retail news in context, analysis with attitude

It was decision time over the weekend in the brave new world of online coupons, as Groupon decided to spurn a $6 billion acquisition offer from Google, and Amazon.com spent $175 million to invest in LivingSocial, a competitive coupon site.

Groupon’s gamble seems to be that by staying independent, it will be able to position itself for an even more profitable Initial Public Offering (IPO), perhaps as soon as its next year.

Both Groupon and LivingSocial specialize in allowing companies to market their products and services in a targeted way to local consumers, and use social media tenets to build volume. They offer a deal-of-the-day, but if enough people do not sign up for it, nobody gets it - which encourages people to communicate about the deals to friends, family and co-workers.

Bloomberg Business Week writes that “Groupon has attracted 35 million users in more than 300 global markets by offering discounts of as much as 90 percent on everything from massages to ski tickets. The company makes money by keeping part of the revenue raised by the coupons. Groupon’s sales may top $500 million this year, two people familiar with the matter have said.”

And CNN writes that while “LivingSocial is currently booking average daily sales of more than $1 million, and is projected to top $500 million in revenue in 2011,” it “badly trails Groupon in daily use. In a survey tracking 81 group buying sites, measurement firm Experian Hitwise found that 79% of US visits last week went to Groupon. Living Social got 8% of the traffic.”

Before the Groupon-Google deal fell apart, the New York Times wrote this about Groupon:

“As investors fret that Google’s $6 billion bid for Groupon is too high a price to pay, new details about the company’s sales and growth suggest that it might be more like one of Groupon’s cut rate deals.

“An individual close to Groupon, who spoke on condition of anonymity, said the company’s annual revenue is running in excess of $1 billion a year and its subscriber base tripled this summer, to 35 million users.

“And an analyst at Barclays Capital, Douglas Anmuth, estimated in a research report released on Tuesday that sales could hit $1.5 billion in 2011.

“At those levels, Google would be paying four times next year’s revenues. In contrast, the company paid $3.1 billion, or roughly 10 times sales, for DoubleClick in 2007. It bought YouTube for $1.65 billion in 2006, when the online video hub was making less than $11 million a year, according to a company filing. Also this week, Groupon disclosed new features, including a three-tiered pricing system, that would fundamentally change its business model and accelerate growth, focusing on local markets, although most likely at the expense of margins.”
KC's View:
I read these stories, and then I think about the crap-load of FSIs that fell out of my newspaper this weekend, most of which featured coupons that were completely irrelevant to my life.

They went in the trash.

But if I go to Groupon, I get engaged, I spread the word, and I help change the rules of the game.

Forget whether Groupon is worth $6 billion. The real issue is if Groupon and its competitors are fundamentally changing consumer behavior, and have the potential for enormous impact.

If you think not ... if you think that FSIs are the future ... then I think you are kidding yourself.