Groupon? Riddle me this ….

Sorry, but $6 Billion for a service that sends a daily email containing a coupon to a local restaurant or nail salon?  Has Google lost its mind? Is its $33 billion in cash burning that big a stupid-hole in its pockets that it feels compelled to pull the 2010 equivalent of Time Warner  buying AOL? This may be the deal that signifies the shark jumping of the social networking craze. Especially given that Groupon shows absolutely no social tendencies that I can determine other than a call to action to share the spam with a friend.

I signed up for Groupon — the Chicago local online social coupon whatever service — last month, and every morning get an utterly useless email containing a spammy offer to get a plate of cheap BBQ or a pedicure for half-off the list price somewhere in Greater Boston. Sorry, call me dense, but I just don’t get the secret sauce that makes this deal worth $6 billion.

In other words: Sign up to receive a daily deal. Receive the deal. Maybe share the deal. Then redeem the deal.  What am I missing here? The NYT goes for the jugular when it questions the payoff for the merchants.

Not all small businesses are sold on the golden promise of Groupon. Ina Pinkney, the chef and owner of a cafe called Ina’s, in Chicago, said she was curious about Groupon when she first heard about it a couple of years ago. She ultimately decided against using it.

“We did the math up front when they first started coming around to us and I said, ‘No, it really doesn’t make much sense,’ ” she said. “If we were to offer a $25 coupon for $50 worth of food, it doesn’t work.”

Groupon’s cut is half the dollar amount of the coupon, so the average amount of money Ina’s would collect for each Groupon customer was around $12.50, she said.

“I would never produce that much food for such a small amount,” she said.”

As this deal is questioned by analysts and investors, the most plausible explanation appears to be the most insane: Google bought Groupon to keep Facebook from buying it.

This could go down as one of the dumbest deals since Yahoo paid a billion for Mark Cuban’s Broadcast.com.

Author: David Churbuck

Cape Codder with an itch to write

10 thoughts on “Groupon? Riddle me this ….”

  1. I read this article, too, and scratched my head. I just don’t get the appeal of Groupon for vendors. Or customers for that matter. It’s like the virtual version of that stupid Entertainment book that school kids keep trying to hawk to me.

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  2. I would agree, Groupon is not a bargain for what it provides in its current model and mode of operation.

    The question is, can Google ‘transmorgifry’ it into something less spammy and far more valuable, such as a means of delivering an inventory of Q-Coded coupons with a given Google Ad?

    Then linking that information with Google Analytics?

    Provided that the current subscription base is for a large part active (yeah right) and has a segment that leverages Ad Words … and/or has a section of their Ad Word population interested in delivering the type of ‘buy-in-to-use’ coupon that Groupon offers?

    Perhaps I just had too much Thanksgiving stuffing and it’s the turkey talking?

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  3. Talk to anyone in VC and we are in bubble 2.0

    The valuations on the rounds are crazy.

    With the lack of IPOs and the visibility of popularity and pricing on secondmarket, what you get is a froth that pits the few M&A buyers against each other. After all, there is no place else for these startups to go. The VCs know that a buyout is their only exit and they need realized gains.

    To Groupon’s credit, they are profitable. Many of the bubble 2.0 companies are. Huge change from bubble 1.0

    But profitable doesn’t justify the valuations.

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  4. I was with a group of women in Dallas last week and at dinner the only thing they talked about was how great Groupon was. I had only recently learned of it when USA Today did an article on it. I checked it out and personally don’t see much in it for me but for the ladies, I think its a hit!

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  5. Yeah, it’s a hit, but the inherent magic has more to do with a lot of sales people banging on the doors of local merchants than any cool business model, algorithm, or startling invention. I wish them the best, think it has lots of potential, but no-how/no-way see how the valuations thrown around were even justified by half.

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