Rob Wheeler at Harvard Business Review has a must-read piece on the health of the Groupon business model.
An excerpt:
“Groupon’s fundamental problem is that it has not yet discovered a viable business model. The company asserts that it will be profitable once it reaches scale but there is little reason to believe this. The financial results of Groupon’s traditional business continue to deteriorate, especially in mature markets, and new ventures such as Groupon Now also have failed to drive profits.
And unlike the very few successful companies that scaled before they were profitable (think Facebook or Amazon), Groupon’s business model does not benefit from significant network effects. The company’s product is not more valuable to users as more people adopt the platform. If anything, the fact that Groupon is witnessing decreasing revenue per merchant and fewer Groupon purchases per subscriber in its maturing markets suggests that growth may actually decrease Groupon’s value to its customers. Yet, Groupon maintains a blind faith that growth will be its salvation. As Pets.com learned in the last bubble, such a strategy works just fine until you run out of other people’s money to spend on growth.”
Being compared to Pets.com? Ouch.
I’ll be honest: I’m rooting for Groupon. Its success or failure will define the Chicago tech scene for years to come, and Chicago is my home city. But right now, I just can’t find the business model.
Mmm I think that if more users adopt the platform is it more valuable because it activate more of the Groupons Special…
We have the sustainable business model. Currently raising money for further product development. http://www.PaidPunch.com
The reason for Groupons failing in the UK is simple. Spammy emails selling crap like segway safari’s and fish pedicures.
Groupon has a fundamental flaw. Most customers (vendors) do not renew therefore growth is restricted to new customers.  This means once geographic expansion stops the revenues declines. Further, deals are no longer deals when they are common place. Profitability must be achieved at modest scale. Growth should increase incremental profitability as well as total profitability.
Yeah, early on as a Chicago boy (Northbrook) I was hoping Groupon would build off Feedburner and some other successes, but I became a doubter about a year ago. Â They’re only save right now is an IPO and some dumb hedge fund and mutual fund money coming in to save the day.
As much as I like Groupon, I’m glad they refused Google’s purchase offer. Â It would have been a waste due specifically to the lack of growth potential. Â Unless Groupon comes up with something drastically different and “un-duplicate-able” they will eventually just wither away.