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On the Media: Is Groupon such a deal?

The Internet phenom experiences growing pains with customers and merchants — and hold on to your 'expired' coupons.

January 19, 2011|James Rainey
  • The Groupon website
The Groupon website (groupon.com )

Some of the more tech-centered among you have been using Groupon to buy half-off massages or, say, hugely discounted wine and tapas at your neighborhood bistro. But the social buying website really leaped into the public consciousness with the news late last year that Google had offered to buy it for an estimated $6 billion.

Not long after receiving Google's imprimatur (an offer Groupon turned down), the Internet upstart got a double whammy confirmation that it would be the Next Big Thing. First, it attracted nearly $1 billion in capital from big investors. Then it moved ahead with plans for an initial public stock offering that the New York Times estimated last week could value the company at $15 billion or more.

The media, big and small, get a little breathless when they think they have spotted the next game-changer in the vast and growing world of e-commerce. More muted but at least as important have been news reports about Groupon's shortcomings and the potential pitfalls for the company's small business partners.

The latest ripples of dissent suggest — despite the head-spinning Wall Street valuations — that the Web phenom may be something less than a sure thing. And it's certainly not a great fit for all of the merchants struggling to win and hold on to new customers in a stalled economy.

What's received the least attention of all in the media are the consumer rights issues raised by the discount site and its many competitors. Did you know, for instance, that your "expired" Groupon coupon retains some value?

More on that — and how Groupon should do a better job keeping customers informed — later. But first a look at how Groupon works.

The 2-year-old company e-mails consumers each day offering a "daily deal." Customers who have registered with Groupon typically have just hours to click a "Buy" button to get discounts of 50% or more at restaurants, spas, gyms and other businesses. If enough people sign up (which they usually do, given the site's popularity), Groupon declares the deal "on."

Customers then print out a bar-coded coupon (or display it on the screen of their smartphone) and take it to the business, which delivers the goods or services at the advertised price.

The service has expanded around the world and has been wildly popular with small businesses, which get a rush of new customers. Twentysomethings report a particular fondness for Groupon. Several told me this week Groupon pushes them to get out and explore with friends.

But the sun doesn't always shine in Groupon Land. Just Monday, Groupon founder and chief executive Andrew Mason posted a video apologizing to customers in Japan who signed up for traditional New Year's feasts, only to get meals that were paltry or late. (Even at half off, the traditional osechi meals went for a cool $128.)

Groupon issued refunds and coupons for future discounts, along with the apology. But that can't entirely erase a problem experienced by some businesses that partner with Groupon — the stampede of new customers cashing in the coupons.

When I redeemed a $10 Groupon (which cost me $5) at a South Pasadena bakery Tuesday, the clerk told me the response had been brisk. She predicted lots of follow-up business from the new customers. My cinnamon rolls and coffee arrived without a hitch. But the cheerful clerk acknowledged that on Day One the bakery had run out of its most popular bread and other items.

Other businesses have reported similar shortages or crowds of new customers they weren't fully prepared to handle. After the debacle in Japan, CEO Mason renewed pledges that Groupon would help businesses in new countries where it's expanding be better prepared for new customers.

Groupon evokes a Google-style "Do No Evil" vibe in its Web pronouncements. But some remain skeptical. Their stories have been more likely to appear on obscure websites than in the big news stories about Groupon's massive growth. In a post last week on Tnooz.com, a website focusing on the travel business, a tourism technology consultant wrote that Groupon's discounts were too steep to make sense for many small operators.

Stephen Joyce wrote on Tnooz that, with typical discounts of 50% and an even split of the remaining payment with Groupon, businesses actually receive just 25% of their normal fee. The small operators can't resist the temptation of luring new customers. "It is too good to be true," Joyce wrote, "and the downstream costs for a small business, once all the numbers are crunched, are perhaps not what a business owner might have expected."

Joyce is not alone in voicing doubts about the long-term value of Groupon. Ryan Chittum, writing for the Columbia Journalism Review online last week, dogged the New York Times for trumpeting huge valuations for the company without addressing the "potential difficulties" to come.

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