Update on 7 September 2011: “The daily deals website, which is expected to fetch a $20 billion valuation upon its stock-market debut, canceled its investor roadshow and is reevaluating plans for an initial public offering in the face of stock-market volatility [I don’t think that’s the real issue], said a person familiar with the matter” - Shaindi Raice, WSJ
First, to be clear, the above chart measures web-based traffic to both domains [in the USA] and does not include mobile or app specific traffic.
Regardless of these exclusions, the drop-off in Groupon traffic this summer has been significant nearly 50% since its peak in the second week of June 2011 compared to last week. During the same time, Living Social has achieved 27% growth in visits to its site. Overall visits to a custom category of Daily Deal & Aggregator sites were down 25% for the same time.
- Bill Tancer, Hitwise Intelligence
Daily deal sites remain popular, but 52 percent of shoppers feel overwhelmed by emails - via PriceGrabber
Groupon’s business model has several problems, including:
- Poor targeting. As I said 5 months ago, “Groupon knows perfectly well that it is losing subscribers by poor targeting, but it’s more important to claim large numbers of eyeballs to attract paying business customers”
- Now it has competition. It’s still the big fish, but most people get other coupon emails too - via PriceGrabber - and I suspect that its best customers get a lot of coupon emails.
- Many of its deals are the sort of thing you try once - think fish pedicure, or sports massage - and its best customers will have done them.
- “Groupon Voice” gets very, very, very irritating after a while. Here’s an example from today’s email to me, “Angry angles with a tendency to be obtuse can be pacified by placing them in threes and making them face each other. Try angling with today’s Groupon”. <facepalm>
In combination, these effects show up as reduced list quality. Groupon emails are less effective. Some people have unsubscribed, some prefer competitor emails, some have tried offers and don’t intend to do so again, some are overloaded by the volume of coupon emails, and so on.
Groupon’s CEO, Andrew Mason seems in denial about this issue. From a internal email, quoted by Kara Swisher in AllThingsDigital, analysed in EConsultancy:
“Once we have a customer’s email, we can continually market to them at no additional cost. Compare this to Johnson and Johnson, McDonald’s, or most other companies. If I’m a Johnson, and I’m trying to sell you a box of Band Aids, I have to keep spending money on commercials and magazine ads and stuff to remind you about how sweet Band Aids are, even after you’ve bought your first box. With Groupon, we just spend money one time to get you on our email list, and then every day we email you a reminder of the sweetness of our metaphorical Band Aid. There is no cost of reacquisition”
Here’s the reality of reduced list quality, from Bearish Thoughts on Groupon (GRPN), by Glenn Busch, Value Investing Center (data from the IPO form at InvestorScopes):
- 3 months ending March 31, 2010 = 51.25%
- 3 months ending March 31, 2011 = 33.81%
Subscriber List Value: When email marketers think about their subscriber list, they often make the same assumption as Groupon’s CEO, that an email list is a long term asset. Groupon’s example shows that’s not true in a large, fast-moving market.
Competitors do not need to steal your subscribers. They just need to get your subscribers to be their subscribers too. If someone subscribes to two lists, their value is split between them. Groupon can’t even counter this process.
It’s probably cheaper to get someone to subscribe to a second coupon list, once they already understand the value of daily deals, so Groupon is suffering by being first - later competitors have lower acquisition costs.
“Groupon Voice” and poor targeting are now dreadful handicaps: Groupon voice was once claimed as something that “gives people a reason to open our e-mails”. Also it reduced cost because their writers did not need to research the detail of the offers.
The downsides didn’t matter initially, but now most subscribers get multiple emails. Faced with one email which they can scan to read the offer USPs in seconds, vs Groupon with a large proportion of irrelevant offers, and where the text is literally a joke, Groupon will lose out badly.
Will Groupon Survive?
Since I read the CEO’s email, quoted above, I’m guessing no. I expect Groupon to waste too much money, before addressing the problems with its business model, leaving it too little room for maneuver. It will be bought up by a company like Google or Facebook which has lower customer acquisition costs.