After initial reluctance to voluntarily subject myself to more email every day, I signed up for Groupon and Living Social two months ago. Now I get daily messages offering me great deals at spas, golf courses, restaurants and the like. I have purchased only two coupons and in each instance it was for a restaurant where I regularly eat. So who came out ahead? If I spend $10 for a $20 coupon, then the restaurant collects $5 up front but ends up with a net loss of $15 because I was going to eat there anyway. Winners: Groupon and me. Loser: the restaurant.
So why is Wall Street going gaga over Groupon's IPO? Megan McArdle takes a hard look at the underlying business model. Coupons provide another way to charge different customers different prices for the same good. A restaurant can come out ahead if it has excess capacity and attracts new customers with deep pockets. It can lose big-time if brigades of coupon clippers eat frugally and crowd out regular customers. Waitstaff also may not be pleased if tips head south.
This may just be my imagination, but I think I am seeing fewer deals being offered by established businesses and more offers coming from companies I never heard of. In which case I am going to be hitting the unsubscribe button pretty soon.
CEO opportunism on the NC State research blog
5 weeks ago