Not long ago, news that Groupon had spurned Google’s $6 billion takeover bid was released and I couldn’t help but thinking that maybe Groupon had succumbed to pop-star diva mentality, where everyone except you and the flatterers you surround yourself with know that your future at the top is shaky at best.
Later reports suggested that Groupon was worried that the deal might eventually be blocked by regulators and that the company would be left holding the bag after spending over a year in waiting mode. That makes more sense, but I still thought the clock was ticking. After that, reports suggested that Groupon raised more money to buy out early investors who wanted to cash out. Looks like I’m not the only one worried about the future.
The main issue with Groupon is that the barrier to entry, or the so-called economic moat, around its business model is virtually non-existent. Sure, other small VC-funded startups might have trouble taking on the deal of the day website, but a well funded competitor would have no problem replicating what the company does quickly.
Yesterday slammed home just how urgent the Groupon IPO is.
Living Social, one of the Groupon competitors that already exists, offered a $20 Amazon gift certificate for $10 as its nationwide deal. According to PC Magazine, nearly 1.4 million vouchers were sold. Compare that to Groupon’s biggest deal, the formerly blockbuster offering from Gap that sold 440,000 discounts.
How did LivingSocial bag a big name like Amazon?
They didn’t. Amazon decided that instead of building its own deal of the day website (yet) to invest in the one that Google wasn’t rumored to be buying. Last December, Amazon invested $175 million in LivingSocial, and now apparently has teamed up with the retailer to offer a sweet deal.
While this one deal in no way spells the end for Groupon, it shows just how easily a big name retailer could quickly build a name for itself doing exactly what Groupon is doing. Those 1.4 million buyers weren’t all LivingSocial users at the beginning of the day. Even those who heard about the deal, but didn’t buy it, now belong to the category of users who realizes that it isn’t just Groupon that does this sort of thing, and that is the real bad news for the company.
Amazon Launches Groupon Competitor
Mashable reported that Google is starting up a Groupon clone very soon. No matter how that effort pans out the damage will already be done to Groupon.
A big name competitor like Google will generate plenty of talk among more than just the technology community about its deal of the day offerings. The upshot is that within a few months to a year, anyone savvy enough to know about Groupon, will also know that Groupon isn’t the only company doing this. That means that when it comes to spending money on hot deals, people will look not just at Groupon but at Groupon and some others and then choose the best deal. That means Groupon’s deals have to be better (lower margin and less profitable for the business behind the deal) to keep selling.
Groupon is prepping an IPO with a valuation of $15 billion dollars according to numerous stories floating around out there. They better hurry before people start wondering if a company soon to be competing with at least two Internet heavyweights really deserves that much of a premium, or any premium at all.