Why Does Everybody Want to Be Groupon?

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It seems as if every dot-com with a localized bent is taking a page out of the Groupon playbook these days.

  • Travelzoo's (Nasdaq: TZOO  ) stock has soared 43% in the seven trading days since launching Local Deals. The travel deals publisher behind the "Top 20" weekly email offering will now be selling vouchers for marked down local experiences.
  • The Knot (Nasdaq: KNOT  ) launched Deals last month. It's not even hiding the blueprints, describing the offering in its press release as "a Groupon-like group-buying program bringing exclusive national and local wedding deals to brides."
  • Merrill Lynch upgraded shares of OpenTable (Nasdaq: OPEN  ) , largely on the strength of its Spotlight initiative that's being tested in a pair of markets to pre-sell discounted dining deals.
  • Yelp has come to the table, introducing Yelp Deals in San Diego two weeks ago -- with more cities on the way.

What does this all mean? Why is everybody aping Groupon? What the heck is Groupon anyway?

Well, Groupon has become the darling provider of city-specific deals on dining, spa treatments, and leisurely pursuits. There are other players in this field -- including LivingSocial and Buy With Me -- but Groupon turned heads earlier this year, when a venture capital raise valued the company at a cool $1.2 billion. That puts it on an even level with dining reservations leader OpenTable, and more than The Knot, Travelzoo, and dining loyalty specialist Rewards Network (Nasdaq: DINE  ) combined.

It kind of makes you wonder what Citysearch parent IAC (Nasdaq: IACI  ) and AOL (NYSE: AOL  ) -- owner of Mapquest and serving up a ton of city-specific leisure content -- are waiting for. Groupon's valuation makes up roughly half of what those dot-com conglomerates are presently fetching.

There will be a shakeout. The Groupon model is too juicy. Reports indicate that Groupon takes as much as 50% of the prepaid vouchers. In other words, if an upscale steakhouse is offering $100 certificates for $50 each as Groupon's daily deal, the restaurateur is selling the meal credit for just $25. For upstart spas and restaurants, this is a savvy move. They are trying to create a loyal following, and a marked-down introduction may lead to several future visits.

It probably won't play out as well for The Knot, where deal participants are unlikely to get repeat orders for wedding cakes or tuxedo rentals -- unless they're counting on referrals from the attendees.

Travelzoo may have similar turbulence. It reaches out to 21 million travel-happy email recipients, but this isn't exactly the staycation crowd. Sponsors may also fear that these will be one-off experiences not worth subsidizing as heavily as Groupon merchants.

OpenTable has a decent shot here. It stands to collect meatier prepaid bounties than the pocket change it charges per seated patron for its online dining reservations. The rub here is if OpenTable can juggle the conflict of offering deeply discounted meals without upsetting its established core of restaurants that prefer not to participate in the markdowns.

There is room for opportunity here, especially for niche leaders. This is a model that can definitely hold a couple of participants, especially if they can differentiate themselves. They better, because it won't be long before Google (Nasdaq: GOOG  ) makes the most of its online advertising dominance, popular mapping site, and mobile operating system to craft a category killer of its own.

Have you ever used Groupon or a Groupon-esque site for a deal? Share your thoughts in the comment box below.

Google is a Motley Fool Inside Value selection. Google, The Knot, and OpenTable are Motley Fool Rule Breakers picks. The Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. 

Longtime Fool contributor Rick Munarriz is a fan of discount sites, and he's already tracking local deals through Groupon and LivingSocial. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Read/Post Comments (6) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 08, 2010, at 11:36 AM, ChrisFs wrote:

    I keep track of Groupons. However I buy for places that I would go to anyways or places that I like but wouldn't go to due to the price.

  • Report this Comment On September 08, 2010, at 12:10 PM, eWinWin wrote:

    You failed to mention platform providers, like eWinWin (, that allow businesses to create and launch their OWN customized deals. They take a smaller percentage and give businesses access to buyers’ email addresses so they can market to them again in the future. What do you think about them?

  • Report this Comment On September 08, 2010, at 7:09 PM, AdamSayLocal wrote:

    Who wouldn't want to be the next Groupon? We do, or more specifically, we want to be better than Groupon.

    I invite you to check out our brand new offering, currently only available in Silicon Valley, at

    SayLocal solves the big problem with group buying sites like Groupon and its clones. These sites are great for consumers, but the economics don’t work for most businesses. It’s nearly impossible to make a profit when you are giving away 75% of the initial purchase (50% to the consumer and 25% to the group-buying website) unless your new customers return regularly. And out of hundreds of group buying sites, only SayLocal provides consumers with a real incentive to return and make full-price purchases.

    SayLocal promotes locally-owned businesses using a directory of incredibly discounted offers to attract new customers, and a universal loyalty card to track and reward repeat customer purchases. In order to earn additional discounts, consumers must shop at full price until they reach a spending level set by each business.

    We'd love your feedback!

  • Report this Comment On September 08, 2010, at 7:11 PM, ddss1 wrote:

    I like using sites like Yelp for learning more about great spots to eat, drink and play and then use sites like DealPop (who happens to be giving away a free iPad right now) and Living social for getting deals on those same places.

  • Report this Comment On September 23, 2010, at 9:19 AM, jtago wrote:

    Hello Everyone!

    I just researched on the web on another kind of deal site and found It is another Canadian startup deal site which lists some deal sites together in one.

  • Report this Comment On November 02, 2010, at 10:36 AM, culturahq wrote:

    We just published a post about this trend and how discount is not the primary motivator -

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