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GroupOn – Strategic Analysis

, September 19, 2012, 2 Comments

Evolution of  “deals space”

With the convergence of social, mobile and local commerce, data has become abundant. Merchants love firms which provided superior analytical insights and help them to achieve incremental sales and they are ready to pay premium for such services. So who took advantage of this deal space? Data analytics/technology firms understood the shortcomings of daily deal model and started addressing them. Firms came up with a more sustainable and measurable approach called “card linked offers” (CLO). In this model, customers are provided with coupons/discounts based on their historical transactions and CLO brought in the ease of use through linking the discounts/coupons to their bank cards. More importantly these CLO’s provided location based services and highly targeted offers through sophisticated data analytics.

Can GroupOn’s acquisitions help them to turn around?

GroupOn acquired 18 companies, 13 of them in the past 16 months, which is really aggressive according to industry standards. Some people debate that these acquisitions failed miserably or brought in no synergies, but I believe these acquisitions can save GroupOn from spiral death and transform into a more matured profitable firm. So why do I beleive GroupOn still have a chance, let’s step back and look at a broader value chain of customer buying process. The picture below maps customers shopping cycle and how merchants can address them, GroupOn has acquired either the products or at least the human resources required to develop a full fledged merchant service provider. If GroupOn can succeed in tightening up their internal controls and address the current gap in their business model by bringing in the knowledge/products from acquired firms, they still have a good chance to survive and grow sustainably in future. It’s not easy; it needs a strong leadership and long term view to turn around from current mess they are in.

GroupOn has certainly succedded in creating a “coupon” culture across all tiers of the society. Now its time for them to address the gap in their business model, try to retain their merchant relationships and provide a full fledged merchant service. Highly fragmented deal space and financial industry will buy some time for them. They should not just concentrate on short term topline growth by bringing in new product lines like “GroupOn goods”. Yes it is important for short term stock price but unless they take a drastic step to integrate and bring in synergies from their recent acquisitions, GRPN may be removed from NASDAQ or might be acquired for a bargain just because of their merchant network/consumer base.

GroupOn had something in mind when they declined the $6 billion offer from Google, I believe its not just overconfidence.

  • Karthick Prabhu E

    Great Analysis and a well written article Karu… 🙂

  • Karnan Ariaratnam

    So here is an update regarding GroupOn’s payment
    “Square competitor Groupon Payments launches today, promises lowest cost for retailers”