The Groupon Poop-onPosted: June 15, 2011
I’ve had the pleasure of taking part in a couple of Groupon deals, and I’m really happy I did. I was able to get some delicious food for relatively cheap, and I’ve seen lots of good stuff on the site for meager amounts of money. This is both a good and bad thing. It’s great for me, because I eat food, and I like it when food is both good and cheap. I like supporting local business by eating at non-chain restaurants and cafés, and I thought I could do both through Groupon. What I am discovering, however, is that Groupon can actually be very damaging. This is bad.
From a recent post on TechCrunch:
Groupon can clearly deliver customers. But in order to know if it makes financial sense as a customer acquisition tool, merchants need to know two key numbers:
- The proportion of Groupon customers who are already their customers
- How often new customers come back.
That second metric is key. I’ve seen a lot of businesses have record drives of customers after running a Groupon deal, but I’ve wondered how many of those customers will actually come back. I’ve always thought that seeing a packed house of people whom I know have Groupons waiting in their pockets resembled a swarm of locusts- they consume everything they see and just move on to the next cheap thing. I’m not so sure I want to be a part of that.
Then there’s this whole idea on the back end:
Why is Groupon not merely a tech-bubble datum but a Ponzi scheme? Simple: Groupon has found that you can get local merchants to try anything once if it brings them new customers. A few local merchants in Chicago get them started, and Groupon shows good revenues. In fact, Groupon immediately remits half of those “revenues” back to the local merchant — they were never Groupon revenues in any meaningful sense of the word. But, optically, Groupon revenues look high — which they use to raise a financing round at a high valuation. Then they use the proceeds to hire vast armies of salespeople to dig deeper into Chicago’s local merchant community and repeat the trick in other cities.
This is so bad! I never considered this take, but it really does make total sense. I’m not a big investor, and when I do put my money in companies, I’d like to know that they’re actually good companies and not killing off local business, which have a hard enough time surviving on their own.
We all vote with our dollars every single day, and it’s a sad day when we tell small, local businesses that we won’t buy from them unless they gut themselves in front of us. I refuse to be a part of that, and I think you should, too.