Eye on the Industry: Taking the Shine Off of Groupon’s Glow
Groupon is not only white-hot but also blushing for group-buying is the current hot topic among online marketers. However, whether Groupon has the staying power to be long-term ecommerce juggernauts remains a very open question.
The following is a post from Brian Bagel, TIG Global Social Media Manager.
The hype is undeniable. Groupon was white-hot well before the recent talk of a $5.3 billion acquisition by Google. And if you subscribe to the notion that imitation is the greatest form of flattery, then Groupon must be blushing, as group-buying sites have become all the rage as of late. However, I’m not convinced that Groupon has the staying power to be long-term ecommerce juggernauts.
So why the pessimism? Well, despite the fact that group-buying is the current hot topic among online marketers, there are some things that still trouble me. A study back in September from Rice University showed that 40% of businesses that ran deals through Groupon would not use the service again. But if Groupon is as great as the hype, exactly how and why would this trend happen?
Let’s look at some of the specifics regarding how a Groupon deal works. First of all, Groupon recommends that any deal that you post on their site be priced at least 50% off of the original cost. Right off the bat, that’s a big hit. On top of that, to be a featured deal, Groupon will take another 30% to 50% of the revenue that you see from that deal. Even if you use their new storefront, where Groupon does nothing to promote the deal, they still take 10% of your revenue on top of the hit you take by drastically reducing your price. Most businesses simply cannot take or sustain this kind of hit to their margins.