Recently Groupon turned down a $5.3 billion dollar buy-out offer from Google and two weeks later raised over $1 billion in cash. While those numbers are impressive, its how Groupon’s business model as one of the fastest growing sites on the Internet, can help your business grow.
How does Groupon Work?
Groupon works with a network of merchants and service provides to promote their services to consumers by offering significant coupons or discounts to use at their businesses. Businesses benefit from immediate revenue generated through Groupons large direct email network and online market place. Under Groupons current business model, Groupon charges a fee based on the total value of the offer (sometimes 50% or more) as a marketing fee. Groupon makes money on every transaction (sale of your product) and it’s that business model that has Wallstreet and Mainstreet excited. In the course of two years Groupon has grown to 50 million subscribers in 35 countries making their model extremely attractive for businesses seeking immediate local and occasionally national exposure.
While many businesses have to absorb the loss of the discount, their strategic goals usually revolve around gaining immediate credibility (Groupon performs some due diligence), exposure, repeat buyers and generating plenty of Buzz. From an advertising point of view, a business could potentially spend thousands or millions of dollars in paid advertising to generate the same type of word-of-mouth buzz Groupon is able to deliver at a relatively more affordable rate.
The ease to engage and run a Groupon Daily Deal coupon is also very attractive to companies with limited staff, resources or time. The deals are limited in duration and occasionally in quantity and offer businesses a reliable revenue stream.
What are the Disadvantages of Groupon?
There are a number of disadvantages to be aware of when deciding whether a Groupon daily deal will work for your business. Typical deals are 50% off the original retail price and many business owners only earn 25% of what they would normally generate through this type of promotion. Customers may also be less loyal and may wait to see another offer or discount before engaging you directly. Business owners also need to examine the risk associated with the initial brand experience that may be devalued through the discounting process.
Why is Groupon so Valuable?
Groupon is essentially an online advertising company, it captures attention through its “Deals of the Day” and promotes your business directly to consumers via email. Groupon is highly focused in developing its local and regional reach as a source for consumers find discounts. Groupon’s also holds the largest market share and has spawned a large amount of clone and imitators.
What is the Future of Groupon?
Groupon is capitalizing on its recent growth by expanding its business model to its own Groupon online store. The very nature of their “Deal of the day” prevented them from maximizing on potential revenue streams.
Groupon recently launched its online store allowing merchants to participate in Groupon Stores. The new website is only available in select markets such as Chicago and Los Angeles and will soon be tested nationally.
The new Groupon Store website merchants have the ability to select between two types of marketing agreements. Businesses can either elect to have Groupon promote their the deal, Groupon keeps 30% of the revenues. The companies can elect to promote the deals themselves, then Groupon only receives 10% of their revenues.