The rise and emergence of Internet has not only led to social networking and media but it has also triggered the launch and expansion of various businesses and industries that thrive and function primarily due to the Internet; examples including online retailers Ebay, OverstockNewegg, and Amazon and some more unique yet surprisingly successful online-based business that have been very lucrative for the creators, including Zappos, Santa Mail, and FitDeck.
One of the newer online businesses that have recently taken millions of consumers by storm is Groupon. Essentially, Groupon works with local businesses to offer a 'group coupon' to registered users if a specific number of users sign-up for the deal. Groupon works quite well for local businesses by granting them sales, traffic, and potential regular customers while Groupon users that sign-up for the deal enjoy substantial cost savings, and Groupon enjoys a portion of the revenues generated by the offer; it's a great trade-off trade-off for business owners. And not surprisingly, Groupon is not alone in this marketplace, competitors include LivingSocial, BuyWithMe.com, Tippr and the market place is heating up with Amazon investing $175 million into LivingSocial and Google's $6 billion offer for Groupon.
A Sample Groupon offer; Gourmet Donuts Anyone?
There are several reasons why the Groupon business model is successful, notably the benefits for both consumers and business managers; the mutually beneficial exchange relationship commanded by marketing. But with the technology's speedy pace of change, there is no doubt that Groupon will have to mold its business models to match the demands of consumers and business managers alike, whether it be offering specials that focus on user wants or expanding Groupon to other areas and levels, whether it be groceries or deals with larger businesses and franchises. Groupon users do not pay any membership fees but perhaps this feature needs modification. The ease and inexpensive entry barriers are yet additional constraints that the Groupon business model must combat. Groupon could potentially acquire or merge with other companies in the industry but even then, Groupon could quickly be replaced with another innovative and successful model that we can't even perceive yet. Five or six years ago, I never thought that toolbar advertising and search engines would be so widely used and profitable, and I don't think I'm alone. Groupon, however, could very easily be the future of commerce!
One way Groupon could potentially gain that elusive sustainable and differential competitive advantage is by offering deals and specials that are personalized to the users and notably, I believe this to be one reason why Google has so much interest in Groupon. The amount of information and data that Google has acquired about its users is frightening and raises privacy concerns but Google could very easily take the user and local business information that Groupon has and use it to evolve newer and more desirable offers for consumers and business owners. Google is known for its creativity and brilliance and by integrating a user's Groupon profile with the rest of his or her Google accounts and subscriptions, Google will only become more powerful and that isn't such a good thing. Like Google, Groupon currently outshines its competition but without adjusting its model, Groupon could easily lose market share and fade away. Competitors like OpenTable pose stiff competition for Groupon and factors such as regular clientele and lower expenses might lure business owners to opt working with one of Groupon's competitors. Groupon may very easily just be the latest consumer fad and quickly be replaced with a newer, more consumer-savvy online discount service, which makes Google's $6 billion even more valuable; selling seems like the best option for Groupon but who knows, perhaps Groupon's business model is just the underpinning for an even more compelling and flourishing business model, only time will tell!
Yes, I agree with you that Groupon has taken millions, especially North Americans by storm. In today’s world, where the Internet has a substantial role in the way business is conducted (e-commerce), the creators of Groupon brilliantly “digitized” the use of coupons which has been effectively used by business owners since the days of ValPak, Money Mailer, SuperCoups and so on. Merchants locally, have long advertised in newspapers, shared and direct mail, to boost foot traffic to their stores locally. And now with Groupon’s model, its just as effective as this has been proven from research as about two-thirds report profits through offering these group[coup]ons (see my latest blog post for additional information). But the difference lies in the reserve policy Groupon and the business entity has placed regarding the minimum number of customers that need to be enticed by the coupons. So a “you scratch my back and I scratch your back” adage is in play here. This might very well be the future of commerce as you suggest in your article.
ReplyDeleteThe aspect concerning the possibility of a customized Groupon-Google profile would be very scary. Amongst the plethora of capabilities Google already offers today, they have long dominated the way searches are conducted on the internet. It could mean pushing consumption preferences to the user of Google based on demographics. But my concern here is that if Google were to really acquire Groupon, should they offer more daily deals in a city, customizable as you suggest, so that more consumption of these goods or services are encouraged? Will it erode profits, or it will be great for local businesses as more and more of their existence will be raised through local awareness? I raise this point because currently, the way Groupon operates is one deal per day per city. Groupon wants to realize profits by reaching the minimum number of buys. Consumers who log on and notice the great deal savings for the coupon promoted might face a hard chance of passing up on the deal and thus feel obliged and then buy. There is no opportunity cost; thus no alternative forgone! Splitting this number of buys over three separate deals over the course of one day might create just that opportunity cost Groupon’s model strategically lacks. Consumers would rank the multiple deals according to preference and buys become distributed based on weights. At the end of the day, minimum buys might not be met on all three deals. Groupon becomes unhappy and unprofitable and so does the local business.
I personally feel Groupon should not sell to Google as there is the potential for Groupon turning into a giant like Facebook and Twitter. The just have to constantly update their mode of operation as they are currently doing in this article you mentioned. Or they can recruit me as I have strategies they can implement in sustaining that competitive advantage they have over their competitors...especially dealing with the massive list of businesses eager to be featured in one of their daily deals.
I agree with you in the fact that if Groupon doesn't keep up it's innovations and it's ability to compete in the market it will certainly loose it's place; never the less they have grown very fast in their long career, up to the point that it's founder has armed his staff with some of the best code developers and writers to continue developing his star product. The million dollar question is what would they do next?
ReplyDeleteI believe that even though the innovative competence, Groupon has a great plus as it has reached an incredible growth and expansion around the globe, if it uses this competitive advantage to develop even more creative ideas in order to maintain and attract new customers it surely will keep on its pace, by doing so it will become even more powerful and valuable….not an easy task but possible for a well positioned company like Groupon… as you said just time will tell.
ReplyDeleteGroupon can become the fastest growing company ever. Their concept of business is pretty cool and new. However it seems its not alone in this model and there are many more competitors who were there before Groupon . I wonder why they were not successful and what is new in Groupon which is making people crazy . I agree it brings new deals and more businesses to local vendors. Have better negotiating capability and cheap deals. But my wisdom says its just a bubble blown out of proportion . There are companies like Google and Microsoft who can use their expertise in terms of technology and Data to come up with something much more lucrative and challenging . It would be not a bad decision for Groupon to accept the Google $6 billion offer and grow faster. Otherwise they would be stagnated unless they find something new again.
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