Groupon: The Billion Dollar Gamble

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There’s a whiff of the tech bubble surrounding Groupon, a company that — according to a recent article in the Times — seems staffed almost entirely by recent college graduates with non-lucrative majors. The 27-year old senior editor has a degree in poetry and feels “kind of old compared to everyone else.” Groupon’s 400-plus writers and editors are based in Chicago, and earn around $37,000 a year (for a new writer) to come up with zany ways to sell one of the most boring things out there — coupons. Oh, and they recently turned down a purported $6 billion buyout offer from Google. Is this the future of marketing?

(If you haven’t yet been inducted into the cult of Groupon, here’s how it works. Each day, each of the 177 North American cities that the company covers offers a discount on a local product or service, and you’ve got 24 hours to buy in. Recent Baltimore offerings include a $10 coupon good for $20 worth of food and drinks at Zen West, or $149 for two hours of labor from College Hunks Hauling Junk.) Baltimore-founded venture capital firm New Enterprise Associates was an early investor in Groupon. 

It’s actually a pretty simple business model; the Times argues that the reason Groupon dominated while other efforts failed is thanks to the very zaniness it cultivates in its copy. (“There comes a time in every cowboy’s life when he must become a cowman, leaving behind his spurs and hat for a cowbell, hooves, and a penchant for chewing grass.” That’s supposed to sell you the Zen West coupon, if you couldn’t tell.) You might find it endearingly irreverent or teeth-grittingly irritating, but it seems to work; the company’s already made more than a billion dollars from the businesses that seek out Groupon to give themselves a marketing bump.

But does it result in higher sales or repeat customers for the businesses themselves? That remains to be seen. For one, the very irreverance of the marketing copy can sometimes overshadow the product or service being sold. Then, there’s the fact that deal-loving Groupon buyers may not turn into those lucrative repeat customers after all.  Not so long ago I used a Groupon at a local coffee shop — one I’d never been to before — and asked the owner if the Groupon investment had worked out well for him. According to him, it just resulted in a bunch of thrifty one-time customers. I turned out to fall into that camp. The food was great, I loved the atmosphere — but, well, I just haven’t been back.



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