At the beginning of December, Groupon announced two radical new features: Groupon Stores and the Deal Feed, the former a self-serve deal platform for merchants, the latter a Facebook-like experience for Groupon users.
The announcement was very well received: some hailed “Groupon 2.0″ as the future of commerce. True, the potential strategic benefit of the new features would be massive: self-serve offers recommended to consumers through a personalised, social experience would erect badly needed network effects in the fiercely competitive Daily Deal space. Or as Chris Dixon puts it: “self serve is the holy grail of local.”
However, neither appears to be taking off.
I haven’t received a Groupon Stores deal since December 3, 2010
I started seeing Groupon Stores offers in my e-mails immediately following the announcement. The idea was for merchants to create their own offers, then pay 30% commission for those offers to appear on the right side of relevant users’ e-mails. However, I haven’t received stores offers in nearly two months. A Google site search reveals many merchants who have created profiles, but almost none have active offers (I found one in the first five pages of search results). Most stores list one or no past offers.
Groupon just removed the link to “My Deal Feed”
Once Groupon 2.0 was announced, I started seeing a link in my header for My Deal Feed. The feature was active for only certain users, but the link made everyone aware that the feature was on its way. However, I just noticed that the link no longer appears for me or anyone I’ve spoken with.
Photo: Screenshot/Yipit blog
Possible reasons Groupon Stores isn’t taking off
1. Local Self-Serve is next to impossible. Even Google, which runs the largest, most successful self-serve local advertising platform in the world, is building call centres to support its upcoming daily deal product. As the old adage goes, local advertising is sold, not bought. Local merchants have tremendous constraints on their time and hundreds of sales pitches to fend off, many of which are hawking competitive daily deal products.
2. Local merchants don’t want discount-focused CRM. The biggest driver of profitability for merchants is the creation of new, repeat customers. Providing discounts to your current customer base can cannabilize revenue they would have otherwise received. Further, the discount context may not be right for most merchant-customer conversations. More likely, merchants want to use channels like Twitter & Facebook that can focus more on news and new product announcements.
3. Local merchants won’t create amazing deals on their own. They require negotiation and hand-holding by an incentivized sales team. Further, the rare occasion of being a featured offer may act as an excuse to justify a large discount.
4. No intangible marketing benefit to Self-Serve offers. When a merchant is chosen as a “featured” offer, there is an implicit endorsement by the Groupon brand.
5. Self-serve daily deals aren’t profitable. There are two types of Groupon Stores deals, Promoted (deals are included on the side of certain users’ Groupon emails, 30% commission) and Non-Promoted (deals sent only to the merchant’s followers, 10% commission). Earlier, we released a merchant profitability calculator, a spreadsheet that calculated the merchant profitability of daily deals at different terms. Plugging in assumptions for Groupon Stores reveals that Promoted Deals are about a 67% less profitable than running featured deals elsewhere ($2.5 of net profit per voucher, vs $7.7). Non-promoted offers are not profitable at all. Merchants may not be doing this calculation, but many probably intuitively the economics of the promotions.
6. Management focus is on the low hanging fruit of international expansion.
Possible reasons the Deal Feed isn’t taking off
1. Daily Deals just aren’t social. As we predicted earlier, building a social experience around Daily Deal shopping might be harder than everyone thinks: Yelp, Google, Facebook and countless others have been inching away at the social-local opportunity for years, and there’s still along way to go.
2. Consumers need to get sold. Self-serve offers may lack engaging editorial, curation and singular spotlight that make featured deals so compelling.
3. Groupon Stores isn’t creating enough deals to make it work… In order to move from a push-based email service into a pull-based Deal Feed browsing experience, the volume of deals probably needs to expand by orders of magnitude.
4. …and Groupon can’t afford to cover the gap with a sales force. If Groupon were able to greatly expand its deal inventory for free (via self-serve), then they would be able to create a compelling, personalised, social shopping experience. However, if every offer has to be sold by a sales rep, then the average commission available would be split accordingly. According to Quora, reps in smaller markets are already struggling to earn workable comissions, raising the question how many different offers can Groupon afford to sell per city per day?