The Demise of Groupon

There is an animation of the Titanic pointing straight down into a vast, blue ocean.  Halfway into the abyss this ship is doomed.  Instead of the Titanic name on the ship, it reads “Groupon”.  I’m surprised, I thought Groupon was doing so well.

For those who don’t have an email account (because Groupon thrives on sending out daily deals for a half priced Hot Air Balloon Ride), Groupon is a website that connects with mostly small businesses.  The business decides to go half off on an item they want to sell, and Groupon delivers that sale to the masses.  When you, I, or are grandmothers decide to buy a round of mini golf in Kissimmee as a “BOGO” (buy one, get one), that business usually gets an influx of sales.  Groupon gets half the cut.  The small business gets the other half.  A boatload (pun intended) of sales come into the business.  Everyone wins, right?

The problem:  even though the merchant sold more units than they normally would have, they are selling it at a reduced rate, and for many, the merchants have a hard time filling the orders, so the quality suffers, and they aren’t making as much money as they normally would have because they sold at a discounted rate.  Are we on the same page yet?  I bought a Groupon and when I went to make the appointment, they couldn’t get me in for five months because they sold too many Groupons.

There were warning signs.  Such as a recent survey of 400 small businesses that sold on Groupon, and asked if they would do it again.  Over half said they would not.  Or, a year ago, Groupon went public, and since then, it has lost 89% of its worth.  Last Friday, the coupon wheeling and dealing website lost 30% of its worth.  These are clear red flags.

So, now Groupon is hurting.  Living Social, Amazon Local or any of the other coupon distributing websites we gloss over in our inboxes on a daily basis are predicted to do the same, unless the model changes.  How do they change the model?  I’m not sure.  But, unlike the Titanic, I don’t think the Groupon shareholders are letting women and children off first.  When Wall Street is involved, it’s everyone for themselves.

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