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Jay Weintraub is the founder of LeadsCon and the Daily Deal Summit. The Internet marketing strategist and columnist has served stints at Advertising.com and Oversee.net. He is also a regular contributor to DM Confidential.

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Were I a Groupon Bear (and It’s Hard Not to Be One These Days)….

Written on
Sep 16, 2011 
Author
Jay Weintraub  |
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Were I a Groupon Bear (and It’s Hard Not to Be One These Days)….

JAY WEINTRAUB – Web guys like me have been evaluating internet traffic for years. I’m on the wrong side of 30 by some investors’ criteria, but on the right side of that number to recall what happened in the early days of web advertising and the issues that could potentially even bring down Facebook. Not surprisingly, traffic is at the root of the issue for Groupon just as it ultimately was for companies like All Advantage or the slew of free lotto sites — foot traffic AND web traffic.

Foot Traffic

Were I bear, I would focus on how daily deal sites like Groupon can get someone to come once, but how they do nothing (today) to help a business get a repeat customer.

This argument is a difficult one. What is Groupon’s responsibility? Is it Google’s responsibility to get you repeat customers after sending you paid clicks? Google continues to add tools that make you want to spend more, but they have yet to offer tools that makes them accountable for your lifetime value.

The challenge with merchants is that the vast majority of merchants have not thought about their business in terms of lifetime value. We see this with lead buyers who when asked what they would pay for a lead say one number, but when you show them what they are paying, it’s multiples higher.

If Groupon or Google in the early days focused only on those that understood the metrics, they would have fewer customers. Imagine if Google didn’t let people spend money unless they met some fiscal accountability criteria?

Where Groupon should learn from Google: put restrictions in place so that merchants can limit their downside. And don’t incent sales people in a way that allows them to make bad deals. Delay payments based on some longer-term success metric.

Web Traffic

Were I to be a bear, it would be on Groupon’s web strategy. Acquiring users is one of its biggest costs, and unfortunately for Groupon and all the deal sites, this is a cost that keeps rising — but that is not why I am actually bearish.

The company has been buying sub-optimal users. It’s a calculated gamble: technically they can purchase a lower-quality name to help build up volume in a given market (especially newer ones and harder to target ones internationally). These names may turn a profit, but this purchasing higher volume lower intent users has in my opinion contributed to the quality of customer they send to a restaurant.

Do we know for sure that buying an incentived user turns into a lower-quality customer for a business? No, but it wouldn’t surprise me to learn that a correlation exists.

LivingSocial has much higher quality standards for their web buys and won’t engage in the same acquisition strategies. They also tend to receive higher qualitative feedback from merchants. Is that enough? No, but it is interesting.

Too Big for Its Britches?

There is something about Groupon that has me (and others) thinking Webvan. The two are so different, but yet they feel so similar. So much hype and so much promise. Yet, one major market correction, and poof, there went 2,000 jobs.

A few staff reductions and the company continuing to chase profits that aren’t quite enough to cover overall costs, and almost before we know it, Groupon could decide to simply close up shop because no one else has the money or desire to keep it going. Hard to imagine such a scenario, but I would have said the same about Webvan.

Groupon has some real assets — a local customer list, great local merchant data, and a large consumer list. It has value, but it’s not a technology company, and it shouldn’t be valued like one. I’m not ready to go full on bear, but I’m waiting to see if this child star can pull a Drew Barrymore of business.

Cross-published at jayweintraub.com. Daily Deal Summit West will be held September 22-23 in San Francisco — register here.





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