7. November 2012–
The business model of Groupon, LivingSocial and co have been massively criticised in the past. Now, Amazon has practically written-off the large shareholding they have in couponing. The question remains: Is couponing dead or is it possible that the market will stabilise?
Talk of Groupon's demise has been happening for a long time
The death-talk surrounding the business model of discount platforms such as Groupon and CityDeal have been going on in the German internet scene for years. The reasons for the talk is the aggressive sales strategy of the Chicago-based top dog Groupon – and the leaked emails that Gruenderszene and VentureVillage picked up on from disgruntled employees this year.
“We are going down” a sales contact told me at the time. Every second phone conversation resulted in companies wanting to get off the site.
Plus the couponing model is extremely easy to replicate, resulting in countless copies emerging in the same market. At Groupon, I have been seeing a certain consolidation and believe that Groupon will find its way to a middle ground. At the same time, the performance of Living Social proves that the couponing model could be on the way out. Could there still be more options for development for the coupon model, or is it all over?
Amazon buries Living Social
Recently, Amazon essentially put in writing that the Groupon model is dead. The online mail order company invested in the biggest Groupon competitor – LivingSocial – but the red numbers appearing in Amazon's balance in the past few days were mostly coming from investments in the local commerce area.
Amazon invested a grand total of $175million in the Groupon competitor in December. From this investment, the Seattle-based eCommerce giant has had to write off $169million. If Amazon is writing off a good 96 per cent of their investment in LivingSocial, there is likely to be a variety of reasons for this.
German Amazon-head Ralf Kleber claims the company “just corrected the values in the balance.” More likely, in my opinion, is that Amazon no longer believes in the success of LivingSocial. Amazon can order a liquidation preference and would then be the first to see their investment again.
But considering the horrendous depreciation, the Americans apparently believe that they will only see $6million of their capital again. Even if Kleber assured the Frankfurter Allgemeine that it was not a mistake investing in the site and that discount portals such as LivingSocial are still a bustling segment, it seems like a call for preservation.
It appears that couponing models from sites such as Groupon or LivingSocial have passed their peak – the performance of LivingSocial is likely to, in the near future, be an important indicator of the segment.
What’s with Germany’s cloning factories?
Importantly, Groupon and LivingSocial are not the only players in the coupon market. Rebate Networks and Group Buying Global are two clones of a simple business model, with their role model in Chicago. The firms stem indirectly from the business circles of DailyDeal: while the financiers Stefan Glänzer and Michael Brehm started Rebate Networks, Klaus Hommels and Oliver Jung set up Group Buying Global. Both wanted to expand the Groupon model internationally, especially in regions that Groupon or LivingSocial had not yet penetrated.
In this sense, both providers started excellent clones that aimed to force Groupon and LivingSocial into a make-or-buy decision and even get the two into a bidding war over them. And where are the two businesses now? I believe that Klaus Hommels and Oliver Jung have sold all their Groupon copies – and that, according to a partner, thanks to good timing - for a good price.
Rebate Networks changes approach
Rebate Networks made headlines with sales in five countries and since then, all has still been around the Berlin business. After questioning, Rebate Networks said that it had changed their central approach and sent many staff from Berlin to their individual branches in different countries, to head stronger local businesses.
The business sold over half of their company, with nine staff members currently working out of Berlin to build the company's organisational basis in 14 countries with a focus on Asia and Eastern Europe. Rebate says they and their subsidiaries had a "record summer" and that therefore have to be “very careful when talking about a ‘global’ fatigue”.
An insider told me that in the meantime, Rebate should be making a €5 million profit in Hungary – these reasonable margins show how attractive couponing models are in countries where the internet scene is still developing, though this probably looks different in total. According to my information, Rebate’s subsidiary in these weaker markets are profitable.
It is likely that, in the end, it will be Chinese deals site Lashou that is responsible for ensuring the Rebate couponing model is making profits. And since Len Blavatnik (according to my information), put a lot of money in the Chinese Groupon clone, it’s likely a further growth in the area will be important. But with competition like Meituan, Ftuan and maybe 55tuana and Dianping, the market in China is also very overcrowded.
Couponing as a capital builder
Independent of how good or bad Groupon, Living Social, Rebate Networks or Group Buying Global have developed, it is still true that the global couponing business model has led to capital in which the investors have especially profited. As the fasted growing business worldwide, Groupon has gone down in history. But other than plenty of investor exits, until now, there has only been a botched attempt to go on the market to their credit, which has damaged their reputation.
Just as shopping clubs had a high point with their worldwide rollout, the same has happened for couponing sites. What remains is a more or less a burnt-out business landscape, aside from numerous headlines that range from record growth to catastrophic management. Also, the sale of Qype to Yelp didn’t leave a feeling of euphoria in local commerce. It lead to the opposite.
The couponing model is too expensive and time-consuming. Couponing was a good model to build critical mass relatively quickly, now it is time to efficiently and profitably manage it. For my part, I’ll wait for the breakthrough of local commerce and couponing in specialised areas. But maybe the business model really is dead?
What do you think? Have your say in our comments section below...
Translated by Michelle Kuepper