For possibly the most serious concern about GroupOn,
the article came close with its statement:
"The Daily Deal I got offered today was for a
restaurant 30 miles away: how does that make sense
either for the customer or merchant?"
but still did not score the points:
The statement is a starkly clear illustration of a
big, HUGE fact about GroupOn's business:
It's heavily just a LOCAL business.
So, even if they are in Chicago, New York City, San
Francisco, and parts of Argentina and Australia
doesn't cut much ice in Podunk. Instead, to make it
in Podunk, they just have to be the best in Podunk,
and the rest is irrelevant.
For the best 'coupons' in Podunk, customers and
merchants in Podunk can go to a GroupOn competitor
in Podunk who can be someone on the bank board and
the school board, a former mayor, and known very
well to all the merchants and most of the customers.
This competitor in Podunk can be trusted in Podunk
much more than GroupOn by both the merchants and the
customers and, thus, get more deals and revenue, can
have much lower overhead per dollar of revenue, and
can undercut the GroupOn prices.
Such a local competitor has close to a 'geographic
natural monopoly': In Podunk, the local guy can
sign up several leading merchants just because they
know him and trust him (and maybe invest with him);
then he can get a lot of local customers signed up
because he is well known and has the leading local
merchants signed up. Then the rest of the merchants
sign up not to get left behind. Then all the
customers sign up because all the merchants did.
Then all the merchants keep offering deals because
all the customers are signed up. And there is no
competition more than 60 miles away.
E.g., maybe the guy in Podunk also runs the popular
local shopping center based on much the same
mechanism of a 'geographic local monopoly'.
A Web site for the Podunk competitor? If that is a
problem, then HN developers listen up: Develop a
suitable general purpose Web site and lease it to
the competitors in each of Podunk, Peoria,
Poughkeepsie, Pleasantville, etc.
For the guy in Podunk, maybe there is another little
town, Parsonville, 15 miles away: Okay, the guy in
Podunk can use his success to expand to Parsonville.
More generally, if there are competitors in other
surrounding towns, then he can, one town at a time,
use his earnings from his natural monopolies in
Podunk, Parsonville, etc. to undercut the prices in
these other towns, buy out the competitors, raise
prices, and repeat. Relevant terminology includes
'predatory marketing practices' and 'roll-up'.
I don't see how GroupOn can be successful for long
with their current business model.