Wednesday, November 23, 2011

Groupon is Now a Busted IPO

Well, that didn't take long.

After just 13 days of be being publicly traded, Groupon dropped below its $20 IPO price this morning.

Non-investors shouldn't take this as a sign that Groupon itself is a failure. The IPO was simply overpriced. Groupon continues to grow at a heady clip. However, more and more people are questioning the profitability of the model. We'll see if Groupon bounces back.

Saturday, October 1, 2011

A Bridal Contest Scorned

Promotion cuts both ways. Just ask MyCotorra.com -- a small Groupon-esque website in Miami. In order to promote both its website and one of its deal sponsors, MyCotorra teamed up with a Coral Gables-based bridal shop to offer a free custom-designed wedding gown.

The lucky bride-to-be simply had to get as many people as possible to "like" her photo on the contest's Facebook page.

Social networking and social coupons were made for one another given their viral nature. MyCotorra figured that folks would tell their family and friends to vote for them, increasing local brand awareness. Well, the site got more than it bargained for, as it saw many votes coming in outside of its South Florida market and it began to suspect that some entrants were fraudulently purchasing "likes" to game the contest.

It's all explained here, but the story ends with the contest closing early. The prizes were awarded -- and a party with prizes for all contest participants was also held last week.

I'm not sure if I buy the "likes" purchase theory. I think MyCotorra simply underestimated that Facebook is a global site and nearly everyone on the site has friends outside of their home cities. Perhaps more importantly, once the call goes out for a "like" it's common for friends and family members to rebroadcast the request, further exposing the contest to those outside of a certain geographic area.

The moral of the story, as anyone that has seen the Filene's Basement "running of the brides" for marked down dresses, you don't underestimate how far a bride-to-be will go for a free or nearly free gown.

Monday, September 12, 2011

Are Groupon and Living Social Reputation Killers?

Is there a downside to going the social couponing route beyond the obvious financial hit?

Some Boston professors conducted a study, analyzing thousands of Groupon deals -- and then tens of thousands of Yelp reviews. They found that Yelp.com reviewers that mention the word "Groupon" in their review tend to rate an establishment 10% lower than the average. Those who mention both "Groupon" and "coupon" clock in with a shocking 20% lower rating.

I'm a bit skeptical on the findings. For starters, while it may seem that those using a Groupon should be getting better value out of the venue -- and hence handicap their ratings accordingly -- most are likely to rate the place based on what it would cost in real dollars. I see that as a problem, since many of these establishments are, in a sense, forced on the buyers. A Groupon buyer will go to a restaurant, spa, or store out of the obligation and deal. It's not like the non-Groupon customer that actually CHOSE to be there.

Check out the study if you want, and draw your own conclusions.

Sunday, August 28, 2011

Why Doesn't LivingSocial Allow User Comments?

Groupon isn't perfect -- no social shopping website is -- but at least every voucher has a commenting section for folks to ask questions, get answers, and gauge the opinions of others.

Where is that on LivingSocial?

Case in point: I had a $40 voucher that I went to use today at Strike Miami -- an upscale bowling alley that recently adopted its parent company's Bowlmor name. In the past I had gone there, rented a lane for an hour, and had a pretty good time. You pay by the hour there, shoe rentals (naturally) are extra. There's also a wide array of food and drinks available. There used to be an open area set apart from the 30+ lanes as a restaurant, and it's now enclosed as a lounge.

Strike Miami -- err, Bowlmor -- offered $40 worth of bowling for $20 a couple of months ago. Now, it's pretty clear that the $40 doesn't go toward food and drinks. However, I know that when I would go with my family of four for an hour that $40 would pretty much cover an hour of bowling and four shoe rentals. I figured kindly handing over the voucher would've resulted in a free hour of bowl toppling.

It was not. The voucher can ONLY be redeemed for an hour and 20 minutes of bowling. Shoes are extra. I can't simply bowl an hour and have a credit on the shoes.

I'm not going to complain about that. Bowlmor is a class act. I forked over my $20 plus tax for the shoes. I'll be back again without the voucher. However, I wish LivingSocial would've had a forum so this question would've been asked and ideally answered.

Groupon and LivingSocial hire word spinsters to crank out cutesy experience description, but they often leave out meaty details. Isn't that why we need comments? Even if the Groupon commenting sometimes erupts into a flame war between merchant and disgruntled buyer, at least there's fair warning.

What are you afraid of LivingSocial? You can't leave an open frame like that and expect to win.

Friday, July 1, 2011

Motorin' in Boston

Driving a Ferrari or Aston Martin through Boston for 45 minutes for $99 seemed like a good enough deal when The Motorsports Lab offered up the deal in April. However, the user posts are classic.

For starters, the deal was apparently offered last year, and some folks have yet to be able to book their rides given tight schedules and rain cancellations.

It gets worse. The suggested gratuity is nearly the price of the entire Groupon (based on $499 price) and the company's charging state sales tax based on the $499 suggested retail price instead of the $99 it is collecting.

You have to give the company the nod on the gratuity because it SHOULD be based on a deal's value. If you paid $25 for $50 worth of food through a Groupon, you should tip based on the $50. However, tipping nearly $100 for a 45-minute experience seems outrageous.

As for the sales tax, I saw an Orlando Groupon by a limo company that did the same thing. It's a legal gray area, and a Groupon rep condones the practice at one point in the Motorsports thread. I still find it hard to believe that a company can charge better than 30% in sales tax, or that it's reporting this revenue to the IRS at the full $499 price. The Motorsports Lab does seem to have a unique experience, but many Groupon buyers appear to be frustrated.

Sample Groupon Merchant Contract

The reDesign blog ran a critique of the standard Groupon merchant contract recently. It's worth a look.

Just because there are merchants that are dissatisfied with the Groupon experience doesn't mean that it's a bad deal. In fact, the longer you are on Groupon as a user the more you see the same offers come back for more. In other words, clearly it's a promotional gamble that some feel bears repeating. Still, just passing along the link to a critique.

Friday, June 3, 2011

Groupon's 50% Myth -- Shattered

Groupon filed to go public yesterday, offering fans, critics, and investors a neat glimpse into the deal-sniffing giant's gooey guts.

Did you know that just 15.8 million of its 83.1 million subscribers have actually bought a Groupon? Well, you do now.

However, the real nugget here for those following Groupon as a business model is the divulging of exactly how much it keeps. The Groupon pitch is simple. Ideally it takes as much as 50% of any deal offered, and it pays the balance to the merchant over three months. In some cases it can be even more (as in small deals like $4 for $8 worth of candy or frozen yogurt -- where Groupon requests to keep the entire voucher value to make it worth its while).

Well, now we know that Groupon kept 39% of the $713.4 million it sold last year. The percentage crept up to 42% during the first three months of 2011, and we'll keep watching that to see which way the money is moving.

If you have the time, Groupon's prospectus is an enlightening read regardless of your financial expertise.

Tuesday, April 5, 2011

The Economics of Group-Buying Websites

There still are a lot of people that don't get the flash sale model and exactly how much merchants give up for the sake of incremental business and new leads.

Buying a $100 voucher at a high-end steakhouse for $50 seems simple enough. However, many buyers think the chophouse is collecting $0.50 on the dollar for the sake of a new sale. It's not. Groupon and LivingSocial charge as much as 50% of the deal's price to the advertiser. In other words, the chophouse is getting just $25 for $100 worth of menu priced food and drinks.

No one's shedding a tear for the local business. Not even an aggressive site sales rep will twist a merchant's arm. It's also quite possible that the eatery can turn a profit on the deal. The diners can order a lot of drinks (which carry a higher margin than food). They can come in a large group, spending far more than the $100 value of the offer. In a perfect world, they'll be so smitten that they'll continue to patronize the eatery at retail price (even if -- in reality -- they'll just hop over to the next Groupon/LivingSocial deal).

The economics behind the practice of offering a dollar's worth of value for a quarter isn't easy. It's why you find more spa and sightseeing service-related offers than boutiques with hard goods to offer. However, merchants get paid -- typically over three months -- even if many of the vouchers expire worthless several months later.

Obviously the group-buying sites wouldn't be this popular if we weren't talking about a win-win-win scenario. Buyers get a great deal. Sellers get more business. The facilitating flash-sale site gets a meaty piece of the action. However, it's important to understand the economics of the model -- just so you're ready when the restaurant owner grimaces after you've run up your tab to exactly $100.23 in costly steaks.

Monday, April 4, 2011

Welcome to Group Offed

Everybody loves group-buying sites. Groupon, LivingSocial, BuyWithMe, and a growing field of flash sale copycats are drawing in deal seekers with marked down values.

The allure is obvious. If I can get $25 worth of drinks and grub for $12, who am I to complain? However, there's a whole other world waiting once the excitement dies down. Some deals are duds. Some merchants don't live up to their end of the bargain. Does anyone know exactly how many of these pre-paid vouchers go unclaimed past their expiration dates?

Group Offed is dedicated to unearthing the sweet deals that went sour. Did you hear about the Brazilian VIP nightclub offer that wasn't honored or the Japanese meal that wasn't up to snuff? How about the FTD offer that wasn't necessarily the bargain that it made itself out to be?

Stick around because Group Offed is here to chronicle the moments when group-buying sites trip up.

We can't help you if you're stuck with a surly waiter at a bistro. Try Yelp.com if you aren't happy with your Swedish massage. However, whenever there's a city-wide deal failure, Group Offed will be here to let you know.

Comment on any of our posts if you have tips, peeves, or suggestions.

G.O.