2010 wasn’t only an eventful e-commerce year for Amazon, but also for Groupon. Alexander Graf of German e-commerce/tech blog Kassenzone posted an interesting analysis a while ago (in German) which is still worthwhile to summarize here. Graf distinguishes Groupon’s development into four phases:
- Phase 1 – 50% discounts in your city: the original single deal per day.
- Phase 2 – 50% discounts on your favourite deals: Groupon introduces personalisation.
- Phase 3 – Short term planning: Groupon as a platform: Groupon starts its own platform with Deal Feeds and Groupon Stores.
- Phase 4 – Long Term planning: Shopping recommendations in your area, the Google Bet: Groupon wants to become the #1 launching pad for local shopping.
Due to the internally dubbed “Groupon 2.0” platform, Groupon can be divided into two distinct parts:
Part 1: The classic Deal of the Day: 50% for Groupon and new customers for the participating businesses
Part 2: Groupon Stores and the platform: 10% goes to Groupon for Store-Deals (30% for promoted Deals), customer loyalty for the participating merchants, and new customers coming from cross linking and processing of the additional user information.
Part 1 took care of the brand awareness and the dramatic growth of Groupon and will continue to be an important component of the business model. But Part 2 may be what brings in the real revenues. Kassenzone:
“While the margins with this model sink at first 10%, the costs for supporting campaigns also sink to a minimum.”
If Groupon is able to better estimate the preferences and social environments of their end users, they could also use Part 2 to drive the “deal discovery” experience for previously unknown merchants and thereby generate new customers for the participating businesses.
The most important aspect for Groupon is that the platform builds an easily scalable service. Part 1 remains a very manual business, Part 2 is exactly the opposite.
In addition, and this not to be underestimated, with a successful platform, Groupon can use its market coverage to create a barrier of entry for others doing business in the same space. In worse case, the competitors are competing against the Groupon Stores with its low 10% fees.
Of course, Groupon needs to keep the fun going on the platform and with the Groupon Stores, or else end up as just another marketplace on the web. How Groupon is going to achieve this is the interesting question. In the end it will be dependant on the information architecture on the platform. Success or not, there will be a lot learned out of Groupons actions in 2011. James Surowiecki writes in the New Yorker:
"Groupon isn’t just flinging piles of deals at users; the idea is that it’s performing a “curatorial” role, and is relying on humans, instead of on Google-style algorithms. All these things are real assets—and a reason that Groupon is less vulnerable to competition than people think—but they’re also very labor-intensive."
The well known search engine expert John Battelle retorted in his blog and claims that Groupon has created a new channel for local businesses. With this, he claims, Groupon is following a path similar to the Yellow Pages and Google and will be able to outstrip this potential in revenues.
"Groupon, I believe, has the potential to be a new proxy - one that subsumes the platforms of both the Internet and the telephone, and adds multiple dimensions beyond them."
Batelle goes on:
"To my mind, the proof is in Groupon's growth rate. I've never seen anything like it - well, since Google. And just as Google lapped the Yellow Pages in a fraction of the time, Groupon seems to be on track to do the same to Google.
Good sources have told me that Groupon is growing at 50 percent a month, with a revenue run rate of nearly $2 billion a year (based on last month's revenues). By next month, that run rate may well hit $2.7 billion. The month after that, should the growth continue, the run rate would clear $4 billion.
Google's run rate, when revealed in its IPO filing six years ago, was staggering - it grew from under $200 million to $1.6 billion in less than three years. Groupon is on track to do the same - but in less than one year."
In the end it is still completely open whether or not Groupon’s platform strategy will succeed.
A notable comment given on Battelle’s post:
"There are literally thousands of categories in the yellow pages, not all of them are "Groupon-able" whereas Google still has a considerable advantage for the classifying, mapping and rating of all SMBs (ie, plumbers, divorce lawyers). Flyers, Entertainment Book and Valpak are the ones getting kicked in the pants here."
If Groupon is successful, they will be in the long run the most important connection between the majority of local businesses and the internet. Although its still open as to whether or not they can achieve this, it is not looking unlikely.
Originally posted in German by Marcel Weiss, adapted for excitingcommerce.com by Jason Soo.
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