On Monday, the company that made the ‘daily deal‘ famous went public. Groupon’s debut as a publicly-traded company was successful, despite the widespread criticism the company had received in the months leading up to its IPO.
Going public, of course, doesn’t mean that Groupon has answered the serious questions about its business model and future prospects. And if moves by another player that entered the daily deals space is any indication, the company that turned daily deals into a billion-dollar market may have its work cut out for it.
As detailed by Seeking Alpha blogger Robert Jackson, OpenTable, itself a publicly-traded company and purveyor of one of the most widely-used restaurant reservation systems in the United States, has decided to shutter its daily deal offering:
Ironically, on the same week of the Groupon IPO, OpenTable announced the cancellation of their “Spotlight” daily deal program. When Spotlight was launched about 15 months ago, many investors concluded that it would be a huge success and a boost to earnings. Indeed, the number of deals sold, particularly for the more popular restaurants, was impressive.
So what happened? OpenTable’s CEO, Jeff Jordan, was fairly blunt: “We have determined this offer [Spotlight] is not one that resonates with the majority of our restaurant base.“
Jackson’s interpretation is that OpenTable decided that pushing the daily deals model with its restaurant customers was not a good idea given that the model:
- Can be very risky for restaurants — businesses that typically operate on thin margins.
- May bring to restaurants a different type of diner that isn’t a good match, particularly for restaurants that tend to be patronize specific demographic/socioeconomic groups.
- In many cases will not produce sales greater than the face value of the daily deal coupon.
In short, OpenTable’s decision hints that profitable or not for daily deal sellers, some of the criticisms leveled at the daily deal model may be valid. After all, there’s little doubt that OpenTable had the ability to profit from daily deals, but because its primary business is not the sale of daily deals, it had to be honest with itself about the value provided by the model, lest it alienate and lose long-term customers. Clearly, at the end of the day, it concluded that daily deals were not a net positive to its business.
Groupon, on the other hand, could never admit that the daily deal model might not be serving the interests of the businesses it serves because without the daily deal, Groupon has no business.
Obviously, the fact that OpenTable dumped the daily deal doesn’t mean that there aren’t applications for the model. But now that Groupon is a publicly traded company, its management has to decide: are we going be the next Amazon, or the next Pets.com? If it wants to be the next Amazon, it’s going to address some of the same challenges that appear to have caused OpenTable to say “no deal” to the daily deal.