Groupon is great, but is it worth $25 billion?

Bloomberg News is reporting today that, according to an unnamed source, Groupon is anticipating an initial public offering that would value the company at upwards of $25 billion. That is a staggering sum, over $2 billion higher than Google’s own IPO seven years ago.

Groupon is an interesting web service for local businesses. Its meteoric rise has turned a number of heads, but the idea of selling group discounts is hardly new or unique. LivingSocial, BuyWithMe, BloomSpot and many other sites all operate using the same basic concept. But none of these sites are turning down offers from Google (who reportedly offered $6 billion last December to buy the company), nor are these competitors making headlines about historic IPOs.

So what makes Groupon different from all the others? One thing: execution. Groupon’s site is well-designed and easy to use, the discounts offered are substantial, and the services and products featured are legitimately valuable. It also has amazing word of mouth via tight Social Media integration (users can easily broadcast their purchased deals to friends via Facebook and Twitter). Couple that execution with a populace of consumers rabid for good deals in a down economy and you have a recipe for this amazing success story.

But the comparison with Google’s IPO raises some interesting questions. Google is a massive company with dozens of different products and services that are all individually successful. Groupon, however, is designed around a rather basic business model that is easily replicable, and while their execution has indeed made them successful, can it really sustain a market valuation of that magnitude?   Buying shares of a company is a statement of belief that a company can continue to grow, but their recent efforts to expand internationally have been somewhat less successful than their domestic initiative. It’s hard not to be somewhat skeptical, then, of Groupon’s long-term growth potential given the low-cost to entry into this competitive online space of local discounts.

That said, customers and local business owners only stand to gain from increased pressure on Groupon to stay ahead of its competitors. If you are a local business owner looking to investigate using Groupon to gain new customers, consider talking to the Online Marketing consultants over at Phoenix Synergy to help brainstorm the best way for your business to take advantage of this online discount bonanza.

 

 

 

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