Is Groupon A Bubble About to Burst?


Groupon

There’s a new argument against Groupon’s huge, upcoming IPO (which is estimated to be around $20 billion) — and this time, the argument comes from advertisers rather than the businesses the deals site could hurt.

According to Ad Age, marketers are increasingly focused on the top 10% of U.S. households, because they control about half of U.S. consumer spending. But group buying sites, like Groupon, sell to an audience whose income falls below that 10%.  For most marketers, then, those consumers are an unattractive bet.

Besides the fact that Groupon won’t receive these high-end advertising dollars (that probably won’t hurt the behemoth too much), the statement the advertisers are making about Groupon’s audience is pretty meaningful.  Basically, they are reluctant to advertise to Groupon’s subscribers, which is a silent statement that those eyeballs simply aren’t worth it.  There’s a huge income divide in the U.S., and Groupon’s core audience has far less cash to spend. As such, marketers would rather focus their attention elsewhere.

This argument sets the stage for the idea of a social-media-driven dot-com bubble.  It follows on the heels of the argument that, hey, sites like Groupon are only middlemen.  They don’t actually create a product, they’re just a means to get people to buy things made by other businesses — and how could that possibly be worth upward of $20 billion?  Now, if advertisers are claiming that the people who are supposed to be buying aren’t worth their ad dollars….well, it could be the first hint of a grim future for Groupon and its ilk.

So, is it time to ask whether the new wave of dot-com investors should start fretting?  And we don’t mean the early investors, many of whom have already sold their stock, but rather everyone else.


6 Responses to “Is Groupon A Bubble About to Burst?”

  1. Bargain_Spy

    While I agree that Groupon doesn’t have a sustainable revenue business model, there are so many things wrong with these statements I don’t know where to start. I happen to be among the lucky 10%, and other than paying more taxes than the rest 90%, I reserve the right to be just the same; meaning I love a bargain when I see one. I don’t have less cash to spend, I am just not willing to pay full price, when I can get the same thing cheaper. Now, if you tell me that this is going to hurt vendors in the long run, I believe you. But the argument that I am not “worth their advertisement dollars” proves how ignorant they are, and how little they know about us, the consumers.

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  2. adrian

    This article is pretty ridiculous. My wife and I are easily in the top 10% and we love daily deal sites. I would argue that we are actually the ideal target for these sites. We have money to spend, yet we are looking for a good deal. When we find one, we buy it and when we use them, we usually spend more than the coupon is worth. People with higher income also look for deals and when we find them, we are the ideal customer. If the business is good, we will likely return in the future regardless of whether or not they are having a deal because we have the income to spend.

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