As I said in the comments field of the article, in response to a VC acquaintance's post...
A "land grab" strategy implies there is a means to lock out competition, and a strategy to defend and retain the land that is grabbed. So, one has to ask, what is Groupon's retention strategy for all this wallet-share they are grabbing?
Vendors and customers who are of the mindset to avail themselves of a Groupon-like service are driven by the value of the deals. There is no inherent loyalty to the voucher provider, or automatic lock-in of mindshare. If vendors and consumers can get a better deal from someone else, they will.
So, while Groupon, LivingSocial and the rest may currently enjoy decent margins, what prevents them from being locked into a race-to-the-bottom of razor thin margins as the markets saturate? To my mind, having the largest list of emails to spam with targeted offers is not a sufficient defense against this. It just slows the attrition.
So, then the question is, if there is nothing that prevents a race-to-the-bottom, aren't the companies that maintain the highest operational efficiencies (and profitability) - not the ones that grab fastest the most of the ultimately indefensible lands - going to be the ones that prevail, in the end?
And, let's not forget, this land grab strategy is/will be failure unless Groupon can actually raise the capital required to actually stay in operations and see through to fruition.
> So, then the question is, if there is nothing that prevents a race-to-the-bottom, aren't the companies that maintain the highest operational efficiencies (and profitability) - not the ones that grab fastest the most of the ultimately indefensible lands - going to be the ones that prevail, in the end?
Yes, yes, yes. As the OP correctly notes, this business model does not generate positive network effects for subscribers and, in my opinion, for merchants either (i.e. the larger the list of subscribers the smaller percentage of high quality sales leads generated). I think Groupon was scaling under the assumption that their business model was social and that network effects would be generated somewhere down the road once they were at scale. As we have seen, in mature Groupon markets where they are locally at scale, this has not occurred.
From my outside perspective, it seems that Living Social might be in a more sustainable place than Groupon (although I might be biased as I'm in their home market of DC). They generated some goodwill by taking a smaller cut of deal revenue than Groupon and, anecdotally, do a better job at maintaining good relationships with their merchants. Their deal quality (i.e. range/quality of merchants) has also been consistently better than Groupon's in my experience.
A "land grab" strategy implies there is a means to lock out competition, and a strategy to defend and retain the land that is grabbed. So, one has to ask, what is Groupon's retention strategy for all this wallet-share they are grabbing?
Vendors and customers who are of the mindset to avail themselves of a Groupon-like service are driven by the value of the deals. There is no inherent loyalty to the voucher provider, or automatic lock-in of mindshare. If vendors and consumers can get a better deal from someone else, they will.
So, while Groupon, LivingSocial and the rest may currently enjoy decent margins, what prevents them from being locked into a race-to-the-bottom of razor thin margins as the markets saturate? To my mind, having the largest list of emails to spam with targeted offers is not a sufficient defense against this. It just slows the attrition.
So, then the question is, if there is nothing that prevents a race-to-the-bottom, aren't the companies that maintain the highest operational efficiencies (and profitability) - not the ones that grab fastest the most of the ultimately indefensible lands - going to be the ones that prevail, in the end?
And, let's not forget, this land grab strategy is/will be failure unless Groupon can actually raise the capital required to actually stay in operations and see through to fruition.