The Groupon Magic – How Black Is That?

What is Groupon? It is the fastest growing company of all time, on this planet. It is one company everyone predicts will collapse because its business model is easy to copy. It is that company that has no special IP except that it has armies of staff that go into all neighborhoods looking for deals with merchants.

 

Groupon  is a deal-of-the-day website that features discounted gift certificates usable at local or national companies. Groupon was launched on November 2008, the first market for Groupon was Chicago, followed soon thereafter by Boston, New York City, and Toronto. As of October 2010, Groupon serves more than 150 markets in North America and 100 markets in Europe, Asia and South America and has amassed 35 million registered users.

 

Yet, it continues to rise and rise as the world wishes it crashes to justify why this company is not great.

 

One fact is this: Groupon enjoys the blessing of being the first that entered into this business. They have made more lessons than others and have understood the business better than others.

 

Yet, do not be buoyed. All is not well with Groupon. They are burning cash at a very fast pace than I have never experienced before. To cover more space, they have to pay more salesmen to go into streets and cities. That is the problem in Groupon. You make money but you spend a lot on marketing.

 

Expect Groupon to be under high cost pressure which will cripple their operations and then this group buying will be commoditized.  Nonetheless, the network effects upon which size matters could still make Groupon win.

 

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