Groupon seemingly has everything. A brilliant concept. Miracle-gro revenues. Margins (40%-50%) to kill for. Fastest growing company ever according to many accounts. But on some level though it just does not make sense. There are no discernible barriers to entry. This is demonstrated by the entry of other successful daily deal sites like LivingSocial. Facebook and Google are entering with some natural advantages, including their user bases. A lot of debate among retailers, some who do not see it as a great deal.
Andrew Mason now says that there were always “fundamental problems” that Groupon recognized with the model’s defensibility. Comparing a new business model — Groupon Now — to strategy moves by Netflix, Mason says “They have figured out a way to be successful and cannibalize their core business. Nothing is more romantic to me.” At this valuation, investors may not so charmed with the sentiment that the model is so easily cannibalized by others and Groupon itself. But the fact remains Groupon keeps growing at breakneck speeds, despite tons of competitors and the other flaws.
I am also dying to see how Groupon Now pans out. Many folks have had the insight of dealing with empty tables; but the challenge is how do you sell those tables so that you don’t alienate your full price paying core customers, or alternatively give customers that would shop or eat anyway at full price discounts that erase the new business brought in. if you can solve it, then there is a bag of money, but it seems to be a different problem than the original Groupon.
It’s going to be fun to see how this plays out.
Here is what I am sure about though: where there is a quickly growing market, low barriers to energy, and high margins, putting aside what happens to Groupon, there is so much opportunity for others to take a profitable piece. Groupon and others have proved there is a market there and it is growing fast. This is a great place for entrepreneurs to be looking at for their small piece.