Wednesday, January 19, 2011

Groupon: Should have sold to Google?

Groupon's business model seems unsustainable.

A participant has to provide a greater than 50% discount followed by splitting half the coupon revenue with Groupon, leaving them with a lousy 25%.

Furthermore, they have little to no economic moat for protecting their currently enormous margins. Living Social and others are starting to eat away at their business.

I bet in 2-3 years they will be valued less than the $6B offered by Google. Classic example of founders overvaluing their creation, similar to Jerry Yang with Yahoo (though at least he had some semblance of a reason in the undervaluation of Yahoo's Japan and Alibaba holdings).

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