert “likes” into bucks. Business owners not only benefit from higher volume but they are also creating buzz about their products and services in the social media world. On the other hand consumers are taking advantage of great discounts without the hassle of clipping coupons and saving them on their wallets for months to later discover that they had expired weeks ago. The idea is definitely convenient, easy to use and could really save customers money. In fact, today on Groupon.com for $30 you get five Vector tanning-bed sessions or three spray tans at AbsoluTans, which has a value of up to $75. I guess ideal for the cold gray days were are having in Miami these days.
The business plan behind these sites seems to be very successful. According to a recent report on Bloomberg the top provider of online daily discounts, Groupon, has pushed into hundreds of new cities and doubled its subscriber base over the past three months. That has helped its valuation soar since December, when it turned down a bid from Google Inc. (GOOG) for $6 billion. The company now has 70 million users and reaches more than 500 markets, up from 300 when Google made its offer. The company is now in the talks with Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS) for an IPO of over 25 billion dollars.
But even though it all seems wonderful to Groupon, the company faces strong competition from dozens of sites. By just searching on Google for “Groupon competitors” I came across six different companies: Livingsocial, Gilt City, Buy with Me, Tippr, Juice in the City and We Give to Get. Without mentioning that after Google failed to buy Groupon it is striking out on its own, making many people wonder if the company is really worth 25 billion or if smaller competitors will soon become Groupon’s worst nightmare.
In reality there is no much difference between all the “social-coupon” competitors. They all follow the same business model and they even make their websites look very alike. At this point what will really differentiate Groupon from all the others is a huge $25 billion IPO, which will give the company an edge over competitors, generating enough cash to grow in smaller cities, partner with additional retailers, but more importantly buy out every small venture to consolidate its market share.
In the long run I believe we will see how there will only be two major players in the industry who are backed up either by large amounts of money as Groupon or by giant internet players like Amazon, current investor on Livingsocial.com. And even though social media will allow smaller firms to be created at the end it will still be a game of few.
Norberto Munoz
References:
- Deals Galore, Competitors Abound: A Primer On Groupon-Like Startups
Groupon is great. It gives you deals for popular things that people actually want to do versus doing or getting things for the good deal. I have actually used Groupon before, I have the app on my phone and computer. It is interesting to hear that Google was thinking to buy Groupon. Would have never thought that Google was interested in the company, I guess it is just another "experience" Google can offer for their clients. Interesting to see what will come next.
ReplyDeleteNorberto,
ReplyDeleteI agree with the idea that in the future it will become a game of few. The reason I see behind it is that many companies are looking for whoever is willing to offer a deal and whoever is willing to get one. For example, Groupon delivered more customer calls requesting additional information than Livingsocial. It all depends on how interested the company is in making their merchants happy. Also, groupon takes longer to payout the offers sold and that frustrates merchants.
I think Groupon is getting too cocky because they have some international market but as soon as Google and Facebook launch their versions other will be the lyrics to that song.
http://www.boston.com/business/personalfinance/articles/2011/04/03/coupon_services_aim_to_change_shopping_habits/?page=full
I don't see this as a game of size as much as I see it as a game of innovation.
ReplyDeleteI believe that the same way the VC's and AI's at GOOGLE (before going public), FB, GROUPON, and YELP, and foursquare see opportunity in their respective investments (look closely and you'll see a lot of overlap in all the previously mentioned companies' investors), they are also looking for ways to further innovate the wheel using existing technology.
This is the least expensive and most productive way of growing a startup into a public company. Did we already forget the story of Microsoft?! The Social Network is a story that has already been told many times before, simply under a different setting. Microsoft innovated the operating system, the office suite, and the video gaming world and has made Billions of dollars from it, all through innovation!