Excerpt from a timely Groupon reality check
But Groupon’s growth may rely more on constant expansion to new cities and countries than repeat custom. A Rice University survey found Groupon deals were unprofitable for 32 per cent of the businesses surveyed; more than 40 per cent said they would not repeat the experience. And expanding, which requires people to liaise with local businesses and write advertising copy, is expensive. Groupon has one employee for every 12,000 or so subscribers; Facebook has one for every 250,000 or so.
As competition increases, meanwhile, Groupon’s first-mover advantage could wane. It does not have the key advantage of Facebook and Twitter, the virtuous circle of the “network effect”: the more people use a service the more valuable it becomes and the more its leadership is entrenched. Competitors can undercut Groupon and commoditise the burgeoning market in the process.
Groupon should have taken Google’s reported $6bn offer last year; by the time it reaches the public markets, its sweet spot may have soured.