GroupNOT

Why is Groupon the darling of the online world right now? What on earth made Google offer them a billion dollar deal? What on earth made the Groupon board reject the deal? Surely they must want to get out quick from a business that's got a very limited lifespan.

It's got a limited lifespan because it's got too high a cost base, it's clients (those providing the deals) will get tired of providing such heavily discounted items and Google will write the same functionality into their search engine with Groupon-like deals showing up in the same line as search results.

Groupon survives on getting cut-price deals for its customers and taking an additional, but not insignificant cut from the price customers pay for the deal. So, should a successful business use Groupon as a way to drive up customers? Not unless they were mad. Say there's a restaurant that is busy most days. A Groupon sales rep pops in and suggests they run an offer, say 50% off a meal for two. Groupon takes a cut too so the restaurant gets say 40% of the actual normal cover price. The offers can be taken up over an agreed period of time, 6 months isn't uncommon. So the successful restaurant that has no problems getting customers is going to have a load of customers through its doors in the next 6 months for whom they're only going to get 40% of the normal cover price. A great deal for the customer, not so great a deal for the restaurant, it's not even going to boost their trade over a short period of time that might normally be quiet, it's not that predictable. Resturant owners are fully aware of the many and far less expensive ways of getting additional footfall through the front door. 60% of the cover price is a huge slice of margin to give up and to take up such an offer would surely smack of desperation. Only a restaurant in deep trouble, desperate to get people through their doors would consider a Groupon offer as a good deal.

It's obviously a great deal for the people buying Groupon vouchers and it's obviously a great deal for Groupon, but for Groupon's clients - those actually providing the deal - it can't be that great. This is not a symbiotic relationship, it's almost completely parasitic for the clients.

I cannot understand why Andrew Mason turned down the billion dollar offer from Google. As I said at the beginning this is a business model that will be absorbed in to a search engine with group-based offers appearing alongside search results. It's not going to take Google engineers very long to replicate the service and kill off the Groupon website by putting the offers in the search results and it's not going to take very long before Groupon's clients see how much of a waste of time and margin Groupon is. And so with a dwindling client list, a ripped off business model and customers drawn away to Google's equivalent before they even hit a website like Groupon Andrew Mason will have gone from zero to hero to zero again in a very short timescale and spend the rest of his life wishing he'd taken Google's 3o pieces of silver.

Of course I could be wrong, anyone think I am?