Have I bought 10 Bikram yoga classes for the low, low price of $39 that I may or may not ever use? Yes. Yes I have. Do I think Groupon will be worth what it is today, or generating half as much revenue in five years? Nope. Not a chance. The only reason why Groupon makes such obscene profits right now is because they brutally rip off the merchants they’re promoting. Groupon’s tactic is nothing new; it’s simply an over-hyped loss-leader distributor. Woot.com has been doing this since 2008 (and in a truly baffling move allow Groupon to advertise on their site–see below), they just didn’t do as good a job of localizing their deals which limited what products and services they could offer.
When you consider that Groupon takes 50% of the already deeply discounted services they sell, the only way the sellers could not lose money on the deal is if a good portion of the “overly-optimistic” individuals like myself never show up to claim their deal. Someone might forget to use that 50% off coupon, but no one is going to give back the 20% off plasma TV they ordered. It’s no coincidence that the really amazing offers you see on Groupon and its imitators tend to be high-friction transactions; they tend to ask a lot of the consumer, like showing up for multiple sessions or traveling to a vacation destination mid-week. High friction transactions are never as simple as sitting back and waiting for an ordered product to show up at your door.
What Groupon has done, along with some serious help from the recession, is turned a bunch of people into chronic deal hunters that didn’t used to be. Wired did a great write-up of this trend here. This is a meaningful shift in the way Americans buy things, for sure, but that’s not really what I want to talk about today.
What I’m really interested in is what’s going to come after Groupon. What are the services that are going to make Groupon look antiquated? One app I’ve come to love is the Yelp Mobile Special Offers Tab, which launches right from the main “Nearby” page. Not sure what to eat? How about the place that throws in your beer for free?
Another similar service is Foursquare’s check-in offers, but when I compare it to Yelp, it seems kind of lame. Call me hopelessly utilitarian, but I just can’t get into the “game” aspect of Foursquare, and I don’t think my liver can handle what it takes to become the Mayor of my local watering-hole (the Mayor gets a free beer).
I do think the trend of digital discounting is going to stick around for a while to come, but I think we’re going to see an economic split that’s going to leave Groupon in the cold. The site I just invented in my mind called HalfPriceYachts.com (and others like it) will squeeze the luxury-as-novelty market from above, the many imitators Groupon has already spawned will dilute it’s reach in the mid-priced market, and services like Yelp and Foursquare are going to come up from the bottom. I, for one, am thrilled about all the data this is going to produce for marketers hoping to turn closed-loop analytics into a reality. I also think this is a great way for local businesses to compete with big chains. But, all this discounting is bound to suck much of the glamour (if there was any left) from retail. Luckily, I’ll be too tipsy to notice thanks to all the free beer.