Is Groupon the New Yellow Pages?

People have argued that Google or more broadly the Internet itself is the “new yellow pages.” However Groupon may be the true heir to the yellow pages several respects. Bear with me.

Yesterday the news broke that Groupon was raising a mind-blowing $950 million “series G” round of financing. What could the company possibly being using the money for? One answer is further international expansion, but Groupon will also use it to build out a larger sales force in tandem. In fact this is how one could now see Groupon, as an emerging global-local sales channel more than any particular product or service. It’s different than ReachLocal or Yodle or Webvisible, the stand-alone channels that are Internet focused but publisher and channel “agnostic.”

Groupon is exclusively selling its own products, which few online companies can do any longer (Yelp, Google and select publishers do). And now comes the yellow pages analogy.

In the glory days of print yellow pages hegemony the publishers “owned” all three legs of the stool: content, sales and distribution. It was a closed system. Now publishers own sales and some distribution but no longer have exclusive control over content or distribution, which has substantially migrated to search and other third party channels.

Groupon owns sales, content and distribution in ways that not even Google does. Among the more visible online brands, only Yelp has a similar model but without the same hyper-growth. This is why I make the comparison between Groupon and the traditional yellow pages (one could make a similar comparison with traditional newspapers in the past). Almost no one can claim to control “all three legs.”

And just when I thought the Groupon story couldn’t get any more phantasmagorical or surreal it does (the financing). I seem to keep saying this but I cannot imagine this kind of growth continuing. Regardless, daily deals is a new model that has taken root in local and will continue on independent of Groupon’s profile or growth. The overall “deals” market will cool of course (when?) and it will settle in as one of several tools that SMBs (and nationals) use to stimulate demand. 

Here are some Groupon stats (various sources):

  • 35 countries
  • 3,000 employees
  • 35 million subscribers
  • 18 million Groupons sold in North America

I read but now cannot find the source that estimated 70% of Groupon’s staff are salespeople. Please confirm or contradict.

Do you find my analogy persuasive or incorrect?

Related: Groupon Clipping (New Yorker piece on Groupon by James Surowiecki).

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38 Responses to “Is Groupon the New Yellow Pages?”

  1. Will Scott says at

    Don’t get me wrong, I’m impressed by Groupon, but I definitely see opportunity for competition.

    But I do see a corollary to Yellow Pages. Groupon is rather 1-dimensional. Just like the Yellow Pages, Groupon will have to partner, build or acquire to meet the “whole” SMB need.

    If they were smart, they’d go buy Yellow Book 🙂

  2. Greg Sterling says at

    Clearly one-dimensional but trying to evolve with Groupon stores, etc.

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  4. Damien Lefebvre says at

    I agree…it’s definitively a new competitor in the market that is why most major Yellow Pages are changing their business model. In Canada, YPG is really aggresive (API tactic, ads network and more). The only issue for YPs: this time they won’t be able to buy that main competitor…as they usually do. A nice battle for 2011.

  5. Christian Bücherl says at

    30,000 employees? Are you sure or is this just a typo?

  6. Dev Basu says at

    Greg this is definitely a neat comparison to YP but at least in Canada, Groupon still has ways to go in terms of being nearly as valuable to SMBs. I think Groupon stores will definitely address some of these problems, but at the end of the day they will either need to partner or acquire the right entities. I think it’s amazing that they employ that many sales people given that their CEO says they pass on 7 of every 8 applications they get.

  7. Greg Sterling says at

    I meant 3,000,000 :). Yes, a typo. Thanks

  8. Malcolm Lewis says at

    Interesting analogy. It has legs 😉 At least from a publisher perspective.
    From a consumer perspective, Yellow Pages is a place to browse/compare/select from a comprehensive collection of local service providers. Not sure Groupon applies there.

  9. Greg Sterling says at

    Agree with product diversification. Re the number of salespeople. It’s not clear to me whether that 70% figure is right. Not sure

  10. Greg Sterling says at

    Not a perfect analogy to be sure.

  11. Jim M says at

    This seems more like a bubble about to burst than anything else. Anyone remember when Alta Vista, Blockbuster, Netscape, etc. were all dominant….than lost their market share overnight?? I fail to see the intellectual property in Groupon. Anyone with some time and capital on their hands could replicate most of Groupon’s success for a fraction of the investment — especially ustilizing a self-serve model. Further, consumers aren’t loyal to Groupon. We’re like monkeys (I’m one of them) who check their e-mail every morning to see if the deal-of-the-day is relevant to me. If someone comes along better, I’ll start using them, too. Group buying will quickly get “smarter” for both consumers and advertisers — more customized offers to consumers; lower margins in the industry so the advertisers keep a higher % of the sale.

  12. Greg Sterling says at

    I agree that there’s no loyalty to Groupon from a consumer standpoint. Paradoxically they have the biggest brand in the space. Continuing success will depend on relentless execution.

  13. Perry says at

    I see the similarity between the holy trinity of old and new (content, sales, distribution), but to me it doesn’t map to the “heir apparent” role in YP. Google still feels more of a logical analogy to ye olde YP (consumer-initiated search leading to comparison and purchase); the only reason they don’t have the sales force is because they have chosen not to (until now?).

    GroupOn today is driven by a campaign sales relationship, and it’s selling on incentive-driven purchase, not on directional media principles.

    Once GroupOn moves into their stated 2.0 direction with stores, it feels like it’s morphing towards something that looks like a mash-up of eBay (discount marketplace) and Valpak (business initiated promotions).

  14. Perry says at

    In the spirit of “holiday down time” I might suggest you’ve been subliminally influenced by that classic yellow substance “Grey Poupon”, whose brand is indeed a mash-up of Groupon and EYP. (GrEYPoupon).

    Coincidence, hmmm?

  15. Greg Sterling says at

    Perry:

    From the standpoint of “directional media” you’re absolutely correct. Agree.

  16. Exploring the question: “Is Groupon the New Yellow Pages”. « Brendan's Blog says at

    […] question: “Is Groupon the New Yellow Pages”. Greg Sterling asked the question, “Is Groupon the new Yellow Pages”, and then went on to make compelling argument as to why Groupon could indeed be seen as the […]

  17. Linda Buquet says at

    Great info Greg!

    I may be a little off topic with this comment, but since you mention 70% of staff are sales people…

    The other thing I find very interesting about Groupon is that they have a THRIVING affiliate program. I’ve known the director of affiliate marketing for years, via previous companies she’s worked for, although she’s fairly new with Groupon.

    Here’s a great article she just wrote about the geo-targeting options Groupon offers affiliate marketers and she shares some of the other ways affiliates are promoting the Groupon local offers. Affiliate Marketing Goes Hyper-Local – By Carolyn Tang Kmet

    In addition to being a local marketing consultant, I’m also an affiliate management consultant & blogger (working on the higher end, ethical part of the biz) so pay attention to both spaces. Groupon is the only local marketing company I can even think of that has a really strong affiliate program. It’s such a good fit, because so many consumers become raving Groupon fans and want to spread the word.

    Wonder what percentage of sales affiliates drive to Groupon and how many affiliates they have? Helps when you are trying to raise money to say “we have XXX full-time sales people and 20,000 (or whatever) affiliate marketers promoting our offers.”

  18. Greg Sterling says at

    Yes . . . I would imagine the affiliate program is a big part of the story. I don’t know as much about that side of things so thanks for this information.

  19. BTS says at

    1. Groupon has reverse working capital so the faster they grow the more cash they generate.
    2. Most of their employees are sales, support, and editorial but at this point they are starting to have a critical mass of development talent even if a small percentage of the team.
    3. The money will likely be used to buy offshore competitors to enter new countries and to accelerate the building of their consumer list, but if you did into the filings, I think you will find alot of this is secondary selling of shares not just primary investment.

  20. Edward @ BusinessWebsites.com says at

    I hate to say it but I told you so. It was very obvious that if the Google Groupon talks did not go through Groupon would announce another round of financing. You can leverage that balance sheet in many ways.

    I’m not saying a bubble does not exist but this bubble is actually generating cash flow which is very different from past internet bubbles. As Greg says, relentless execution is key.

    Take Living Social out of the equation for a second and Yelp becomes Groupon’s most formidable competitor. Look for some acquisitions/expansion in this direction ?

    Exciting Stuff

  21. Tim Cohn says at

    Any idea how much money Groupon is spending with Google to generate deal seekers?

  22. Greg Sterling says at

    Tim:

    Not sure but obviously they’re all over the display network. One could probably estimate but I have not tried. 

  23. Lee says at

    Greg, your comment about the brand is really interesting. I do think that Groupon has become – super quickly – the Yellow Pages, Kleenex, Coke (whatever) in its space. It’s obviously the 800 pound gorilla, but there seems to be plenty of room for competitors from a consumer perspective. It’s going to be another story from the business perspective though – the size of the list matters a lot.

  24. Greg Sterling says at

    Groupon is the iPad of local marketing. Coupons and deals previously existed but this is a generally new animal in the much the same way the iPad is a new hardware category (essentially).

    Another analogy is YouTube; there are a number of video sites but YT because of its brand and scale won. So far the same pattern exists in this segment.

    Sure there’s lots of room for competitors . . .

  25. BTS says at

    Groupon spends signficantly to build its consumer list mostly with display ads.

    The secondary point was validated today with stories coming out that 300-$400MM of the round went to insiders selling shares. The Secondary Market is changing the level of leverage acquirers have in a limited IPO market.

  26. Pat Lazure says at

    @Tim, Groupon is spending approximately $20 per customer acquisition. 

    @Greg, Few barriers to entry & low switching costs amongst consumers; so yes, growth will slow (not stop, but slow) for Groupon.  Having launched six of these sites for my previous employer, and now a few on my own, I’m bullish on the space…  I think Groupon & clones are just scratching the surface…  They’re in bed with all these customers & merchants, but so far, despite all these trusted relationships, all anyone knows how to do is kiss.  I suspect that will soon change, which is why I’m especially intrigued to see what they do with their Groupon Stores model. 

  27. Leo says at

    Does anyone have an estimate for how many small businesses Groupon has been able to acquire in the U.S.?

  28. Laurence Hooper says at

    @Pat, I’m fascinated by the $20 per acquisition number — where did you get it?  Do you know where they are spending it, specifically?  And what “acquisition” means in this context?  Just a subscriber, or a subscriber who has bought at least once?

  29. BTS says at

    They spend between 10 and 20 for CPA for a consumer user sign up via web advertising. If Living Social is in the market it goes towards the higher number of the two.

  30. Tim Cohn says at

    I just don’t see how their numbers generate any profits for their “advertising” partners.

    Wonder what their advertiser attrition rate is?

  31. Greg Sterling says at

    The claim is 90+ percent would do it again.

  32. Laurence Hooper says at

    I am dubious of the 90+% claim — it is much like the car dealerships who ask you to give them a five-star rating when the brand surveyor calls after a service. My wife’s small business recently ran a deal with Groupon and, despite being somewhat dissatisfied with the whole experience, got a follow-up call from her salesperson who listened to her issues and said, in essence, “Well, apart from those issues, would you say your experience was good & you’d do it again?” If their 93% stat is based on this type of survey, which I suspect it is, then it doesn’t mean very much. What’d mean more is if 93% of featured merchants subsequently ran another deal — except of course, they’re so young and growing so fast that it’s unreasonable to expect a real number there, either. An enterprising journalist (or consultant!) should survey all the featured businesses during a 30-day period, each 30 or 60 days after their feature has run. I’d be very interested in the quantitative and qualitative results — and, more to the point, I suspect many small businesses would be, too. I believe most Groupon merchants would say, at a minimum, that they’d do it much differently next time.

  33. Greg Sterling says at

    Laurence:

    See for more “accurate” figures: http://bit.ly/i0MkwI

  34. Just What is Groupon and How Can We Make Money From it? says at

    […] has been compared to the “new yellow pages” by Greg Sterling of Screenwerk, but I think that’s the wrong analogy.  Groupon is […]

  35. zippy says at

    Groupon =  Yellow Pages? I don’t think so. Yellow Pages was a local monopoly with zero competiton; (2) YP’s’ enormous profitability was based on 90% repeat/renewal business year after year after year after year. Groupon is not a monopoly; and (in San Francisco, at least) it has almost no repeat business. 

    Groupon claims that 95% “want to” repeat; Rice University (more credible) says 42% “want to” repeat. My email in-box shows that less than 1% of Groupon’s 350 San Francisco advertisers since March 2010 have actually repeated, either with Groupon, OR with a competitor/alternative provider. (I get their deals, too–Zipit, Living Social, SFGate, etc). Anyone who has kept all their emails from Groupon and its competitors can immediately see the lack of repeat business–the business name is in the email title).

    Now in late December, I’m also seeing Groupon’s San Francisco deals getting smaller, less interesting (IMHO), and less local (restaurants 50 miles away). Are they running out of new businesses they can sell to? They are doing a brilliant job in expanding and bringing in new revenue from hundreds of new markets, but revenue is falling off the back end. 

    See New York Times
    http://community.nytimes.com/comments/boss.blogs.nytimes.com/2010/12/06/would-your-business-use-groupon-again/

  36. Tim Cohn says at

    I think the fact Groupon promotes 90% of their advertisers ‘would do it again’ instead of promoting that 90% of their advertisers ‘have done it again’ ie., advertised with Groupon more than once says more about how great their business model is than all their press clippings have said to date combined.

  37. Laurence Hooper says at

    In all fairness, I guess the current Groupon model isn’t designed for lots of repeat merchants — for a bunch of reasons — and even if it were (or could be re-positioned later), it’s too early to draw conclusions. Customers don’t want to see the same deals very often. However, the Rice survey rings very true on the underlying issue (Are Groupon merchants happy with what they got?) and that bodes ill for the company’s sustainability — and also its ability to reposition later.

  38. Tim Cohn says at

    A business without repeat business isn’t one.

  39. Nuclear Missile Info - Hegemony says at

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  40. varun says at

    Does anyone know how many small businesses Groupon currently serves?  

  41. John Goddard says at

    I think it’s a good analogy when considering the 3-play aspect but not when you consider entire target group the YP “used” to cover. Groupon does gastro and events well, but I have a hard time understanding how local service providers like doctors, dentists, contractors, accountants, lawyers and financial advisers benefit from the current model. Pricing of services in these industries is only really comparable for an individual (e.g. most consumers aren’t buying bleaching services from dentists, they’re buying checkups and fillings), so the benefit for the consumer is also hard to grasp.

  42. Malcolm Lewis says at

    I doubt I’m the first to say this, but I wonder if it makes sense for Groupon to buy Yelp…

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