Saturday, 5 November 2011

How many deals can we take?

Groupon debuted on the US stock market yesterday raising $700m and valuing the company initially at $12.7bn. That didn't last long as the shares leapt 30% on the first day of trading. The price tag actually shot up at debut as demand for shares was high as so little of the company was actually put up for sale.

The business model for Groupon is remarkably simple. It connects lots of people to aggressive transient deals from businesses in their local areas. I subscribe and as yet I have not seen a single deal worth taking as its all about hair treatments, teeth whitening, laser hair removal, blah blah most of which I have little left to treat. The estimated cost of acquiring each new customer means that Groupon will accrue huge losses until one day, as they all will, profit will be realised on every mug user who signs up as if by magic.

The model itself is under pressure as Vouchercloud in the UK offers far more practical deals like restaurant discounts or laundrette vouchers. But there are hundreds more firms doing the same. Including the mighty Amazon and Google. It's bonanza deal time.

But how long can it last? While the economic times are uncertain, deals are a bonus. But what happens when that's over?

I may be getting old but I can't see why anyone could not start up voucher schemes of this nature and challenge Groupon. I really don't understand how the valuation can be so high on basic 'Me too' business scheme? And surely this scales well in the US but it has real problems scaling outside?

But that's just me. It surely isn't another Emperor's Clothes issue, is it?

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