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Groupon Review – Is it Here to Stay?

With group buying being the next big thing, I thought it would be a good time to talk a little bit about one of the more well known companies in this space called Groupon.  Another reason is that here in NL, the market is small, and Groupon is the only company who is locally on the ground.

Group buying isn’t a new concept, but is something that has only been brought into the mainstream in recent history.  As someone who thoroughly enjoys obtaining a good deal, the concept of getting local deals at 50% off (or more) is enough for me to willingly open my wallet.

About Group Buying

Groupon, like others in the space, all have a very similar business model, but Groupon is the largest of the group.  Their model is to create deals with local businesses for local residents.  For example, Groupon would approach a local popular restaurant, and negotiate a 50% off coupon (eg. $30 off $60 meal) in exchange for attracting a required number of local customers.  Groupon would in turn offer the 50% off coupon for their members and collect a share of the revenues.

When I first heard of this model, my first thought was that the business would be losing money so why would they do it?  They are likely losing, but in reality, it’s a pretty cheap form of advertising and it’s bringing people in the door which is quantifiable.   So it’s a win-win-win situation, the business may reach out to new customers, the customer gets a deal, and Groupon generates revenue from every transaction.

Groupon Valuation and IPO

It appears that the group buying business can be very lucrative!  It’s rumoured that Groupon (and others) collect up to 50% of each deal.  So if, for example, a restaurant offers $60 meals for $30 and sells 1000 coupons, that would be $30,000 in total revenue.  As these deals typically run for 24 hours, that’s $15,000 for Groupon and $15,000 to the restaurant in one day!  Combined with multiple deals, multiple cities and countries, it can lead to some serious numbers.

Groupon is doing so well in fact, that they plan on doing an IPO later this year.  If you’ve been following the tech news, you may have heard that Google offered Groupon $6 Billion to take over the company.  With apparent $800M in  revenue, that’s an offer of  7.5 times sales.  It appears that Groupon is profitable, but earnings have not been announced.  While I thought that was a rich offer, Groupon turned it down!  But now we know why, they plan on doing a $15 Billion Groupon IPO relatively soon.  Unless their earnings can backup that valuation, it’s unlikely that I’ll be adding Groupon to my RRSP.

My Experience with Groupon

Now I can’t write about my group buying without trying it out myself.  Groupon has an easy interface and an even easier registration system (name, email, password) which is common in social media type sites these days.  A few days after signing up, I received an email about a deal with a local specialty grocery store that I’ve been meaning to try out.  The deal was $20 for $40 worth of groceries, and as we’re going to spend money on groceries regardless, I thought it was the perfect opportunity to give the store a visit.

After paying online for the deal, I received an email shortly after that included the coupon to be printed off.   If you’re anything like me, you may be thinking how a store like that tracks these coupons and how do they prevent fraud?  Anyone can generate a similar coupon with basic wordpressing software. The answer came when I used the coupon in store.  For this particular store, they had a printed folder that included every coupon purchased, the coupon number along with name of the Groupon member.

Overall, I was very pleased with my experience and will continue to watch out for local deals of interest.

Competition?

As I mentioned, there are a growing number of sites that offer the same group buying opportunity.  Which ones have you tried?  Which ones do you like best?  The market locally is pretty small so I don’t expect too many other sites to join Groupon in NL.

Disclaimer:  There are referral links in this post.

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 40 comments… add one }
  • Chris Tringham February 7, 2011, 10:16 am

    Huge fan of Groupon. This really is the first truly great use of the internet for local advertising.

    I’ve already bought 4 Groupons since Kingston launched a month ago!

  • Future Money-Bags February 7, 2011, 10:16 am

    This is the first post I have seen on a group-purchasing company, such as Groupon. I have used groupon, as well as Social Living. They offer a deal every day, ranging from food (like you stated $30 for $60 of food), travel and resorts, family activities, local attractions like movies, etc.

    I was looking at the top internet companies of 2010 the other day, and along side Facebook, Net Flix, and the others, was Groupon. I was amazed at their revenues and company value and what offers they had turned down. I am sure they have lots of potential as a company to grow more business. It is almost foolish to not be a customer of Groupon, as well as not go into business with them to help promote your business.

    As for buying into the company from the IPO, that is a hard decision. Despite factoring in that they have huge potential to double or even triple their yearly revenue, the company could also be gone in a couple years. Being replaced by the ‘Next Big Thing’.

    Invest in a fast-growing company? Or wait for the next one?

  • Elizabeth February 7, 2011, 10:47 am

    Sadly, Groupon and it’s cohorts like Kijiji Deals and Living Social aren’t offering anything in my area yet, which is weird considering the size of the city where I live. I guess when you live near a major city (like Toronto) you’re expected to use that city’s deals? I haven’t found them to be helpful unless I want to travel to redeem them.

    I’m looking forward to these sites expanding to my city though.

  • Glenn Cooke February 7, 2011, 11:13 am

    No groupon here either.

    The local newspaper though is trying to do something similiar. We’re being bombarded with obnoxious ads for it as well. I’m tired of the ads, won’t use it for that reason alone (and their condescending tone). But groupon, I’d likely try if they ever make it here.

  • Sustainable PF February 7, 2011, 11:14 am

    The issue w/ groupon is that the business model is easily replicated. In our town we have “wagjag”.

    Groupon was silly to not sell to Google before google replicates this type of business and ends up owning the market.

  • Elizabeth February 7, 2011, 11:22 am

    I stand corrected — just got my first deal from Groupon today!

    I’ve heard there are five main sites — Kijiji Deals, Wagjag, Living Social, Groupon and Deal Find. However, so far Groupon’s the only one in my area. Deals from other cities are okay if they’re online retailers (like Chapters), but I’ve found a lot of the deals are very location specific — like a specific restaurant even if it is a chain.

    I’ve been watching the deals for TO and can’t see myself using these sites a whole lot because the offers are usually on things that aren’t in my budget (like merchandise I’m not planning to buy, spa treatments, etc.) I can see people indulging in impulse buys rather than saving on things (like groceries) that we actually use.

    Might come in handy around Christmas though!

  • George Z February 7, 2011, 11:41 am

    This might help everyone – dealpage.ca

    This site aggregates all the ‘groupons’ from major cities in Canada. Also, it doesn’t require you subscribe by email. Just thought I’d mention this hidden gem.

  • Renee Malove February 7, 2011, 11:53 am

    Bad day to post a post lauding Groupon-their ads last night cost them some customers. It’ll be interesting to see how this all plays out.

  • Echo February 7, 2011, 11:57 am

    Groupon isn’t in my city yet so I haven’t tried them myself. You are correct, the restaurant or business is surely losing money on the “deals” but they are likely gaining the more valuable new customer.

    It is said that it takes $60 – $100 to generate one new customer using the traditional print/radio/tv advertising (tv is likely much higher). So this type of program is likely to catch on with businesses looking to maximize their advertising dollars (especially small businesses).

    If you have the best pizza in a college town, what better way to get people to notice you then to have a 50% deal where the students are actually going to eat your pizza and get hooked on it? Rather than placing an expensive ad in the college paper.

    Yes, the model is easily duplicated, but Groupon is often the first-to-market and this model is working for them all across the globe. We can debate the merits of rejecting a $6 billion offer from Google, but they obviously believe in their business enough to try and cash in on the social media IPO craze that’s about to hit.

  • Jungle February 7, 2011, 11:59 am

    Never used it, but if they don’t get enough people in the group buy, the deal doesn’t go through, right?

  • Money Beagle February 7, 2011, 12:07 pm

    Big fan and I think they’re here to stay. They captured the market even though there were plenty of places doing this already. I had a number of radio stations that all had dining deals, and have had them for years. They’re exactly like GroupOn. I think what GroupOn did is bring it into a national spotlight where it’s more attractive for retailers and businesses.

  • nobleea February 7, 2011, 1:18 pm

    here in edmonton, i think livingsocial is bigger than groupon, but they are both big. there’s also wagjag, kijiji deals, and about a dozen others. groupon was foolish not to sell to google, as it’s an easily duplicated business model, and now google is getting in on it for themselves. soon consumers will be inundated with daily email deals, most deals getting worse and worse.

    as for the actual deals, i find it’s typically luxury/consumerist style items that we wouldn’t normally purchase. so in that sense, i guess it gets people to shop more. a lot of spa, restaurants, framing places, and a billion yoga studios. pretty obvious who their target market is! i try to tell my wife that it’s not a good deal if it’s something we wouldn’t have otherwise bought.

  • Mat February 7, 2011, 1:21 pm

    For those who live in the big cities, Deal Radar (www.dealradar.com) aggegates all the group buying sites into one comprehensive listing updated daily. So you don’t have to check a million sites each day, or sign up for a million email notices.

    I check Deal Radar for Toronto at least every other day, but I have yet to see a deal worth buying into. Most of the time I see a deal on a restaurant chain that I like, but the deal is only valid at one location that is nowhere near me.

  • FT FrugalTrader February 7, 2011, 1:27 pm

    @Jungle, yes, each deal requires a specified number of participants, otherwise it just cancels.

  • Rachelle February 7, 2011, 1:45 pm

    The biggest critique I have heard of Groupon comes from the small businesses themselves.

    I have read that Groupon Users don’t actually come back and pay full price.

    There are many things like that, spa treatment for $50, sure but who wants to pay $100 when you can get another groupon for the place down the road?

    For the business owner it can be very bad because on top of the 50% off deal groupon takes at least another 25%. For small ticket items if can be as much as 100%

    Seriously I want new customers too and I’d have millions if I worked for free.

  • SteveF February 7, 2011, 2:36 pm

    I think they should have jumped at the $6B from Google (assuming the story is accurate). Groupon’s margins are going to get smaller, as the idea catches on. If the restaurant ‘sells’ Groupon a $100 meal for $25, and the meal is offered to members at $50, it’s a great deal – but how long will the restaurant stay in business? If they justify it from a sales & marketing perspective then they can write off the cost in future margin gains, therefore increasing future sales, but is it sustainable?

    Groupon also caters to a small percentage of the consumer market – you will never see deals for goods, because the margins just aren’t there. 50% off a big screen TV? Groceries? New car? Restaurants, Spas, Events for sure, because the last ticket sold is almost all profit, but never tangible goods that have a per-unit cost.

    Take advantage of the deals while you can – don’t think this model is sustainable. Certainly not an $18B valuation! Perhaps buy in the short term with money you can afford to lose – I won’t be buying any in my RSP!

    Steve.

  • Chris Tringham February 7, 2011, 2:41 pm

    I love this near unanimous distain for the Groupon business model and valuation. Tells me that this could be a cheap stock on the IPO.

    I think this is the best new internet idea of the past 5 years (except Facebook) and would be happy to invest at a $15 Bn valuation.

  • Geoff February 7, 2011, 3:25 pm

    Facebook wasn’t a new idea really. It was a superior execution of friendster, myspace, and the like.

  • nobleea February 7, 2011, 4:00 pm

    “follow up studies have shown that only 13% of customers are willing to pay full price for the service/ product afterwards. The people who use Groupon are bargain hunters”

    most retailers lose money on the deals, they are hoping that A) some people don’t redeem their coupons (likely) and B) it will build brand loyalty and people will return (unlikely).

    as has been mentioned elsewhere, I would rather invest in Raytheon or Alcoa at a $15billion valuation rather than groupon.

  • Mark February 7, 2011, 8:09 pm

    15 Rachelle and 19 nobleea, this is exactly the problem with services like groupon. As a small business owner myself, this attracts exactly the *wrong* kind of customers to my business. People that will only shop there if they get something for half price? Not interested.

  • cannon_fodder February 8, 2011, 6:48 am

    nobleaa – thanks for posting that statistic. It supported my theory (based on my own personal consumption habits). If you are willing to sell me something at half price then that’s the new ceiling for future purchases.

  • FT FrugalTrader February 8, 2011, 9:00 am

    @frugaldoc, you are right, disclaimer added. As a side note though, I only put referral links to products/services that I recommend use myself. If I was referring for the sake of referring, I’d have pay day loans and forex posts everywhere!

  • SavingMentor February 8, 2011, 10:24 am

    I think these group buying websites are great and it is a fantastic way to try out new local restaurants and services for cheap. Although, I do have to agree with others and wonder if it will be sustainable in the long term.

    I have only used Groupon personally while I was visiting Vancouver for some Go Karting, which was a blast. Unfortunately my area doesn’t have any group buying sites in operation yet. I am planning to write a post myself on group buying very soon as I have already done all of the research into it.

  • Jeevan Trehan February 8, 2011, 12:52 pm

    I have used Wagjags and got couple of good deal coupons, yet to use them. But the deals are so good atleast on paper that you don’t want to loose them.

    My only concern is here what happens if the business which sold all the coupons got out of business suddenly, will these companies such as Groupon honour those coupons..I would like to hear what these companies have to say about this

  • Dilbert789 February 8, 2011, 2:04 pm

    I found this review from a small business owner that had a bad experience with Groupon. I found it eye opening. http://www.retaildoc.com/blog/groupon-worst-marketing-business/

    In the original example you stated they get $15,000, however they are liable for up to $60,000 worth of product! The commission that goes to groupon is WAY too high. It should be 5-10% considering all they are doing is providing a meeting place and sending some emails.

  • AllDailyDeals.ca February 8, 2011, 11:05 pm

    Jeevan,

    Here is what TeamBuy says about that:

    “What happens if the business that featured a deal closes down?

    We will do our very best to ensure this never happens. In the case that it does, you will receive either the deal you purchased or your money back, 100% guaranteed!”

    Groupon has a somewhat vague guarantee that sounds like it would cover that case:

    http://www.groupon.com/blog/cities/the-groupon-promise/

    And here is LivingSocial’s policy:

    “LivingSocial will provide a refund of the purchase price paid by you for any Deal within five days after the purchase of a Voucher, provided that the Voucher has not yet been redeemed. After five days, we do not provide refunds except that we will provide a refund if you are unable to redeem a Voucher before the applicable expiration of the Voucher because the relevant Merchant has gone out of business.”

    So in summary, it seems that at least the major group buy sites promise to issue a refund is the business shuts down.

  • The Passive Income Earner February 9, 2011, 1:48 am

    We have bought a couple of times now but we have not used it. We got dinner at a restaurant and family activities. I think for many, it’s sometimes too hard to pass on the deal. Which is money spent today for a future consumption. So you need to be careful not to get caught in the amazing deals for the sake of the deal. There is a lot of money to be made with that discount psychology.

  • tyler February 9, 2011, 7:20 pm

    I heard Google is developing their own since they were unable to buy Groupon; doesn’t seem like its too late to take market share.

  • Steve Zussino - Canadian Coupons February 10, 2011, 5:37 pm

    Groupon is just a new Entertainment Book.

    I used them once on a trip to Seattle and to Vancouver.

    Most of their “deals” are not really deals – like the FTD deal yesterday where Canadians had to pay a $19 fee (after their $20 for $40 coupon).

    Stick to real savings for coupons where you don’t pay for them!

  • Mateo February 10, 2011, 8:18 pm

    Use groupon a fair bit, but I do think it has the effect of going out to eat more which is pretty easy to “get used to” (read: dangerous!).

  • Scott February 11, 2011, 1:49 am

    These referral reviews are a waste and misleading. I dislike the biased reporting and certainly think less of this blog when I read them. What sort of kick back does group on give you for signing up readers anyways?

  • youngandthrifty February 11, 2011, 7:36 am

    I did a monster post on my blog about Groupon a few months ago and was pretty late on the band wagon (all my friends were talking about Groupon).

    I have become a groupon addict and do find the multiple daily emails annoying, but do often find some gems in there. The key is to use them before the expiry date!

    I have limited myself to a groupon ban (lol) until I free up the “queue” of groupons I have yet to use. My most recent Groupon purchase was $50 worth of American Apparel clothes for $25.

    In Vancouver, we have the whole shebang (wag jag, living social, groupon, etc. etc.) which can be overwhelming. I have since unsubscribed to the smaller companies (often they don’t offer great deals anyways).

  • youngandthrifty February 11, 2011, 7:38 am

    @Scott- I think the referral fees that a blogger gets through an affiliate link are similar to ones you would get were you refer a friend via email or facebook.

    I believe its $10 of groupon credit.

    So you could technically get all your friends to subscribe to groupon and you would make money from being an affiliate too.

  • SavingMentor February 11, 2011, 12:05 pm

    @youngandthrifty for Groupon it isn’t even close to $10 unless the Groupon is quite expensive and that’s only for first time purchasers. After that it drops by 80% for repeat purchasers.

    @Scott
    I don’t have a problem with bloggers making money off a product that is beneficial to the people they are recommending it to as long as they actually believe in it or are at least honestly reviewing it.

    Producing all this quality content takes endless hours of work and some compensation (often not enough) through advertising and affiliate links is acceptable in my opinion. Supporting your favourite blogger by clicking their links and interacting with their advertisers is a good thing so they can afford to spend more time writing quality content!

    I felt that way long before I started writing content myself. Having a disclaimer is a good thing though and I will be putting one up myself soon.

  • Jane Sanders February 15, 2011, 2:32 pm

    I absolutely love Groupon! I just hope I don’t end up overbuying just because I can’t pass up some seemingly good deals.

  • Michelle April 1, 2011, 10:41 pm

    For the group deal fans, http://www.dealbriefing.com combines links to all the Groupon type sites so I didn’t have to subscribe to every site or check them all separately. Love love love the convenience!

  • Katy September 11, 2011, 8:58 pm

    I love Groupon and their recent introduction of Groupon Now, so convenient. I personally think the business model will last for a while as long as the quality of the vendors remain good and trustworthy.

    In addition to Michelle’s suggestion, I use http://www.dealsnapshot.com/, which is a deal aggregator website that helps me keep track of all the ongoing deals including Groupon, LivingSocial, Dealfind, etc.

  • RG September 17, 2011, 11:40 am

    NOT if they don’t pay attention to the service provided by the suppliers.
    NOT if they don’t start enforcing SLA’s on supliers….

    I have bought ample of Groupon deals. It used to be very good at the beggining and was good value for money. However, after it became popular, the service has gone downhill. Specially the Spa deals are a big NO-NO. It is almost impossible to get an appoinment. I have been calling Chelsea Spa to get an appointment for 2 months now and it always goes on voicemail. When I emailed their customer service, they said I have to keep trying. Now they have even stopped responding to my emails. So I am stuck with this Groupon deal!
    I have had similar experience with O Spa deals on Groupon.
    For one other Spa deal, I got an appointment date of 3 months later, even though I called within 48 hrs of purchasing the deal.
    I think it’s time Groupon considered quality of service provided by the suppliers. It’ll not be long before customers will stop buying because of the pathetic service. I have already stopped buying any Spa deals.

  • Ella February 21, 2012, 4:22 pm

    I have a bad esperience with groupon restaurant deals in my area. After being very diappointed twice I now don’t buy groupon restaurant deals anymore…

  • Francine Carstensen April 13, 2012, 1:19 pm

    I had a terrible experience with Groupon. Received Groupon as a gift (Note this is like having a gift card with a value associated with your name on the gift) Groupon records this transaction and for the associated “deal” so they know how much the valuation was for and who the gift was purchased for.

    If the company offering the service through the Groupon does not honor it within the time allotted. Groupon’s Customer Service team refuses to either intercede on your behalf, nor will they offer you credit towards another groupon.

    Hence – tbey keep all the money and there is no recourse.

    The “Groupon Promise” is a crock. Save your money. Or, DON”T give Groupon as a gift unless you really dislike the person you are giving it to, and just want Groupon to keep your money.

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