Groupon South Africa is closing its doors with immediate effect, the company said in a note to customers on Friday.
“We are sorry to inform you that as of 4 November 2016, Groupon has wound down its operations in South Africa and we are unable to offer you any deals today,” the company said on its website.
“For our customers, this means we will stop offering deals on our website from tonight. All current vouchers bought will remain valid until the date stated on the voucher,” it said.
Customers who are “uncomfortable” using their voucher will be offered a cash refund option if they contact Groupon before 30 November 2016.
“Goods purchased up to 4 November will be fulfilled. Should you need to return a goods item you purchased, please do [so] before 30 November.
Groupon is reportedly rationalising the number of markets in which it operates around the world.
Since listing five years ago — on 4 November 2011 on the technology-heavy Nasdaq exchange in the US — it’s share price has plummeted by 85%. — (c) 2016 NewsCentral Media
Groupon’s once-bright star has burnt out
By Megan McArdle, Bloomberg
Groupon is buying LivingSocial, merging the two “daily deal” titans into one business. It is a measure of the size of these titans that, as TechCrunch writes: “The LivingSocial deal, which is expected to close in November 2016, is ‘not material’ to Groupon’s earnings, meaning it is small enough that Groupon does not have to disclose the price.”
Groupon itself has fallen considerably from its high-flying days as the New New Thing in tech stocks. It went public at US$28/share. It is now trading at around $4. Its net income hovers around 0%, and the company announced further retrenchments around the same time it announced the LivingSocial merger.
What happened? The short answer: its business model was never very good.
Coupons can basically serve two functions: price discrimination or advertising. Price discrimination is when you charge different customers different prices based on their willingness to spend money.
Supermarket coupons are great for this: people who are price-sensitive enough to spend their Sunday morning combing through the coupons and clipping them out get a discount, and the people who value their time more than their money pay full freight.
Coupon shows make a lot out of the extreme folks who manage to go to the supermarket and pay nothing for a huge cart of shopping, but if you watch those shows, you’ll see those people have to go to extreme lengths just to get enough coupons to pull this off — badgering friends to collect their inserts, diving into dumpsters to get discarded newspapers — and then find storage space for 30 bottles of shampoo. Most people, even couponers, won’t bother.
Coupons can also be a sort of advertising to new customers. Think of those coupon booklets they used to give college students, or those sent to people who’d just bought a house. Those people don’t know the local restaurants, hair salons or pest-control companies yet; a coupon essentially earns you the right to compete for them as loyal customers.
Groupon was a little bit of both. But it didn’t do either very well.
Groupon isn’t good for price discrimination because it’s not enough bother. It’s a hassle to clip out coupons, file them all away, then alter your shopping list accordingly; it’s not a hassle to buy a Groupon for a restaurant. It’s about as easy as ordering anything else online.
Groupon certainly did give companies the chance to compete for new business. But that new business, as far as I could tell, was young and, more important, cheap. Restaurateurs complained that people showed up, spent exactly the amount on the Groupon, and never came back; they went to whatever spot was offering a new Groupon. Salons complained they were chintzy with tips. Many places ended up losing money, especially after the flood of new customers overwhelmed the staff and alienated the existing patrons who were spending real money.
Getting goods below cost is, of course, a very attractive prospect for the customer. But coupons are a two-sided business; you also need businesses willing to offer those sweet, sweet deals. There are some businesses for which the Groupon model works well — a hotel room or a spot on a booze cruise is essentially a wasting asset, with a value that rapidly goes to zero as soon as the day wanes without filling the room or the boat departs the dock. Filling those slots even at a trivial price is often better for the business than not filling them.
But for businesses that have a significant marginal cost, such as restaurants or salons, the value of Groupon deals is considerably more dubious. And that showed up in the daily deals. As businesses understood the economics better, the deals got considerably less sweet, and customers got less interested in buying them. Meanwhile, other competitors entered the market, making the arithmetic even grimmer for daily-deals sites.
This was obvious as early as 2011, when I was bearish on Groupon’s future. That bearishness seems to have been thoroughly justified.
It’s always fun to revisit such predictions — if you got them right. But we should also probably revisit similar predictions I got wrong, such as Facebook and Google, both of which also seemed overvalued to me. Oops. That’s the peril of tech. As William Goldman once wrote of Hollywood: “No one knows anything.” New business models come up, they’re tried, and sometimes they’re spectacular. And then sometimes no one wants your product — at least, not at any price that will make it profitable. The only way to find out is to pay your money and take your chances. — © 2016 Bloomberg LP
