Economics 1 Groupon 0

Written by Ashwin Rattan Monday, 07 May 2012 12:53
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David Zetland author of Aguanomics on Groupon


I've been a skeptic of Groupon and its business model for some time.

I was not pleased with their business because it was so easy for others to copy it, but their dodgy accounting (booking gross sales without removing fees to merchants as "revenue) sealed their fate.

The problem with the model is that consumers will get fatigued of using the interface (i.e., higher transaction costs) compared to just shopping -- especially when Groupons are used for "extras" that will not become repeat purchases. (Merchants are also not so pleased, for the same reason -- a surge in demand that falls, without increasing future profits.)

So I was interested to see that some directors are jumping ship, a ship with a sinking share price (After the $20 IPO, prices went over $30 but are now under $11/share):

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