As many of you know, this week Groupon fired its chief executive believing that under new leadership the money-losing company will be able to make a turn around. According to Executive Chairman Eric Lefkofsky, the Chicago-based e-commerce site is “inches away from greatness.” I am sorry Eric but I do not see it unless Groupon’s main services are not related to deal a day or searchable deal discounts.
When Groupon’s former CEO Andrew Mason was offered $6 billion from Google to sell at the end of 2010, I truly believed then that he should have taken it because I did not see group guy sites as wise long-term investments as I indicated in my article “Five Reasons Investors Should Not Consider Group Buy Companies For Long–Term Investing“. All of the reasons I stated then for my opinion still stand. Although the group buy idea was great, I did not and will never see it as an idea to build a national publicly-traded business. Here are my three main reasons again:
- Difficult for them to build customer loyalty – Their main customers are bargain hunters and bargain hunters do not care where they find the bargain on their favorite product as long as they find it. Take me for example, I love Oreo cookies (the product) but refuse to buy them at full market price. I check multiple store’s sale fliers for sales. When I see a discount I like, I buy them. I do not care where I buy them. I am loyal to the brand not to the retailer.
- Low barrier to entry – These types of sites do not take a long time to construct. Based on the number of deal a day sites and discount sites that have been established in the last few years this should be obvious. This has lead to significant competition and I am pretty sure low profit margins for Groupon and others.
- Patentability of the main idea – The idea of group bargaining power is nothing new thus the main idea itself is not patentable.
Groupon is sitting in the middle of savvy entrepreneurs (and their accountants) and bargain hunters in a business with a low barrier to entry. If they want to survive they will need to find a new main business idea which they can use to distinguish themselves from all others or they will need to form exclusive relationships with manufacturers and retailers to provide bargains for their products and services. Until then, Groupon has no real unique product that makes them stand out. To me and I am sure many other bargain hunters, they are just another site to consider when looking for a bargain. Firing Mason will change very little for making the main idea successful.