Is Groupon Doomed to Fail?

Daily deals giant and one-time darling of Silicon Valley, Groupon, is having a hard time of it. An IPO in 2011 raised a whopping $700 million, apparently more money at the time than any US firm since Google. But more than four years after the flash deals specialist was valued at nearly $13 billion, there’s very little to celebrate.

In September, the firm announced over 1,000 job cuts as part of its ‘One Playbook’ plan to cut debt and kick-start growth. Its CEO has moved across to chairman and the firm is quitting several markets including Morocco, Panama, the Philippines, Puerto Rico, Taiwan, Thailand and Uruguay. In November the firm’s shares plummeted 27% after it forecast 2016 revenue of $2.75 billion-$3.05 billion, below analyst estimates.

So what went wrong? I’ve been chatting to analysts for a piece in IT Pro (Hong Kong) about this and the general consensus is that it shouldn’t have IPO’d when it did. IDC Retail head of Europe, Spencer Izard, told me that the firm simply can’t keep up with the demand for high quality deals on a daily basis, so it’s failing in turn to meet the insatiable growth demands of shareholders.

For Gartner’s Sandy Shen, it’s a vicious circle. Groupon is not coming up with consistently good deals, so customers are leaving. Merchants see these falling customer numbers and the fact that most are only after that one deal and aren’t returning, so they also lose interest.

For Miya Knights, global technology research director at Planet Retail, there’s simply too much competition for the firm these days, and not just from bricks and mortar stores, which have lowered their prices to match the web.

“Groupon was first to the flash deals party, but has certainly not been the last. The space it occupies has been filled with direct, global and local competitors that offer deals across a wide range of categories, like Wowcher in the UK. More niche, specialist deal sites, for hotels, holidays, and home furnishings etc. have also emerged to fill the space,” she told me by email.

“Groupon’s figures, however, show it still has a loyal customer base and that revenues are strong. It’s just that its business model is broken: it does not generate enough revenue from its daily deals, which is where the margin lies, and relies too heavily on selling goods at discount prices, where the margins are tiny.”

So is there any hope for the site? It’s now trying to rebrand as an online marketplace, but with the likes of Amazon and eBay also playing in that space, the future doesn’t look too rosy.