Home > capitalism, Economic development, economy > Groupon is not as sweet as you might think it is

Groupon is not as sweet as you might think it is

June 14th, 2011
When the national deal-of-the-day website Groupon arrived in Mississippi back in the fall, it came with great fanfare.
Across the nation, the three-year-old coupon company has been all the hype. It is the largest of its competitors and claims it distributes online coupons from merchants in 500 markets and 44 countries.
However, as far as many small business owners are concerned, some of the shine has faded from the fad.
Media swarmed Nandy’s Candy in Jackson when it became the first Mississippi business to offer coupons from the meteoric company.
TV types reported live from the historic candy store’s parking lot at 5:30 in the morning that first day the initial deals were to be offered.
Newspapers described the excitement of businesses and consumers had as the national phenomenon finally reached Mississippi.
Groupon — like so many other happenings, including fashion trends and even the great recession — took a while to matriculate to these parts.
The consumers in these parts are still thrilled with the idea of getting great stuff for less money.
But Nancy King, owner of Nandy’s for more than 30 years, doesn’t give an overwhelming endorsement of Groupon.
“We got a lot of exposure in the media because we were the first,” she said. “It brought some more customers in … but I don’t know if I would do it again.”
King’s eyes are wide open to the process.
“Let’s get this straight, Groupon is making a kazillion dollars. They aren’t about me. They are about making money.”
Groupon has made so much money that Facebook and Google want a piece of the action and have launched similar products.
In fact, the initial public offering filing by Groupon, has drawn comparisons to Google.
Some have estimated Groupon’s potential worth at $20 billion to $30 billion. Google was $27 billion at the time of its 2004 IPO.
But buyer beware. Reports — like the story of the café owner in Portland who lost $8,000 using Groupon — are all over the Web.
And there are many skeptics, including Bloomberg’s James Temple, who recently wrote, “Strip away all the hope and hype surrounding Groupon and you’re left with this: It’s a coupon company. Its major innovation was to distribute them through e-mail instead of the Sunday paper.”
Then there’s business analyst Sucharita Mulpuru, who recently wrote a column for Forbes on the subject.
“This IPO game isn’t about finding value, it’s about finding a greater fool who who actually believes the valuation is true. Trust me, you will be the fool. There will be plenty more IPOs coming up of companies with greater profitability and higher barriers to entry (e.g. social networks with hundreds of millions of followers). Those will be wiser investments.”
And Nancy King at Nandy’s Candy is no fool.
“Groupon makes a fortune (and for a small business owner) it is a good tool, but you have to be cautious,” she said.
A less experienced business owner could be overwhelmed with the process and lose a lot of money, King warned.
But she also makes the point that Groupon ain’t from around here and doesn’t have a clue about the Mississippi market.
Groupon associates insisted on King following a cookie-cutter model that would have had her hiring more people and spending more money because of the flood of business the company said would walk through the door.
“But they don’t know anything about us,” she said.
“We live in a state with two-and-a-half million people. This thing may work great in Atlanta and Dallas and New York and Chicago, but that’s not this market.”
There are lots of other options as far as King is concerned.
“Quite honestly, I still believe in the newspaper,” she said. “I like holding it in my hands; I like to see the pages turn.”
She said advertising in more traditional ways is still working for Nandy’s Candy.
And while she won’t say that she won’t ever use Groupon again, King believes there are a lot of unknowns with which to be concerned.
Small business, which makes up the vast majority of the American economy, by King’s and so many others’ estimates, isn’t particularly made to cash in on Groupon.
But Groupon is absolutely going to try to cash in on America’s small business owners.
Contact Mississippi Business Journal editor Ross Reily at ross.reily@msbusiness.com or (601) 364-1018
Comments are closed.