Groupon Is A Disaster For Small Businesses

It was only a few months ago that Groupon, the Internet’s latest sensation, was the next big thing. There were copycats galore and the startup was estimated to be worth as much as $25 billion in June. Today that price has fallen to approximately $10.1 billion and $11.4 billion.

By last year, Groupon had spread to nearly 100 cities and 25 countries, with a staff of 10,000 and yet another young geeky billionaire as CEO. It may have grown too fast; competitors like Living Social, Amazon.com, and Google have created their own deal programs that compete on the same level. Customers have no loyalty to one particular site or another and will flock to whichever has the best deal.

Lately Groupon hasn’t been having the best deals, a fact which has trickled down through other sites and has been hurting the merchants that participate in its bargains. While Groupon does attract new customers, it can also attract negative reviews on Yelp.com and drive down merchants’ ratings. A few customer service nightmares by Groupon users have made both businesses and shoppers wary of its deals.

Businesses have something to complain about, too. Through the use of the coupons, it sometimes only barely scrapes by on the cost of the food- and doesn’t turn a profit. Many businesses have reported that the deals for new customers can make loyal long-time patrons angry. All of this, and Groupon still has yet to prove a high “rate of return” where a customer who used a Groupon returns to that restaurant or place of business in the future.

Behind the scenes, Groupon has also been facing trouble. In August, its public relations chief of two months threw in the towel. On the following day, CEO Mason composed a scathing 2,500-word internal email that defended Groupon against the criticisms it had received. The email leaked to the press and damaged the company’s reputation further.

Groupon got in trouble with the SEC as well when it counted its revenue as $1.52 billion instead of its true net revenue of $688 million.

There is no doubt that Groupon’s growth has been explosive. It has signed up 142.9 million email subscribers since November 2008. The problem is that only 20 percent of subscribers have purchased a Groupon and half of that amount have purchased subsequent ones.

Amidst all this growth is concern about the company’s spending habits. Investor money is typically used to grow a business before it goes public, but Groupon shocked the world when it revealed that it spent $345.1 million on marketing and hiring.

Its high debt ratio of 102 percent and its narrow profit margin are not inspiring further confidence from future investors.

 

 

 

 

 

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