It emerged yesterday from Hitwise that Groupon’s website traffic has declined by nearly 50% in recent months. So, what now for the voucher site, which was touted as a multibillion dollar takeover target just this summer?
We discussed a couple of months ago that Groupon missed a huge opportunity not taking Google’s multibillion dollar offer—all around the time that Facebook began getting involved in the localized deals space and looked set to trounce Groupon. (Hey, 750m users can’t be wrong, can they?)
Groupon Is Mass Direct Mail of the 80s
Only this week too, we are reminded of the heat and competition in the sector with the Advertising Standards Authority reporting that Groupon accounted for around half of all ASA Voucher rulings. OK, it was only 32 but that’s still something. The ASA comments show that localized deals are fast becoming the old mass-market direct mail of the modern age.
If you’re anything like me, you have daily emails from any number of voucher code sites: LivingSocial, Groupon, Frugaloo, etc. Just how many deals CAN one live/deal with? Inbox overload aside, there just isn’t enough money to go around most people’s pockets—especially at the moment. Which then prompts further discounting … and more emails. Where’s the relevance?
Facebook Isn’t Gone For Long
In one regard, Facebook’s withdrawal this week from localized deals does Groupon a few favors: It’s one less competitor after all, but I see this as more of a re-grouping than a total withdrawal. It always seemed a little clunky adding a whole new type of business model onto what was effectively just the old Facebook Places “platform.” When Facebook DOES come back, it will mean (mobile) business. On one hand, it’s easy to think that Facebook’s withdrawal suggests that if it isn’t doing it, the sector isn’t worth playing in. Hitwise’s reports of dramatic traffic losses over the summer for Groupon (over 50%) suggest this to be the case, too—so why the rise in Living Social’s traffic of 27%?
Scare Stories Stick
For me, it appears that there is now a resistance and dislike of the global behemoth. Around 3 months ago, there were very damaging rumours of truly nasty experiences by businesses at the hands of Groupon. The ASA rulings suggest that this unrest is now on the both sides of the fence. Admittedly, there was a high degree of naivety on behalf of these business owners in providing too high a value cash discount that ultimately damaged their business, but the impact of the rumours was enough to affect other small businesses from doing similar deals.
It is this scaring of small, local business that has undoubtedly led to Groupon’s decline in its Q2 merchant numbers and could bring the whole house of cards down. The reason for this is that, potentially, Groupon is a fantastically cashflow positive business. It immediately earns cash from the point a user purchases a deal and only pays its merchants after 60 days. The problem it has now though is that it OWES a significant amount more in OLD deals than it has cash in the bank.
Business Insider put this amount at $392 million of outgoing payments due versus $225 million of cash in the bank. It’s basically paying out old merchants with new money yet all its problems are resulting in a decline in the number of new merchants and therefore cash coming in to the top of the business.
So, all of this hitting its profits naturally limits its opportunity for IPO and to make mega bucks—if it technically owes more than it has, who would buy in to that? But, it may not be ALL doom and gloom. The big strength of Facebook Places as the vehicle to deliver localized deals was that it was with you all the time. You didn’t need to receive an email to bag a deal. You simply checked-in on your mobile and exchanged the deal or not.
Now that Facebook has withdrawn from this sector (for now), Groupon Now (its always-on deals scheme) has the opportunity to claim this space before anybody else.
Heaven knows, Groupon if nothing else has scale to make this effective quickly.
