Groupon is the deal-of-the-day website that has captured the online shopping world by storm. Brainchild of Andrew Mason, Groupon officially launched in November 2008 and serviced the Chicago market finishing the year with 400 registered users.
Fast-forward to today and Groupon is 44 million users strong, services 500 cities in 46 countries across the globe and is on pace to make their first billion dollars faster than any other company in history.
For those of you unfamiliar with Groupon and how it works here’s a quick rundown: Groupon offers one daily coupon to every market they serve. These coupons offer a deal by local business’ within each market. Every deal has a minimum purchase requirement for the deal to come into effect but once met, the deal becomes 100% valid and can be redeemed. Groupon sends out daily coupon deal emails to all 44 million of its users which brings the visibility to every deal.
Groupon’s system has a lot going for it. First, it’s free for everyone. There is no registration or membership fees for buyers and more importantly there are absolutely no fees for businesses who want to advertise their deals. Groupon makes 50% of the advertised deal price and the retailer walks away with a large quantity of new business. There’s no risk for Groupon, retailers or buyers. Everyone wins and this is a huge reason Groupon has grown the way it has over the last 3 years.
But as much as the Groupon deal-a-day concept has going for it, there are some limitations. “…we have to pass on seven out of eight merchants that contact us.”- Adam Mason on the amount of requests coming in. That’s really an amazing figure. That means a vast majority of businesses that want to get on the Groupon train get stuck at the station. With Groupon throwing away a majority of the business coming its way, it leaves a lot of business open for competitors to pick up. And there’s no end to the competitors lining up.
There are larger players like Living Social and Google Offers that have surfaced as head-to-head competitors but there are now thousands operating on more local levels showing up every day.
The Decline of Groupon
I’m expecting some flak from some of the opinions I’m going to express but there are some solid reasons for me to suspect Groupon will soon be in trouble.
I think just about everyone I know personally in the online marketing world either is running or thinking of running a deal-a-day website. Some of which are experiencing success but all have ideas to trump Groupon. This is a much bigger problem for Groupon than most are considering.
Smaller, more local and niche deal-a-day sites are the competition that Groupon has a real reason to be worried about.
Groupon is currently estimated to employ 7500 people across the world. The growth of the company has truly been amazing but this is the very reason it will soon find itself needing to scale back. In a company as large as this, quick on-the-fly adjustments are difficult and have far reaching impacts. This is where smaller deal-a-day sites will out-manoeuvre Groupon. Currently Groupon takes a 50% cut from retailers and this figure is pretty standard across the board on most deal-a-day websites. But there’s nothing stopping a strong local site to decide a 25% cut is good enough for them. Or less. This is already happening in the Montreal and surrounding areas where I’m regularly seeing smaller sites undercutting Groupon and its competitors.
Groupon has had a hard time entering the Montreal market with opponents like Tuango, MontrealontheCheap and RedFlag Deals all establishing a strong foothold in the market and there’s no reason to suspect the fierce competition won’t grow outwards.