I must admin that I’ve been baffled by Groupon’s success.  I’ve been a member for probably 6 months and only bought one Groupon – a discount to a dry cleaner that i already use, which I’m sure they were thrilled about.

Basically Groupon aggregates local email addresses – they are an intermediary.  In a world where every industry is constantly being disintermediated, why are we heaping praise on a new intermediary?

I could care less about the witty writing – I never read it.  I guess it makes for some nice free press though.

How about competition?  Everyone and their brother is launching group buying deals.  Facebook, Google, Living Social, as well as hundreds of startups.  There are few barriers to entry.  There is no user lockin at all.

Their business model is ridiculous – is it any surprise that customers like it?  Rocky Agrawal said it best on TechCrunch:

We love daily deals for a simple reason: the deals have been outstanding. If revenue growth in the first Internet bubble was about selling a dollar for 50 cents, growth in the daily deals business has been about getting other people to sell their dollars for 50 cents and charging them 25 cents for the privilege.

I’m not bothered that investors already took out $930 million from the company on the $1.08 billion the company raised.  I mean, for a company losing hundreds of millions, AND with net current liabilities of over $200 million, I agree with Minyanville that you’d think investors would want the company to keep a little more than $150 million of the $1 billion they raised.  But hey, that is the private investor’s problem.  It only becomes a broader problem when Groupon goes public (which is soon).

I’m more bothered that they are spending so much on customer acquisition costs. According to Yipit, they pay $30 to acquire a new customer.  I’m convinced that number is wrong – I can’t fathom how it would cost $30 to get a user to signup for a daily email, from a company in the news practically every day, in order to possibly save money on great deals from local merchants.  It should cost next to nothing for me to signup for it.   And quite literally nothing to get me to use it after I’ve signed up, since the entire premise is to send me daily emails encouraging me to buy!

Yipit and others have also noted that Groupon’s Boston market, one of its oldest, seems to be deteriorating in both revenues per customer and number of deals sold.

I would be very leery if I was a business owner in retail, or restaurant, or personal services about running a Groupon.  In an industry like software where the incremental cost is virtually zero, you can make money on 25% of list price.  Those other industries… not so much.  And the two main benefits the business is supposed to get – (1) attracting new customers, and (2) getting customers to spend more than the value of the Groupon – are only theoretical benefits until it’s actually proven for your business.   Businesses don’t even get access to the customer’s contact information (heaven forbid that Groupon would provide that, considering that it might lower the number of people willing to signup for Groupon).  I’m willing to bet that a lot of the small business owners getting these Groupon sales calls are being wowed on the phone by slick salespeople with promises of a windfall of new customers and jumping in without really thinking it through.

The BBQ Rib Man begs to differ, noting his positive experience  with his restaurant.  But the negative stories outweigh the positive ones, and you would think that merchants would be eager to tell a positive story if they had one in order to get in Groupon’s good graces.

Business Insider gets a queasy feeling when it looks at the company.  MG Seigler from TechCrunch isn’t too bothered by their spending and founders cashing out, but he admits that he’s never actually bought a Groupon with his account.  A few notable entrepreneurs debated Groupon’s future on Twitter.  With the S-1 filing for their IPO, it seems everyone is writing about Groupon – and most of it is negative.

I think that Groupon is the first salvo in the evolution of online-to-offline commerce and customer acquisition strategies, and I think that evolution is going to take a lot of time and change direction many times, incorporating geolocation and social network recommendations to ultimately connect me with a business.  The Groupon Now service is interesting idea and has potential, but it won’t be the only game in town.

Groupon has my email address, but absolutely no loyalty from me.  And they have thousands of sales people calling millions of local merchants, but the relationships won’t be worth anything if they don’t make them money.   I’m just not ready to back the Groupon horse in this race when there are others like Google that can leverage their search and email services, or Amazon that has proven it  understands retail.

(photo from Flickr user antwerpenR)