Two years ago, Google offered to buy daily deal giant Groupon for $6bn. The Chicago-based startup, at the time one of the fastest growing companies in the world, refused. Late last year, it went public and saw its valuation soar to more than $17bn on the first day of trading.
It has been all downhill since then and on Tuesday, following an earnings report that disappointed investors, Groupon shares have plummeted more than 30% to their lowest level yet. Today, the market values Groupon at well under $4bn.
This isn’t surprising given the Wall Street is increasingly skeptical about Groupon’s business model. As one analyst put it, “It appears the daily deal business has run into a wall.” That may be true, but it’s just one part of the story. In reality, the demise of Groupon as we know it arguably has to do with the way Groupon handled its relationship with the local businesses it works with.
Here’s what B2B businesses can learn from the ongoing train wreck that is Groupon.
1. Getting between your customers and their customers is tricky
Groupon built a billion-dollar business by inserting itself between local businesses and their customers. But it may have killed the goose the laid the golden egg.
How? Keeping both sides of a two-sided market happy requires a certain level of sophistication and patience, as well as a willingness to balance the interests of both sides of the market for the long-term sustainability of the market. Arguably, Groupon has failed in all these respects.
2. Delivering customers
Groupon has excelled at getting customers through the doors of local businesses, but as numerous businesses have learned the hard way, profit doesn’t always follow. Groupon’s value proposition has always assumed that the customers it delivers will come back for more (paying full price) but it has become increasingly clear to businesses using Groupon that a significant portion of Groupon’s audience is not interested in long-term relationships. That makes doing a daily deal with Groupon far less enticing.
3. You must understand your customers
It was recently reported that Groupon CEO Andrew Mason has taken a not-so-secret secret job as the maitre d’ at a Chicago restaurant. His goal: learn the ins and outs of the restaurant business by putting himself in the trenches.
This might have been a smart move — if it had happened years ago. Mason’s effort to learn about the kind of local businesses his company serves is essentially an admission that he never really understood their needs in the first place — an obvious problem for the CEO of a company that has been telling business owners that it knows how to help them grow.
4. A big sales force doesn’t guarantee sales
At its heart, Groupon is a huge sales organization. Some might even liken it to a boiler room. Instead of stock brokers hawking penny stocks to hapless investors, Groupon’s sales force hawks daily deals to local business owners.
But as those business owners increasingly question whether daily deals are productive and profitable, the company’s substantial sales force is finding it more and more difficult to convince them that Groupon is a good fit. That serves as a powerful reminder to B2B companies that may wish they had more salespeople: if you don’t offer something somebody believes is worth buying, it doesn’t matter how many people you have selling.
5. Trust matters
The longevity of the daily deal model may be questionable, but it appears that Groupon’s treatment of business owners has hastened its demise. From claims about questionable sales tactics to the less-than-impressive, PR-focused way the company has responded to daily deal disasters, when Groupon was on top, it had opportunities to build trust with business owners — opportunities it will increasingly have fewer of now that it’s on the decline.
FUNNEL, Econsultancy’s B2B marketing conference, is taking place on 13 November at Emirates Stadium, London. You can see the agenda and register at funnel-marketing.com