Groupon Poised For Collapse? Interesting Article.

Great article! Thank you!

very interesting article!

Groupon abuses these small businesses and the problem is that many of them do not see that it is actually costing them more money in the long run. I know here in town we have had about 20 different sites pop up in the last year or so that are trying to do the same thing, and are doing well. I don't see them going any where any time soon since so many businesses are blind to the whole setup.

Great article thanks for sharing.

I saw that, and we discussed in on my TMN show last night. So much of what we could do for businesses and their marketing has nothing to do with websites, social media or online coupons. How many of these guys know their metrics well enough to do a deal (groupon) like that on a regular basis. This is a great time and opportunity for consultants who work on converting existing traffic, and getting higher dollar volume on individual sales. Groupon, unless done with a very good knowledge of one's metrics is a bit of a fad anyway. CT

Yes. I don't particularly like the Groupon and Living Social business model.

Hmmm ... maybe Groupon should have taken the $6 billion Google offered it. lol
A lot of negative articles coming out about Groupon's finances.

Interesting article for sure.

I also read an eye opening news article a couple of days ago where the small business owner said Groupon was the worst decision she ever made.

She explained why, and it made a lot of sense.

The biggest eye opener in that specific article was that Groupon originally requested 100% of all profits, and suggested she make her profits on the back end sales.

Unfortunately, the business owner was surprised that most of the customers didn't spend more than a few cents, on average.

It will be interesting to see how long they do last...

All the best,
Jack Duncan

Yes, there are many business owners who are little more than flea market booth operators who've not understood the program.

And it's no secret that Tech Crunch hates Groupon.

I have done several hundred Groupon deals with business clients in many sectors. All of them have performed extremely well.

First of all, trying to make money on the Groupon deal itself is simply idiotic. That's not the point at all. Never was the point.

They are one of the largest localized EMAIL marketing companies with gigantic databases for each market they're in. You're buying EXPOSURE in the form of a loss leader deal.

And what makes it work is this... instead of writing a check to the local radio station, newspaper, Val-Pak, et al... for the entire amount of the ad campaign on the front end... Groupon permits a business owner to AMORTIZE THE MARKETING COST OUT OF OPERATIONS.

So in essence, THAT MAKES GROUPON THE BANK... holding the paper for the finance cost of a giant local marketing email campaign that would have otherwise cost the business owner thousands of dollars out of pocket on the front end.

You actually get paid some money on the front end... and you don't really have to incur the cost on your own books until the voucher is actually redeemed. This means for businesses that are operating at less than peak capacity (most of them), they can leverage the fixed overhead costs (things you're paying for regardless if a customer is there or not... labor... rent... utilities...) to introduce new customers to your business. You have the option of paying those costs without any new business... or you can cover the very basic variable costs of your service or product with the sales of the actual deal, get the cash on the front-end, and then absorb the "loss" into operations across a period of time.

The alternative is, of course, to just take a big chunk of money out of your cash flow, pay for an ad campaign with no performance basis attached to it, and pray for the best.

But somehow or another that is supposed to be a better option?

Listen, it's certainly not for every business.

And unless you've really got a good back-end strategy to capitalize on the new influx of business (repeat business deal to train a return visit customer), then maybe you're not really a fit for the Groupon model.

But let's be clear... the system works extremely well for those who understand how to make it work.

One of my clients did $35K in laser vein treatment. They had plenty of scheduling capacity and it didn't affect the top line paying customers at all. They essentially broke even on the front-end deal, and then went on to create $130K of new annualized business - BECAUSE THEY UNDERSTAND THEIR LIFETIME VALUE OF CUSTOMER.

The other thing is... smart business people understand that even Groupon deals are NEGOTIABLE. I've done deals with Groupon taking 30% of the voucher sale.

So before we run down the road singing Tech Crunch's hatemail gospel song, let's consider the source, and also consider the bigger business picture.

Groupon's CFO and CTO quit within 2 days of each other.

The company runs it's financing like a Ponzi scheme.

The actual product is great for the consumers but their customers (the business owners) are starting to find it not worth the hassle to run Groupons, get flooded with business they have to give out at half off only for the customers to run to the next Groupon and never return.

I will not be investing in their IPO.

House. of. cards.

I don't think Groupon's business model is sustainable...like someone said, you can't keep selling a dollar for 50 cents and run a successful business.

I have client who was approached by them. At first he liked the sound of the deal, but talked to his accountant, and changed his mind. He feels there was too much long term liability with customers down the road.

Sure Groupon's finances are a Ponzi scheme, but think about it from the small business's perspective.

If they provide very high value, the customer is likely to come back. Its the same reason we build email lists, right?

It's all about building trust and credibility.

And people aren't going to come to your store "just because you have a Groupon". They're going to come to your store because they want coffee, Italian food, whatever and it just so happens they can get it for dirt cheap today.

Impress them and they'll be back.

Good Article!Thanks!