Worth Reading: Groupon’s For Real

There was barely a New York minute between Groupon’s announcement that it was filing IPO papers last week and the stampede of industry watchers shouting into the blogosphere about the company’s near insolvency, its misleading balance sheet and its inflated valuation. Some of the loudest naysaying came from critics who suggested that while the Groupon business model may be good for Groupon, retailers hate it. But as a careful watcher of the daily deals space, Yipit CEO Vinicius Vacanti, writing on the company’s blog, said many of the concerns that keep popping up are overstated or altogether unfounded.

Based on our Yipit data product, 44 of daily deals run in May were run by businesses who had already run a daily deal. If they really had a bad experience, why would so many merchants be doing it again? Also, if local merchants didn’t like daily deals, how was Groupon able to increase the number of merchants they work with in a mature market like Boston by 60 percent in just the last three months.Even though Yipit aggregates deals and doesn’t work with merchants directly, we still get 20 unsolicited emails a day from merchants wanting to run a daily deal on Yipit. I would guess Groupon gets 2,000 unsolicited emails a day from merchants wanting to run daily deals. This perception of local merchants not liking daily deals largely comes from the observation bias that the only stories you read about are the ones where merchants had a bad experience. It’s the same way that if you watch the nightly news, you would assume there’s a murder on every block.

Vinicius says that while the company does face some challenges, including weakening business in its oldest markets and a proposed shareholder structure that will render investors mute when it comes to decision making, Groupon has done the business equivalent of pulling a rabbit out of its hat. It created a new business and grew that business in the course of two years into a multi-billion dollar behemoth.


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