3 Reasons Groupon turning down $6B was a bad move

Recently the Groupon team turned down a $6b acquisition offer from Google. Waaaay bad move. The Groupon team should have taken the $$$ and jetted to Tahiti for some R&R.

A quick background: Groupon is a couponing or target direct marketing  / advertising program and so far they have done a good job. So such a good job, that there are a lot of copycats popping up all over the place….some new companies like Daily Deal / BuyWithMe [http://screencast.com/t/EwwrcGutUeq6] which has a tie in with Boston.com and a host of others.

So, there are 3 main reasons that turning down the multi-billion $ offer was a bad move:

Reason 1: Their Costs will rise…..Groupon’s model is based on acquiring email subscribers to receive their daily emails. Over the last week I have seen no less than 10 Groupon-like companies competing to get my email address. Most of these have been in local online sites……more advertisers = higher per acquisition costs.

Reason 2: Their % of Deal Revenues will drop as more competitors enter their markets. Why would a merchant agree to a 50:50 revenue split on 1,000 deals when a Groupon competitor can match the 1,000 deals with a 30:70 revenue split.

Reason 3: It is difficult to maintain high quality deals amid purchaser fatigue. Over the last week I have received deals for another Indian restaurant, a massage (still have not been able to schedule the last one I bought) and a bikini wax (not on my To Do list).

The bottom line: there are no barriers to entry in this market. Google is launching their own version and it is ripe for a Yellow Pages or Valassis to muscle into. There are also established companies like Rewards Network, which is a publicly traded company, that is launching http://www.idinedeals.com/. It will be interesting to see how things play out over the next 12 – 24 months.

Some other good analysis:
http://online.wsj.com/article/SB10001424052748703787304575076001164243926.html
http://www.businessinsider.com/what-are-groupons-real-numbers-2010-4

One Response to “3 Reasons Groupon turning down $6B was a bad move”

1. Graham Lubie says:

   July 21, 2011 at 2:48 pm

   Interesting analysis expanding on this topic: http://www.businessinsider.com/ex-living-social-sales-guy-theres-going-to-be-an-implosion-and-a-major-shakeout-in-the-industry-2011-7