Online daily deal site Groupon fired its chief executive Andrew Mason this week, and while his leaving memo for staff was certainly candid, his departure won’t have come as a surprise.
Groupon has been struggling, particularly in Europe, for a number of years. Adam Fulford, strategy and planning director at brand and digital agency Rufus Leonard, hit the nail on the head when he said its current failure was down to three main areas;
- a lack of differentiation from other voucher sites in the market
- the inability to move beyond just using email as a communication device (“the inbox is increasingly becoming a repository for junk and sales mail,” he noted.)
- and having no control over the customers’ experience.
"Groupon isn't alone in its struggles; Yollar, Daily Dealster, YellowPages.com, Dealswarm, OpenTable, BuyWithMe, Boomstreet, ValPak Deals, DealPop and Wow.com are just a few examples of brands that have suffered a similar fate," he explained.
"From a personal experience, the two deals I've used have resulted in me being unable to redeem the coupon and ultimately being left completely out of pocket.
"For one 'two for one' deal at a new takeaway near us the redemption process involved having to book the meal you wanted days in advance. Not only does this go against the often impulsive nature of takeaway, but on the two occasions that I tried to do this they had no availability left for the day I wanted. The whole experience left me feeling empty in every sense of the word."
So where did it all go wrong?
Launched in November 2008, the site initially only marketed to Chicago shoppers, before expanding rapidly across America.
By October 2010, Groupon had expanded across North America, and into Europe, Asia and South America, with 35 million users at its peak.
Groupon decided to go public at the end of 2010, but by the time it published its first earnings release as a public entity in 2011, it was forced to reveal it was losing money.
Groupon works as an assurance contract: if a certain number of people sign up for the offer, then the deal becomes available to all, but if the predetermined minimum is not met, no one gets the deal that day.
This reduces risk for retailers, who can treat the coupons as quantity discount as well as sales promotion tools. Groupon makes money by keeping some of the money the customer pays for the coupon – at its peak it kept up to half, but in the final quarter of 2012 it was paying more to the merchants to try and keep them onside. Forbes estimated Groupon's share declined to 35%.
Many shops believed that their Groupon deals would help them build a loyal customer base which shops directly with the merchant, without Groupon in the middle.
But in many cases a Groupon deal merely attracts one-time bargain hunters who do not return until they encounter another Groupon deal that suits them. Shops became unhappy; in January 2012 survey of 400 retailers, more than half said they did not plan to run a daily deal in the ensuing six months.
Online retailer Prezzybox's owner Zak Edwards told the HuffPost UK he had always thought the daily deals space was largely flawed as a business model.
"They have a large base of 'procurement' staff to find products, which equals a massive cost," he said. "These staff (who aren’t necessarily procurement experts) speak directly with the manufacturer of the products, as they want to offer the largest possible discounts to their users.
"This is where the major problems lies. As a rule manufacturers are not geared up to send out single items to customers and therefore don’t want to work with daily deals sites as it is too much hassle."
This means Groupon and sites like it are forced to either act as a middle man and reduce their margins, or they carry and distribute the stock themselves, which forces them to compete with other discount retailers like Amazon.
Prezzybox instead uses its sister company Get Monkeys which carries the items in stock so the user orders the item and then receives it once the deal has ended – no voucher redemptions required.
An infographic showing how most daily deal sites operate, according to Get Monkeys
Another major problem was that according to one digital analyst, Groupon fast became "a dumping ground for old stock or unpopular services, rather than a one-stop-shop for vouchers that offered real value".
Ashley Bolser, managing director at digital marketing agency Bolser, told HuffPost UK: "While consumers are still feeling the pinch, this need is waning and consumers are more demanding when it comes to the offers they do pick/redeem.
"Perhaps if Groupon had partnered with more high street retailers to slow the 'demise' of the high street or focused on a particular sector it may have been more successful. As it stands it is simply AN-other site offering AN-other offer."
Add to this a proliferation of sites offering deals, and Groupon's unique selling point was starting to slip away. It was also an expensive business model – Groupon hired large number of copywriters who drafted descriptions for the deals featured by email and on the website.
To make matters worse, Groupon lost the trust of its customers too – in December 2011 the site was investigated by the Office of Fair Trading (OFT), after revelations that the site has breached advertising regulations 48 times in the past year.
The Advertising Standards Authority (ASA) referred the company to the OFT after 11 formal rulings and 37 informal rulings over breaches of the advertising code.
Was going public the big mistake?
Many critics thought that pushing ahead with taking the company public was a nail in the coffin for Groupon. Philip Letts, chief executive of Blur Group, was among many who warned going public was not for every tech company.
"Was it wrong for going public when it did? Well, does Twitter look dumb for not going public? Facebook was probably always going to go public, but the two big tech companies who did before Facebook – games maker Zynga and Groupon – fired their bolts too early," he said.
"I'm not convinced the decision to go public was a business strategy – it probably had more to do with people leaving the company wanting to get everything that comes with going public."
Jason Goldberg, founder of Fab.com also told HuffPost UK the company's "relentless focus on going public and putting up big sales numbers at the expense of earning and nurturing the trust of their customers" had played a big role in its downward spiral.
"(But) what I think Andrew was alluding to in his memo, is that the best long term businesses are emotions first, data second. Every business needs lots of data to inform decisions, but, the data won't make the decisions for you.
"Only emotions - and true understanding of what direction your compass is pointing in - can guide you towards the long term relationship your company will have in the eyes of its customers. You gotta put the customer relationship ahead of the money-making stuff."
Whether going public was a deciding factor or not, fast forward to this week, and the CEO has fallen on his sword, or rather, was pushed onto it.
Staff at Groupon will have to wait to see who the new permanent CEO is
New CEO, New Groupon?
But will replacing the chief executive be enough to resurrect the flagging fortunes of Groupon? Most tech and retail experts believe the problems facing Groupon are more fundamental than just the CEO.
Dr Steve McCabe, business expert at Birmingham City University's Business School, told the Huffington Post UK Groupon was simply a "novelty" that had worn off.
"It is probably to Mason's credit that he has been honest about the reason for his departure. He has made his money and will be fine. As for Groupon, the party is over and there is nothing it can do to recover its reputation," he said.
"It certainly cannot compete against the likes of Amazon and Google and, in all likelihood, will disappear and become a footnote in the history of online marketing.
"Whoever bought its shares at initial offering must be kicking themselves. However, Google will be delighted its offer to buy Groupon a couple of years ago was turned down by Mason et al. A lucky escape."
George O'Connor, software & IT services analyst at Panmure Gordon, was similarly damning.
He said: "I struggle with Groupon – the lack of personalisation, myriad copycats, the deals targeted at the mundane and the huge cost base. The business needs a fundamental re-think , and to decide if its customers are the general public consumers or the companies that use Groupon as a cheap yellow pages.
"Sometimes we need to remember that new ideas get disintermediated by new technology and with Groupon neither the concept (coupons) nor the company seemed to have significant barriers to entry.
“It needs to work harder to 'innovate the customer experience' – and give us what we want rather than the stock it has to flog."
Can Groupon rescue itself?
In a nutshell - yes, but it fundamentally needs to change. And that means going back to basics.
If it has any chance of survival, Groupon will need to become much more sophisticated, and offer better value for their customers, according to Zaid Al-Zaidy, chief strategy officer from ad agency TBWA\London.
"Think about location enabled Priority Moments from 02 and what near field communication technology will do to 'personalise deals and exclusives' in the very close future; Groupon is simply not there," he said.
"It needs to get back in touch with what made it a phenomenon in the first place, rediscover what it stands for and innovate like crazy around that."
"Step one has got to be to make sure the core business works again and is generating cash," said Blurgroup's Letts.
"Maybe if it skinnies down and starts making money again it could look to a new owner – Barry Diller at the IAC Interactive Corp likes buying up internet companies while they're throwing off money – he bought Match.com, Vimeo and Ask Jeeves."
Shrinking its markets may also be a sensible option - Groupon has become the pin up of our generation in terms of over extending itself, according to Letts.
"Groupon certainly accelerated through Europe too fast – it made good progress in the US, but maybe it should've just settled for going for the US and UK markets first.
"The US consumer is much more into couponing, in Europe use is a little more patchy. Its one-size-fits-all approach for Europe was a little simplistic."