When Will Groupon Tip?
December 20th, 2010Groupon is really catching on like wildfire, despite doomsayers’ claims of low barriers to entry, and unsustainable business model (like New Yorker’s column by James Surowiecki). The Groupon team has hit such a sweet spot of viral customer acquisition and high-margin revenue that it felt comfortable rejecting Google’s $6 billion offer. With growing brand recognition and network effect, Groupon is reaching escape velocity and only heavyweights, like Amazon (via LivingSocial?), Google or Facebook, still have the scale to effectively compete with them, as they capture the remains of the Yellow Pages’ business.
Groupon’s main challenge and opportunity is to outgrow their current – and by all measure expensive – value proposition focused on customer acquisition and empower small businesses to nurture customer relationship and build loyalty. Only by expanding their focus to lifetime customer value and not just acquisition will Groupon be able to justify its high costs to business owners and preserve its margins.
There are many paths and opportunities for Groupon to do so, ranging from traditional to more tech-savvy approaches, including:
- enabling small businesses to set up, manage and tailor their own loyalty programs, and/or subcontract Groupon to do so (since many of them have little experience managing these programs); the Groupon Stores and the “follow” feature for store seems like a natural precursor; a Groupon credit card would be another one;
- enabling more effective yield management for schedule-based small businesses, such as hair dressers, nail salons, spas, etc.; these businesses have to effectively manage their spare/ excess capacity and would love to be able adjust customer offers with their real time level of (in)activity;
- build an ecosystem of third-party providers to address the opportunities above and others; a Groupon app store could eventually become a one-stop-shop for small businesses to manage all customer lifecycle and related activities (including accounting, customer support, etc.);
- partner/ merge with Foursquare – as has been suggested many times over – and combine Foursquare’s mobile engagement platform with their monetization platform.
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