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Groupon

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In 2009, daily deals firms sprouted up on the digital landscape like eager-to-bloom crocus flowers often seen at this time of year. But more recently a late winter freeze has buzz sawed through one flowery bulb after another, as hundreds of daily deals upstarts have fallen by the wayside because they couldn’t develop in the harshly competitive climate.
Could a big one—LivingSocial—actually be the next to wither away? Sources familiar with the company say they wouldn’t be surprised if the industry’s No. 2 player, trailing only Groupon, was sold to a larger company or liquidated piece by piece by spring 2014. They say LivingSocial has lacked the speed to adjust to a space that’s increasingly becoming more complex.
Even worse for this nascent field, the marketplace has gotten a lot more crowded. Dozens of outfits from Yelp to marketing giants such as American Express and Bank of America—to even companies that enable retailers to set up their own offers—now provide innovative ways to link customers with local merchants.
Forrester Research analyst Sucharita Mulpuru-Kodali says neither LivingSocial nor Groupon are too big to fail—even if the latter still has cash reserves in the billions from its 2011 initial public offering. “The daily deals space is saturated,” she says, “and it never provided tremendous value to merchants. And that was the fundamental flaw in the business model. They’ve survived over the last few years even when these truths were obvious because they’ve reduced the margins they ask of merchants, they extend the length of offers and they make more offers available at any time.”
Groupon, in recent months, has been giving a bigger slice of voucher sales to deals-weary local businesses—a gesture meant to inspire loyalty to its platform. The lower merchant commissions were largely to blame for Groupon’s poor 2012 results and resulted in the ouster of company founder Andrew Mason as CEO (whose memorable farewell memo to staffers is now the stuff of legend). The Chicago-based daily deals firm declined all interview requests for this story.
Indeed, daily deals have been on a cold streak. LivingSocial dismissed 400 employees last November after suffering a net loss of $560 million during Q3 2012. In its Q3 ’12 earnings, Amazon blamed its first net loss in four years on its $169 million write-down for its two-year-old stake in LivingSocial. More recently, LivingSocial endured scrutiny about whether its cash infusion of $110 million was emergency funding or simply another money round for the four-year-old operation.
“You have to ignore the naysayers and focus on the people who matter—our millions of satisfied customers and merchants,” contends LivingSocial rep Andrew Weinstein, responding to the numerous issues his firm is allegedly facing. “After our most recent funding round, we have a significant financial reserve to take advantage of any opportunities, and we are executing against our plans for growth and profitability in 2013.”
Weinstein and his team argue that 80 percent of merchants do repeat LivingSocial deals when contacted by a sales rep—though its self-reporting flies in the face of third-party data available (more on that later). The team is also optimistic about the growth of its newer products, chiefly the Escapes and Fun & Events offers that are designed to build out audiences beyond seekers of discount massages and half-price leg waxes.
“It’s about experiences—not just about the discount,” says Mitch Spolan, svp of national sales for LivingSocial. “You want to climb Kilimanjaro, well, we have an ‘Escape’ for that.”
For Unaiz Kabani, director of product development for Yipit, a deals aggregator that also shares data from the activity it sees, maintaining growth will be the challenge. Kabani points out that the number of merchant deals continues to climb but not at the rates to which Groupon and LivingSocial have grown accustomed. “That’s somewhat to be expected,” he says. “This space has matured really quickly.”

Whether or not Groupon and LivingSocial are suffering due to a lack of enthusiasm at the small-business level paints only a part of the picture (even though it remains a key question). The companies still need to satisfy investors by maintaining growth rates by expanding services. For LivingSocial’s Escapes and Fun & Events, Groupon has similar efforts but seems particularly focused on its Amazon-like Groupon Goods initiative.
“Daily deals are not blossoming,” says Mark Fratrik, vp and chief economist for BIA/Kelsey. “And now, Groupon and LivingSocial and other players are branching into e-commerce areas.”
BIA/Kelsey has in the past estimated that the digital deals space will grow to $5.5 billion by 2016. But due to Groupon and LivingSocial’s recent troubles, the Chantilly, Va.-based researcher plans to scale back expectations for the niche when it comes out with new numbers this summer, Fratrik says. “Their offers sometimes go to the spam folders—and not a lot of people check their spam folders for daily deals,” he adds. “I think these companies have seen that and evolved. Whether they have evolved quickly enough, I don’t know.”
LivingSocial and Groupon have evolved enough to generate a few positive case studies. For example, e-commerce company Quidsi, an Amazon property, has used both players to acquire thousands of new customers and build email lists for Diapers.com and Soap.com. For small offline companies, the platforms tend to perform better for events (think minor league baseball games and walking tours of haunted neighborhoods) and travel marketers than they do for restaurants.
One Wall Street analyst even foresees a bright future for Groupon. Arvind Bhatia, an analyst for Sterne Agee covering Groupon, is bullish on the company on the strength of its global footprint, mobile advances (Groupon says more than 30 percent of its business is conducted via smartphones) and huge lead over LivingSocial.
“The international business is starting to see a lot of uptick,” Bhatia says. “While LivingSocial seems to be having a hard time, we are characterizing Groupon as a turnaround story. The caveat of the turnaround story is they always take longer, and there are always bumps along the road.”
It’s those bumps in the road that led deals entities like Facebook Deals, BuyWithMe and Scoop St.—using Groupon and LivingSocial’s sales team-driven model—into a ditch. (Since shuttering Deals, Facebook has released a self-service Offers platform to take its place.) “There are so many firms going out to small businesses,” Fratrik says, “and saying, ‘I am going to help you create more sales.’”
Michelle Mannix, co-owner of Ted & Honey, a Brooklyn restaurant, knows the scenario all too well. She’s tested deals with LivingSocial, Groupon, Google Offers, AmazonLocal, Scoutmob and Bloomspot to attract business for her dinner service. Though the sales calls from those firms keep coming, Mannix says she’s probably done with them. The deals “are not very good financially after you get your cut,” she says. “Our margins are low as it is.”
And such a been-there-done-that merchant sentiment toward daily deals is partly why LivingSocial and Groupon are motivated to create offers in new areas. A recent study by Manta found that out of 1,080 small businesses surveyed, 18 percent planned to run a daily deals in 2013. Just 3 percent in the study says such campaigns produced repeat patrons.
In addition to pleasing investors and adjusting to merchant burnout, LivingSocial and Groupon have plenty of other reasons to evolve. AmEx, Bank of America, Facebook, Apple, Yelp, Foursquare and LevelUp are innovating and attacking their business like hungry piranha. Sure, Groupon, with its 150 million subscribers, and LivingSocial, with 72 million, lead those competitors in a gigantic fashion when it comes to email and mobile marketing.
But what if the way consumers think of special offers is transformed in the age of the digital wallet? Those piranha may soon become great white sharks. “It’s a broader ecosystem with different types of competition than it used to be,” Fratrik from BIA/Kelsey says. “That’s a challenge to Groupon and LivingSocial.”
Of all the intriguing iterations in the space during the last year, Bank of America’s BankAmeriDeals is worth a closer look because it turned a ho-hum consumer activity into a monetization piece. Through technology by Cardlytics, BofA’s system pitches deals from local and national brands to account holders when they review their personal finances online. BofA customers can opt in to get offers in their purchase itemizations as they review their online account statements.

For instance, if customers buy dinner at a steak house with their debit or credit card, they might see a special from Applebee’s on the Web page. For offline deals, customers can save the offer to their BofA smartphone app, then use it at a store. If the advertiser is an e-commerce brand, BofA customers can immediately make a purchase with a click. The offers are targeted based on purchase history and location.
More than 4,000 merchants have signed up for the six-month-old program, and they are primarily charged on a performance basis. BankAmeriDeals’ genesis traces back to customer research by the brand over the last few years, per Dave Godsman, Bank of America’s online and mobile solutions lead.
“They didn’t want to go through hoops and over hurdles to get relevant deals,” Godsman says. “We’ve got great participation from big brands like FedEx, AutoZone, Redbox and the Atlanta Braves, but it’s also the dry cleaners and local restaurants getting on board.”
BankAmeriDeals’ move highlights the fact that, in the frothy melee for local digital commerce dollars, the term “daily deals” has been rendered largely meaningless. Offers levied by the various players rarely impose 24-hour limits on consumers, now affording them a week or more to purchase. Some hyperlocal offers are exclusively available via mobile apps thanks to GPS technology. Others award discounts for syncing credit cards to social platforms and then repeating patronage. Groupon and LivingSocial simply can’t keep up with all this competition.
And retailers are happy to try the diverse set of options. ’Wichcraft, a 15-location eatery in New York, is buoyed by the results it’s seen from American Express’ Sync program. It ran two Foursquare campaigns—one in conjunction with AmEx Sync and another solo on Foursquare’s Specials platform—and saw 97,000 impressions and a 22 percent redemption rate. The Sync initiative—offering $5 off for an order exceeding $25—produced the most sales, says Ellen Kim, marketing director for ’Wichcraft. “I am in discussions with AmEx about doing more promotions,” Kim explains. “We want to innovate with companies.”
Other brands have a similar mind-set toward using digital deals to drive foot traffic. Foursquare in late February announced it signed up Visa and MasterCard to extend its card-sync aims, and Burger King is piloting the new Visa/MasterCard program with rebate-oriented deals. Consumers who sign up see the cash back from the retailers on their credit card statements.
New York-based Foursquare says it has about 100,000 specials running daily from mostly small businesses but hopes to land more big fish like BK with the card-sync effort. “From a merchant perspective, it’s entirely frictionless,” says Steven Rosenblatt, Foursquare’s chief revenue officer. “One of the biggest obstacles of running any kind of offer, coupon or special usually involves training the retail staff at point-of-sale. We’ve removed that barrier.”
Card-sync deals have heated up in the last couple of years. Apple’s Passbook, a digital wallet feature on the iPhone, recently helped Build-A-Bear Workshop garner a 5 percent clickthrough rate during a one-week stint. In a campaign led by mobile tech firm Vibes, the brand geo-targeted a campaign offering $5 back on orders exceeding $25, pitching the deal when Passbook users were physically close to a Build-A-Bear location.
Teresa Kroll, head of marketing for the St. Louis-based brand, says the Passbook initiative increased consumer engagement, and “we experienced additional foot traffic from those who received the offer.”
Seeing a lack of traction from its geo-social app, Scvngr created a similar platform to Passbook—a mobile payment/loyalty system called LevelUp that’s been adopted by 5,000 merchants. Small businesses set up rewards to entice customers to pay with the app—awarding a $5 credit for buying anything, for example, or encouraging loyalty by offering a $10 credit per $100 spent. “They can track customers to see real ROI [stats],” Scvngr CEO Seth Priebatsch says.
Further showcasing how the deals space is evolving, Priebatsch’s Boston-based company is marketing a white-label solution so brands can completely own the experience around mobile deals and payments. Sweetgreen, a farm-to-table food chain in Washington, D.C., and Philadelphia, began using the LevelUp solution three months ago, offering regulars $10 off for every $100 spent via the brand’s app.
“I’m very pleased with the progress so far,” says Nate Ru, co-founder of Sweetgreen. “Our app was in the Apple top 10 for restaurants for two weeks when we first released it.”
Sweetgreen soured on the financials of working with LivingSocial after trying the deals platform in its early days to get new locations off the ground. “Looking back, I don’t think I’d do LivingSocial again,” Ru says.

Lindsey Holmes, CEO of local marketing firm LCH Business SM & Tech, says it’s important that small businesses consider the risks—like an unserviceable flood of customers that might produce a rash of bad online reviews or a loss-leader that doesn’t pan out ROI-wise—before running a Groupon or LivingSocial. “If they cannot take the risk, I advise them to look at other digital channels,” says Holmes.
Facebook Offers gives merchants another option if they think Groupon and LivingSocial are too risky. They can post an offer for free but need to fork over cash if they want it pushed into users’ news feeds. The Menlo Park, Calif.-based social giant says 42 million users—about 4 percent of its 1 billion base—claimed offers in the last year. (Redemption rates are not available.) 1-800-Flowers.com, Brooks Brothers, Victoria’s Secret and Rosetta Stone are among the brands that have been using the platform since it launched a year ago.
“We’ve tried a lot of things,” says Nicolas Franchet, Facebook’s head of e-commerce, global vertical marketing. “Sometimes they’ve worked, sometimes they haven’t. We feel that 42 million people engaging gives us a strong enough signal to see there’s a there there. We definitely want to capitalize on it.”
One quiet player on this front that may have a big opening if no one else fills it is Yelp. Per comScore, the local business reviews directory had roughly 39 million U.S. unique visitors during January, well ahead of the sites for Groupon (13 million) and LivingSocial (7 million). The company has a local business marketing team that’s expanding in its New York and London offices.
Launched in 2010, Yelp Deals ran 45,000 offers on its platform during Q4 2012—a substantial increase over the 17,000 the firm garnered during the same period in 2011. Yelp Deals is a self-service platform, so the San Francisco-based company doesn’t need boots-on-the-ground salespeople like Groupon and LivingSocial. “Business owners are in control of the discount they want to provide,” says Vince Sollitto, Yelp communications lead. “It can be 50 percent off or a $20-for-$30 deal, etc.”
So it’s going to be intriguing to see which of these platforms accelerates or sputters this year, and whether LivingSocial or Groupon authors a comeback story or suffers an ugly fate in a crowded environment. An undertold tale about the two biggest players is that they are building fresh, massive email lists that could someday be extremely attractive to e-commerce companies as an asset acquisition.
For instance, if LivingSocial does fail and needs to be liquidated, Simms Jenkins, CEO of email marketing firm BrightWave, estimates its 72-million-strong email list could be worth as much as $921 million. “[It’s] a very valuable asset because millions of consumers have granted permission to receive special email offers,” he adds. “Presumably, a large percentage has purchased from the list, and, in general, it is a fairly active and clean list.”
Keep an eye on your inbox to see if that deal goes down.

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...Peer Review Form Essay Author: Alexandra Willis Essay Title: Home Means Las Vegas Reviewer’s Name: Eddie Jones 1. How does the essay prompt you to think differently? (For instance, do you see something with more complexity, more beauty, more ugliness, or more intensity than you did before?). Explain what the essay helps you see differently. (If you have a difficult time answering this question, say so; perhaps the essay has not yet gone far enough.) The essay is fine and it is fully detail written. 2. How could the essay begin with more intensity? (For instance, if the essay begins with a broad statement such as Children are curious creatures, could it instead begin with a specific narrative or a more focused or surprising statement?). The essay doesn’t need intensity because it starts out with a great topic and she explains it as you read the essay. 3. Can you identify the thesis statement? Find and write down the one sentence in your peer’s paper that you feel is acting as his or her thesis. No but this is a sentence that might be it. To those who visit this city may think it is nothing but parties and a never ending supply of drinking and gambling. 4. Which details placed throughout the paper do not seem related to the thesis of the essay? Why not? In this paper it is well written and it stays on the topic and it is well explained the essay goes with the topic. But she needs more detail and supported sentences. 5. Which details placed......

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Premium Essay

Groupon Case

...Groupon Case 25 points This case is to be completed individually by each student in the class. No collaboration or discussion of the case with any other student in the class is permitted. The due date for the case is at the beginning of class on Monday, April 29, 2013 (the last day of class). Only hard copies of the case should be turned in. If you will be absent for class on that day, have somebody else in class turn it in or put it in the professor’s mailbox on the 5th floor of the RCB building. No email submissions of the case will be accepted. The two accounting standards pertaining to the case, SAB 101(SEC) and EITF 99-19 (FASB) have been posted on Desire2Learn in the same folder as the case. Students will receive an extra credit of 5 points for filling out a questionnaire about the case at the end of the semester.  The Case of Groupon’s Revenue Recognition: The Bottom Line on Top Line Revenues Groupon is the extraordinary company that has revolutionized the world of coupon marketing. In November 2008, at the age of 27, Andrew Mason, a music major from Northwestern University, launched Groupon – a name that is a blend of “group” and “coupon”. Gross billings increased from $30 million in 2009 to $713 million in 2010 (Pepitone 2011). In 2010, Forbes declared Groupon as the “fastest growing company ever (Steiner 2010). By 2011, the company had a subscriber base of over 150 million, gross billings of $1.2 Billion, and went public, raising $750 million in...

Words: 2332 - Pages: 10