Basically, from what I can tell, the way they will make money is on one-offs. They need to hit the sweet spot where people buy the groupon and forget to redeem it. When that happens, the vendor who made the deal gets nothing and Groupon gets it all.
For the vendor who does the deal, it's nearly always a loss leader and/or never generates new business. The deal buyers are people who have no intention of returning to pay full price or they are regular customers anyway. (E.g., amazon's recent deal, spend %5 for $10. I was going to spend that ten anyway!) I can't remember the exact figure but something like 60% of their clients said they'd never do it again. Often, this is because it doesn't work out well for a lot of businesses, especially if they have to invest labor or product costs to prepare for the influx of, say, diners.
Google adwords focus on the longtail was a similar losing proposition in so far as adwords for independents/small businesses was never effective. But they could convince suckers repeatedly without suffering, plus their strategy has since been to move into the middle tail anyway. The problem with Groupon is that it will catch up to them -- both in terms of consumers who realize that, too often, they buy a groupon and never redeem it and in terms of vendors who don't get much out of the marketing campaign.
At 04:28 PM 6/2/2011, SA wrote:
>On 6/2/2011 4:06 PM, Doug Henwood wrote:
>
>>Groupon filed its IPO, and it's a beaut. The CEO's opening letter.
>>
>>http://sec.gov/Archives/edgar/data/1490281/000104746911005613/a2203913zs-1.htm
>>
>>
>>LETTER FROM ANDREW D. MASON
>>
>>June 1, 2011
>>
>>Dear Potential Stockholders,
>
>Hmm. They say they view "gross profit" as the key indicator of value, but
>their income statement seems to show that "marketing costs" eat up 70%-90%
>of gross profit. Is that what you mean by bullshit?
>
>SA
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