Finding deals costs money

Janet Babin Dec 29, 2010

Finding deals costs money

Janet Babin Dec 29, 2010


Bob Moon: You don’t have to spend a lot of time online lately before you run into an ad for Groupon. That online coupon promoter emails subscribers a daily deal in more than 300 markets around the world. It seems Google liked the concept so much
it offered to buy Groupon for $6 billion. Groupon said, ‘no thanks’ — and turned Google down!

Apparently, you can make a lot of money selling coupons. But it turns out generating coupons is a labor intensive business that eats up cash. And today comes word that Groupon needs to find other ways to raise the money it needs to grow the “deal-a-day” concept in new markets. Marketplace’s Janet Babin reports.

Janet Babin: Groupon wants to raise up to $950 million. But it apparently doesn’t want to go public and it doesn’t want to be bought by the likes of Google. So it’s going to stay a private company but sell preferred shares.

Scott Kessler is an equity analyst at Standard & Poors.

Scott Kessler: Companies want the best of both worlds: they want to be able to control their own destinies and reap the financial rewards.

Groupon’s only been around since 2008, and already it’s got 35 million subscribers. So why does it need money?

Debra Kaye with innovation consulting firm Lucule. She says finding these deals, takes time and money.

Debra Kaye: Groupon actually has to go out and create these offers. It has a much higher amount of employees than other companies like a Google or like a Facebook that really work on the power of the people itself.

That is, the power of their unpaid users.

Groupon deals can be pretty impressive — pay $25 and you can spend double that at Nordstrom Rack. But local merchants can end up losing money on the deal. Suzi Sandberg with online marketing firm PM Digital says some of her clients have balked after their Groupon experience.

Suzi Sandberg: We’ve had people say, all they want is the deal, they only come and get the deal, you never see them again, and they only buy the value of the deal.

If merchants don’t sign up, Groupon’s popularity could wane. The real threat could come if Facebook or other social media players were to get into the mobile retail sales offer business. Again, here’s innovation consultant Debra Kaye.

Kaye: What we’re going to start to see is a kind of cost chaos of targeted offer. There’s going to be so many different offers, and so many different deals.

So many offers that Groupon may wish it had access to those famous Google algorithms it turned down.

In New York, I’m Janet Babin for Marketplace.

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