The Groupon IPO Reveals a Weakening Business Model
After declining $3 billion from Yahoo! and a $5.3 billion buyout offer from Google, Groupon is poised to raise close to $1 billion with its initial public offering. But should they have taken the money and run?
According to Business Insider, Groupon's S-1 shows that the Daily Deal wunderkind is no longer achieving the exponential growth that made it the buzz of the business world. In fact, the Groupon business model is facing some serious erosion in the face of increased competition and decreased customer activity.
Despite being its innovative beginnings, Groupon is now faced with numerous competitors: LivingSocial, Yelp Deals, Eversave, Facebook and even former suitor Google is getting into the act with Google Offers. Not to mention daily deal aggregators like The DealMap and Yipit which make it easier for consumers to access the competition.
As things heat up in the daily deal space, it causes the cost of customer acquisition to rise as well. In addition to increasing acquisition costs, Groupon is dealing with decreasing consumer engagement and lack of continued participation in purchasing new deal vouchers. Although daily deals still remain a hot commodity with frugal consumers, more and more people are beginning to question the value of saving money on two dozen cupcakes or that new Mediterranean restaurant or a hot stone massage.
Although Groupon is countering the deterioration with updates to its business model such as deal personalization and Groupon Now, a mobile offering providing users real-time access to deals, the company's long term viability in the face of hot competition and cooling consumer interest remains to be seen.