Friday, August 17, 2012

The Long Term Fate Of Discount Deal Sites

I was recently asked about the business model of Groupon, Living Social, and other discount deal sites. The question posed was why would businesses discount their service AND pay a fee on top of it to advertise the fact.  Printed coupon book companies charge to print discounts, why shouldn't websites.  And maybe the reason coupons work and websites don't is that people forget to tear out or hold on to the coupon when they get to the store.  Pre-purchasing on the website makes them remember to use it.  Pl-us the discounts on these websites seem to be bigger to capture any substantial interest.  But does it drive new business or simply give existing customers a cheaper price to shop?

If the stock price is any indication, these website models aren't growing.  "Groupon Inc.'s shares slumped to $5 today — a new low that borders on penny-stock status — as investors continue to flee.  Top on the list of concerns is the company's slowing revenue growth, which is a problem for an Internet company whose story is supposed to be all about growth."  Slow growth in the web, yikes.

In general, websites are under scrutiny.  Like Groupon, Facebook is under pressure to perform for its shareholders as well.  Whether for these two companies and others like them, the focus is too short term or that the long term future bleak, remains to be seen.  For now, how Groupon can grow its revenue base without crippling the businesses that use it to reach consumers, remains to be seen.

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