- 4 years ago

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Christmas should have been a boon for Groupon. It wasn’t.

Daily deal aggregator Yipit recently estimated that billings—gross revenue before splitting cash with merchants—at Groupon declined a sharp 46% in the last week of November after rising by just 1% in October. Only Grouponicus, the company’s new travel business, kept revenue growth afloat that month. Yipit estimates that Groupon grew revenue to the tune of about 6%—hardly the “fastest growing company ever” anymore, as Forbes once famously labelled the company.

So what’s wrong? Well, merchants are less than satisfied with the Groupon experience, for one. According to a Susquehanna Financial Group study, more than half of businesses who have offered a daily deal through Groupon or a similar site don’t plan to do so again. Businesses fervently claim that these deal-savvy consumers don’t return—they simply move on to the next day’s voucher.

Forrester Research analyst Sucharita Mulpuru told Bloomberg that the risks Groupon and kin bear “are enormous” and that the cost of merchant acquisition will only get higher. Which spells trouble, because Groupon’s profit margins are already shrinking. And on top of that, the company’s stock has floundered since its market debut; after quickly losing its first-day gains, GRPN has been in the red consistently since.

Plus there’s the public relations side of things, which has continually worsened for Andrew Mason’s company and its competitors. Business Insider CEO Henry Blodget revealed a letter penned by a “furious merchant” who was foaming at the mouth over his horrible Groupon and LivingSocial experiences: 

95% of LS customers never have ordered again. 95% of all other customers – business and residential – who have found my company through any other way do order again and again and again. […] I honestly think there is an aspect of gambling/slot machine/minor thrill with purchasing these deals. These customers are so pumped up to buy a deal (Whoopee!) that they have no sense of the underlying business or product or service.

I am sure that Living Social (and I presume Groupon) is doomed. It is inconceivable that any business would ever do a second deal with them.

Are these simply turbulent times for the fledgling daily deals space or is the business model just not sustainable?