‘Groupon Should Have Been Built As A Technology Company’

November 15, 2012 2:23 pm

Jeff Bezos famously called Amazon a Computer Technology company and not an online Retailer. Forget AWS: the technology investment gives Amazon a huge lead in online retail. What has this got to do with Groupon?

Groupon is now a sinking ship. That is what the market thinks about Groupon. “The fastest growing company in the history of the Internet” to this now – what went wrong?

It comes down to entry barriers – Groupon rightly understood that the local deals market had a heavy first-mover advantage, and they had to conquer, and hold the fort. They did a terrific job in the ‘conquer’ part – they spread as fast as they could, and that meant a lot of recruitment in sales. They have some 11,500 employees now, selling merchants on daily deals.

It is the ‘hold’ part where they missed out. They had to be actively investing in technology and user experience in order to hold this market – their current vision, to be the operating system for local commerce, must have been their ‘hold’ strategy starting day one. They never became a technology company, which, in hindsight, was a huge mistake – leaving the local commerce space open for the Squares and Foursquares of the world. History proves that technology wins every time – Facebook, Amazon are all classic examples.

That kind of focus on technology is probably the boat that Groupon missed. Agreed, merchants are mostly low on technology. But in the absence of significant lock-ins, automated deal negotiations / bidding systems and ease of use could have been good barriers.

What Groupon did on the customer side (in terms of technology) was good, not ground-breaking. Agreed, the customer got dollars saved and that was all that mattered – but is a dangerous customer retention strategy when competitors emerge.

Or maybe, like many startups, Groupon got into a “Focus Vs Pivot” loop. They are pivoting now. We will know very soon, if the pivot was just in time or too late.

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