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Summary:

Groupon’s prospectus for an IPO started arguments over the company’s huge losses. Silicon Valley wants Groupon to look like a technology company, but right now it’s more or less in the Yellow Pages business. But by better applying big data analysis, Groupon could start seeing profits.

groupon

Groupon’s prospectus for an IPO valuing it as high as $30 billion started arguments over the company’s huge losses, and right now it’s more or less still in the Yellow Pages business. But as I discuss in my Weekly Update at GigaOM Pro (subscription required), by better applying big data analysis, Groupon could start seeing profits.

The numbers are in

Groupon revenues grew from zero to $713 million in three years – and $645 million in 2011’s first quarter – but it lost $456 million last year and $147 million in the first quarter of 2011. Aside from international acquisitions, the big expenses driving those losses are staffing, especially in sales, and marketing spending. According to its S-1, Groupon has over 3,500 salespeople and over 900 editorial staff writing up its clever, quirky offer emails. It spent over $250 million on marketing in 2010 and a whopping $208 million in this year’s first quarter.

Looking at Groupon’s quarterly data, you see a flat to slightly down trend in deals sold and total revenues per subscriber. Meanwhile, marketing spending per new subscriber added is more than doubling. With competition increasing and the novelty of daily deals wearing off, customer acquisition costs will only go up.

So far, Groupon’s spending on growth hasn’t produced any economies of scale nor network effects. In other words, it has yet to show that taking on additional consumers or merchants adds more than proportional value to its network, or that it can lock in either type of customer.

What Groupon can do

So what can Groupon do in order to better attain customers and produce a profit? Here are a few thoughts:

  • Analyze its data to create more personalized offers. Offers that are more personalized and targeted to particular consumer interests should generate more purchases per customer. Groupon’s data analysis should lead to better marketing insights on customer habits and preferences that it could deliver as a service back to its merchants.
  • Add more services. Unlike Gilt Groupe, which is getting deeper into online retail (a business that scales less efficiently than technology-driven marketing), Groupon should add products for its merchants. Just like Yellow Pages companies like YP.com and Superpages, Groupon should buy search and display advertising for its merchants: The company is well equipped to do the targeting analysis that would baffle a local small business.
  • Create customer loyalty programs. Groupon should also help its merchants with their customer retention and loyalty programs with “brick and click” points and check-in programs. The company is testing mobile offers, but why not just buy Foursquare? Groupon could maintain the brand and probably triple Foursquare’s audience while adding its local sales force to Foursquare’s budding national advertiser business.

Groupon’s business is not for the faint of heart, and to read about potential competition in this space, please see my weekly update (subscription required).

Image courtesy of flickr users Groupon.

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  1. Anthony Wang Thursday, June 9, 2011

    I agree in theory, but Groupon doesn’t seem to possess any sort of product or technology DNA… Will they be able to innovate and build extensions to their business platform? I know they can try to buy the expertise, but it’s not that easy – ask Google.

  2. The one thing that people seem to be avoiding in the discussion of deals is that the deal type that drove Groupon initially was a heavy discount concept, which most businesses can only afford to do once or twice per year to try and top up their local customer base. Once that business has topped up the customer pool it can just make offers, deals or promotions directly to the customer base on its own. Truth is most businesses have deals and specials everyday that regulars can take advantage just by showing up. That is where we see the real opportunity, making it easy for businesses to create and distribute their own offers directly to their customers.

    Thanks,

    Ed Loessi
    Co-founder CMO
    Offeredlocal

  3. Hi David,

    I find it curious that Cisco has NOT publicly announced that its senior vice president of human resources – Brian Schipper has jumped to Groupon as Head of Global HR:

    http://www.bradreese.com/blog/5-31-2011.htm

    Especially since it was more than a month ago that Brian Schipper announced Cisco’s 2011 voluntary enhanced early retirement program:

    http://www.bradreese.com/blog/4-26-2011.htm

    Sincerely,

    Brad Reese

  4. Anthony and Ed both make good points. Groupon has not, in fact, shown much tech DNA till now, and I completely agree that the company has to add additional marketing services so that it can serve its merchants more than a few times a year.

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