Is Groupon the next Google or

The scene was so hokey that if it was filmed as a commercial, no one would believe it. As I walked by an older couple apparently on a first date walking out of [Hobees]( restaurant in Palo Alto, Calif. the lady says to the guy:

“Thank you for the dinner, it was lovely.”

He then stops and looks into her eyes to say, “Oh thank YOU for the Groupon.”

And this was only one of several Groupon moments I’ve encountered recently. My wife and I recently went on a little get-away to the charming and aptly-named [Darling House]( bed and breakfast in Santa Cruz . During the morning breakfast we discovered the four other couples staying there had all also cashed in Groupons.

Groupon, the email, deal-a-day online coupon phenomenon, has seemingly come out nowhere to become one of the most talked about Web startups in years. After reportedly passing on a $6 billion deal by Google late last year, Groupon went out and raised almost a billion dollars on its own. Its nearest competitor, LivingSocial, has been busy too, snaring a $175 million investment from Amazon.

Investors saw a good chunk of that money put right to “work” as both companies ran ads during Sunday’s Superbowl, the most expensive TV ad space there is.

How effective were the ads? Maybe too effective. Sunday night I tried to log in to my Groupon page but was greeted with the message:

“Sorry! Due to extremely high volume, this page is temporarily unavailable.”

I’ve got some great deal from both sites on restaurants, hotels, spas and more (finally I get to try to an isolation tank)! But I’m not totally sold Groupon or any of the wanabee sites have the staying power to become true Web giants.


The basic value proposition these sites offer to vendors is new customers. Groupon et al, finds local vendors willing to offer great deals, often from 40 to as much as 90 percent off the normal price. The deals are limited time offers Groupon sends to its regular email list and also features on their main site. Registered users can specify they want to receive email deals in their particular city or region.

But vendors reportedly pay Groupon et al a hefty 40 to 50 percent commission of the already discounted deal for each purchase made. So the vendor is essentially getting only around 25 percent of the normal price for each purchase.

In one sense, that’s still a great deal for the vendor if the exchange leads to repeat business or great word of mouth buzz. There also might be some money to be made from no shows. Just as gift cards often go unused, some percentage of Groupons are undoubtedly never used by their expiration date – often a year from purchase, but also much sooner in some cases.

“The merchants like the idea of no risk, that it’s not a speculative investment, it’s tangible,” Internet analyst Greg Sterling told me. “But for that clear value exchange they’re giving up a lot of money. The idea is to convert them to repeat customers, but there are so many of these sites now pushing so many deals that the space has to cool off. I really only think there is room for a few companies to succeed.”

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