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Why Does Everybody Want to Be Groupon?

By Rick Munarriz - Updated Apr 6, 2017 at 11:44AM

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If imitation is the sincerest form of flattery, Groupon must be blushing.

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 WeddingChannel.com 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.

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Stocks Mentioned

Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$2,116.10 (-0.16%) $-3.30
Travelzoo Inc. Stock Quote
Travelzoo Inc.
TZOO
$6.65 (7.61%) $0.47
Match Group, Inc. Stock Quote
Match Group, Inc.
IAC
XO Group Inc. Stock Quote
XO Group Inc.
XOXO
OpenTable, Inc. Stock Quote
OpenTable, Inc.
OPEN

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