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Groupon IPO: Praying for success?

Groupon was a profitable company and labeled as the fastest growing company ever, but when it filed it’s S-1 to go public last Thursday, receptions has been mostly negative.

A Ponzi- Scheme?

The founder of Knewton argued that Groupon business is a straight-up Ponzi-Scheme. The thoughts also highlighted that more and more Groupon revenue is actually bad, assuming a “deal” of 50% off retail, will only give 25% revenue to a merchant with the other 25% goes to Groupon.

Looking from a different angle, understanding a “group-purchase”, the Groupon approach to merchant isn’t really bad. Groupon is advertising. Giving discount is just another method of marketing and promotion therefore merchant approach to use Groupon helps grows business by offering discount to new prospects and existing customers. Whether they will come back as paying customers, is another matter.

25% of revenue for one-time promotion of group-purchase is not bad at all when Cofounder and CEO of daily deals aggregator Yipit, Vacanti says that if a business has a successful Groupon, it can’t return to Groupon immediately. A business might have to wait six months before it runs another Groupon.

Customer Loyalty

Clearly Groupon does not practice loyalty-based management. A survey found that 40% merchant would never work with Groupon again, but this survey result was reported September last year. Jessie share her experience of worst business decision – working with Groupon.

On the other hand, Vacanti based on Yipit data product unveils 44% of daily deals run in May 2011 were run by businesses who had already run a daily deal on Groupon;

If they really had a bad experience, why would so many merchants be doing it again? Also, if local merchants didn’t like daily deals, how was Groupon able to increase the number of merchants they work with in a mature market like Boston by 60% in just the last three months.

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