The Groupon IPO and the Flawed Logic Behind Groupon Now

What Ponzi scheme? Investors don’t seem to be deterred by all the myriad PR missteps and other critical or negative publicity in the six months leading up to Groupon’s IPO. The stock is up a whopping 40% in early trading. (Here’s how much money the Groupon principals are making today: millions and billions.)

What I want to discuss now, however, is the flawed logic behind the company’s mobile, real-time deals product Groupon Now. The critique equally applies to other mobile deal offerings as well.

The argument for Groupon Now says that the product addresses some of the relevance problems that have caused many people to complain about “deal fatigue.” There’s also a quasi-search dimension as people self-select for the kind of deals they want (at least the categories). This is also supposed to address the relevance problem.

In my view, however, most people are not going to be swayed by offers in the moment — out and about. At the margins I might be inclined to choose a restaurant, bar or other business on the basis of a real-time offer. If I’m considering a couple of places and one has a deal, okay that might sway me. But most of the time I’ll look for a discount on a place I’m already going. Otherwise, I’m likely to continue on to the place I’ve chosen.

Here’s where it works: I consult Groupon Now (or similar offerings like LivingSocial Instant) in the morning to see about lunch or in the early afternoon to see who’s got a deal for happy hour or dinner. But I’m unlikely to change my behavior “on the street corner.”

Deals are most helpful and influential in advance, during planning or to encourage me to buy something I might not otherwise: the hotel room, car-detailing package or museum membership for example. Whether the deal appears in email or some other digital form (search, display) it’s a much more useful tool for the merchant when a consumer is not “in the moment.”

When I’m “on the street” a decision has probably already been made. Again, at the margins I’m willing to concede that it might change some behavior. But most people using these mobile deals products are going to be looking for offers related to places they’ve already chosen. Merchants will thus probably be losing money on existing customers.

There’s a more nuanced argument to be made about deals driving frequency or increased loyalty. But the larger point is that there’s a flaw in the logic behind the product, which seems to be confirmed by Yipit’s earlier analysis showing it’s not taking off.

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7 Responses to “The Groupon IPO and the Flawed Logic Behind Groupon Now”

  1. Frank Reed says at

    Good points, Greg.

    I think about the things you bring up in a similar fashion but I wonder that because I skew much older demographically am I simply not aware of just how fluid  young person’s life can be especially in today’s world?

    Also, the Groupon Now concept seems to be more of an urban play. Suburbia and rural areas don’t seem to make much of a market for this kind of service.

    Of course, I reserve the right to be completely wrong on this one :-).

  2. Greg Sterling says at

    Agree that there are demographic differences and suburban vs. urban. The question going forward is how much emphasis Groupon places on Now. I think there’s an AdSense like play in the future here.

  3. Perry says at

    I don’t agree that the product concept is overtly flawed – there are lots of times (in urban lifestyles) where cravings/exploration drive a query – whether it’s a discussion with friends or a personal “what to do/where to go now”. Some segments are great for this – like travelers looking to decide on a plan.

    Two things are missing, in my mind.

    One, Groupon has no mobile usage habit; It HAS TO convert it’s email user base into a mobile app user base, on scale, to get Now working.

    Two, a real-time decision requires a tighter integration of reviews and price (which is why Yelp sees a predictable surge when a groupon goes live). If a decision can’t be made in a simple streamlined mobile experience, it won’t happen.

    For Now, it’s early days. Will their pubco status afford them the ability to play out a longer market dev cycle? I still am betting they aim to use their new currency to buy their way into fixes for these problems.

  4. Greg Sterling says at

    I do agree that there are circumstances where Instant or Now deals works. The variable I’m talking about here is time.

    I absolutely agree with your Yelp/reviews point. And I see this with some sites (e.g., Bloomspot): trying to bring “decision support” into the offer itself.

  5. Mike says at

    > “most people are not going to be swayed by offers in the moment — out and about”
    Agreed, and maybe even beyond that, when you’ve built a business around the idea of planning ahead, it might simply to far afoot to expect that same user base to be open to last-minute flexibility – that’s not how they view using Groupon.

  6. Jacco de Bruijn says at

    Interesting insights and valuable comments. It is true Groupon equates to daily emails and in no way is present in the consumer’s minds when thinking about the mobile experience of looking where to go/what to do. A great opportunity for another player or one of the deal aggregators before Groupon might decide to throw a lot of IPO money at it. Right now Google (Maps), Yelp or a vertical search app like UrbanSpoon would be my first go-to.

    Also interested about your AdSense comment, Greg. I work for Signpost and we aim to build the AdWords/AdSense equivalent for local commerce in the sense that we partner with hundreds of websites that feature our merchants deals. Would be interested to connect and talk about the local space, feel free to email me if you are up for it.

  7. Electricians says at

    I think the young crowd, the kids in their teens and 20’s, would love groupon now. They have no patterns, no loyalty, and just love to be social and spontaneous.

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