Groupon Fallout: Digital Deals Good for Consumers, Bad for Businesses

Groupon Fallout: Digital Deals Good for Consumers, Bad for Businesses
Groupon co-founder and former CEO Andrew Mason

Groupon co-founder and CEO Andrew Mason, programmer turned daily-deals pioneer, resigned dramatically Thursday, with a tongue-in-cheek styled memo that followed a dismal revenue projection and tumbling shares.
The company, with 10,000 employees in 48 countries, is not necessarily in shambles, but the digital daily-discount model is in a freefall, looking for firm ground.
The bottom line: consumers get the better deal — while businesses offer deeply-discounted goods or services. But the merchants are not getting what they expect: increased shopper traffic looking to pay standard retail prices, or anything near regular prices.
Consumers, it seems, expect more deep discounts all the time.
And its not just Groupon that’s hurting. The No. 2 company, Amazon-backed LivingSocial, is in pretty bad shape. Amazon took a huge $169 million writedown on its $175 million investment in LivingSocial. Not much later, LivingSocial laid off 400 employees, or about 10 percent of its workforce.
Groupon shares took a nosedive Thursday following a week fourth-quarter earnings report. It dismal day for Groupon came after the company revealed in its earnings call that first-quarter revenue would be about 10 percent below expectations.
“After four-and-a-half intense and wonderful years as CEO of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding — I was fired today,” Mason said in his now widely read memo. “If you’re wondering why … you haven’t been paying attention.”
Ironically, as daily deals sites struggle, the number of online coupon users in the United States continues to rise, according to eMarketer. An estimated 92.5 million Americans redeemed a digital coupon in 2012, up 4.9 percent from 88.2 million in 2011.
Discounts coupons in the digital age will still have a key role in attracting customers to businesses who partner up with these ventures. But the reality is that consumers were not sticking around and paying full prices.
The popularity of the daily deals sites fueled an unabating bargain-hunting mind-set among customers that did not even use them the initial discounts.
“Every day, we get an e-mail or phone call saying, Can we match someone else’s price?” said Jennifer Bengel, direct of the New York City spa Wellpath, told the New York Times in a 2011 article on the impact of the Groupon-like sites. “We’re not Wal-Mart.”
Mason began to re-invent Groupon several weak quarters ago, trying to delve deeper into services for small businesses, well beyond trying to snare customers via deals-of-the-moment emails.
Groupon is transforming itself more into a deals marketplace, a site where merchants can tweak their offers up or down to match their needs. Groupon is also letting users search for deals by type and location, and providing more discounted physical products (as opposed to an oil change for your car or a soothing massage for your aching back) called Groupon “Goods” — and a new credit card payments processing service.
Groupon launched an iPad-based point-of-sale (POS) service for retailers and restaurants in October. It is integrating payments and inventory management into the POS service.
“The honeymoon is over for group deals,” IDC analyst Karsten Weide told USA Today. “At some point, the bottom line speaks loudly and I would assume that a lot of them will go out of business.”

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