Sustainability of Groupon's Business Model

Groupon : In its simplest form Groupon (derived from "group coupon") is a deal-of-the-day website that

features discounted gift certificates usable at local or national companies

Business Model: The company offers one "Groupon" per day in each of the markets it serves. The

Groupon works as an assurance contract using ThePoint's

platform: if a certain number of people sign up for the offer,

then the deal becomes available to all; if the predetermined

minimum is not met, no one gets the deal that day. Groupon

makes money by keeping approximately half the money the customer pays for the coupon. Its business

model essentially consists of economies of scale and economies of networking.

Sustainibility : According to an article published in Forbes titled “Is Groupon's Business Model

Sustainable?” (http://www.forbes.com/sites/panosmourdoukoutas/2011/10/22/is-groupons-business-model-sustainable/)

Groupon’s business model is not sustainable for two reasons : 1) it is selling other company’s offering

who have the upper hand in deal negotiation and 2) they have considerable direct competition from

companies with a broad user base like Google, Yahoo, Expedia and so on. The findings of an academic

study of Rice University from 2010, from 150 Groupon businesses in 19 cities:

(http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1696327)

• 66% profitable; 32% unprofitable.

• Restaurants were the most unprofitable category, describing Groupon customers as "entitled," poor tippers, and definitely not repeat customers.

• 42% said they would not use Groupon again

It is interesting to note that Groupon declined the $5.3 billion offer made by Google to acquire them.

Obviously they have enough faith in themselves to able to walk out from such lucrative offer. Only time

will tell if they can emerge as a sustainable business model.