Will Google & friends out-coupon Groupon?

The “Daily-Deal” social commerce arena has grown massively after the launch of Groupon in November 2008. In 2011, Groupon not only faces competition from thousands of smaller local players who know their way around local markets, but also from big brand names such as Google, Microsoft, Amazon and Facebook. Even though Groupon currently is the largest provider in the game, with a 53 percent market share, the company has little sustainable competitive advantage and several signs point to a risky business model. The one thing that could enable Groupon to postpone competition is to make “Groupon NOW” work.

Nothing comes from nothing
From the theme “Groupon – a scalable business” we highlighted how expensive and unsustainable the need for local knowledge can be and the potential flaws of the business model. Groupon’s business model entails up-front payments to merchants in order to land deals, while getting customers. We have a chicken-egg situation. To some extent, one might argue that Groupon is pretty much the equivalent of a loan shark in a discount business, because the up-front payments merchants receive have to be paid for with deep discounts over time. Groupon helps the small business vendors attract new customers, but is it value-added for merchants in the long run and will they move their business to a competitor with better deals?

‘Glocal’ competition
We see Groupon at risk of being squeezed in the competitive sandwich of the big global social network sites with a vast amount of users to exploit, and a lot of cash to throw into the game, and at the same time small knowledgeable local niche players providing better, albeit smaller, scale offers.



Worldwide, there are over 500 identical sites or “Groupon Clones” if you will, where 100 of them are in the US alone. There are both global giants and local copycats. Some global names stand out as a real threat.



After Amazon invested USD 175 million in the social discount company LivingSocial in December 2010, this site has become one of Groupon’s most serious competitors. In January 2011, Google launched a competitive feature called Google Offers following its failure to purchase Groupon for USD6 billion. In April 2011, Facebook started testing a social-buying programme called Facebook Deals. Finally, in September 2011 Microsoft launched Bing Deals. Coupon sites are usually a snap to set up, but achieving scale such as Groupon is the tough part.

Ever since website templates and auctioning software have become generic off-the-shelf goods, the number of local adaptations of Groupon have proliferated globally. The smaller players may enjoy the advantage of local knowledge and better understanding of demographic preferences, although they clearly lack a strong brand name. These are companies which have imitated the features of Groupon’s business model, and yet made local adaptations,  for e.g. to marketing channels by engaging in a partnership agreement with a major online media site.

Google - Groupon’s worst nightmare
Among all competitors there are two giant players that could be very dangerous for Groupon - Amazon-backed LivingSocial and Google Offers. Google has the largest user database in the world which in principle could be converted into daily-deal customers.

In addition, it has long-lasting relationships with thousands of local merchants advertising through its search engine and other brands. According to Google Offers’ payment terms, its merchants receive 80 percent of their share up-front in four days, while Groupon pays its merchants 33 percent in five days and the rest within the next 60.

If Google, in addition to all this, invests in a local presence using its large employee base, uses its demographic customer information to its advantage and offers merchants a bigger cut of revenue (than Groupon’s 40-43 percent), it could easily eat Groupon’s lunch.



The Porter analysis above shows that Groupon faces tough competition from new players entering the market because of the low entry barriers and easy-to-copy business model. At the same time Groupon is facing tough competition and therefore losing customers and suppliers to daily-deal newcomers who are trying a different and perhaps more creative approach. . The variety of competitors is numerous, and in the markets where Groupon did not become the first mover, even more local copycats are emerging. The question remains how Groupon can expect to maintain its previously extreme growth rates without having to pay too steep a price. Is a strong brand and operational excellence alone enough?

For further analysis on Groupon see:
Groupon - the client guessing game
Groupon - a scalable business?
Do ends meet at Groupon?