Can Groupon or LivingSocial Be Stopped?

By Rick Aristotle Munarriz, The Motley Fool

It's good to be a leading group-buying website these days.

LivingSocial raised $400 million in new financing last week, according to New York Times' DealBook. The new round values the country's second largest social coupon website at more than $3 billion.

Just four months ago, Amazon.com (AMZN) led a smaller round at a presumably much lower valuation. This time around Amazon.com is being joined by T. Rowe Price (TROW) and new venture capitalists in bankrolling LivingSocial's heady expansion efforts. An IPO can't be too far away.

It's not just LivingSocial closing in on its Wall Street debut with healthy momentum.

I wasn't the only one scoffing at Groupon for rebuffing Google's (GOOG) seemingly ridiculous $6 billion buyout offer late last year. Boy, was I wrong. These days the IPO chatter and secondary market trades find Groupon being pegged with a whopping $25 billion price tag.

Patience has paid off for Facebook, Twitter, Groupon, and any other dot-com darling that has thumbed its nose at buyout offers that seemed generous at the time but too low in retrospect.

The challenge here is for Groupon and LivingSocial to keep growing. Juicy margins and feeble moats have attracted more than just upstarts. AOL's (AOL) Wow.com and CBS' (CBS) CBSLocal.com have hopped on the bandwagon in recent months. Travel deals publisher Travelzoo (TZOO) and dining reservations leader OpenTable (OPEN) have seen their shares skyrocket since embracing the pre-paid voucher model for discounted offers within their respective niches.

Will crowding lead to confusion or a shakeout? Will the viral nature of hot deals backfire when good offers go bad? Will non-discounting merchants find a way to fight back before they lose more business?

Then we have the biggest question of all for prospective investors: Will LivingSocial and Groupon manage to pull off their IPOs before they peak?

Are you looking forward to the inevitable Groupon or LivingSocial IPO? Share your thoughts in the comment box below.
Google is a Motley Fool Inside Value pick. Google and OpenTable are Motley Fool Rule Breakers recommendations. Amazon.com is a Motley Fool Stock Advisor pick. The Fool owns shares of Google and T. Rowe Price Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.


Longtime Fool contributor Rick Munarriz has already seen one of the Groupon deals he purchased go belly up. The site quickly refunded his money. Since there doesn't appear to be a lot of consumer advocacy in this niche, he just launched GroupOffed.com as an industry watchdog blog. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


More on The Motley Fool:

Increase your money and finance knowledge from home

Bonds for Beginners

Learn about fixed income investments.

View Course »

Portfolio Basics

What are stocks? Learn how to start investing.

View Course »

Add a Comment

*0 / 3000 Character Maximum

3 Comments

Filter by:
cc25

New, but promising, TheSalesMap.com
Unlike Groupon or LivingSocial, TheSalesMap is free for businesses.
It does not charge businesses 20% to 50% per sale or any other fee.
its better organized and you can see sales and promotions on map around where yo leave.
Love to see more deals in there..

November 01 2011 at 2:57 PM Report abuse rate up rate down Reply
Nora

I think daily deals are going to continue to be a hot trend for quite some time. Consumers love using them to save money on all kinds of products and services.

Another site to use to find deals is http://www.dailydealpool.com. They'll send you a daily email with the best buys in your area, ensuring you won't miss out on a great local discount!

April 06 2011 at 8:27 PM Report abuse rate up rate down Reply
Carl Ruzycki

Yes! Groupon is stoppable. They will do it to themselves. Their business plan is flawed as it is not a win-win for merchants. The lawsuits are coming in at a faster pace from the buyers and Groupon will have to defend itself as they are state class action lawsuits. Groupon has way too many feet on the street and the profits have to be low due to the sales expenses. Groupon could loose their ability to do business as they are loosing the patent issue against MobGob. If MobGob wins and it is sounding like they will, will this force Groupon to stop what they are doing? If MobGob forces Groupon to change the way they do business, then what?

Its not a matter of if they are stoppable but when the train wreck will happen. The government is reducing spending and the states are reducing spending to make ends meet, but Groupon is titillating the debt ridden buyers with 50% + off deals and the buyers are sinking deeper into debt. The merchants are saying enough is enough with the 50% off, then paying 50% to groupon and receiving their money over 90 days.

New business models that are true wins for the merchants like the "MyPersonalShopper.com" will severely impact Groupon. MyPersonalShopper.com is the first and only website to offer discounts of 50%-75% at major retailers like Target, Walmart, Amazon.com, Gap and others. It also:

1. Organizes all discounts so users can easily find the ones they want .
2. Doesn't overwhelm people with an email every single day.
3. Provides deals that last for weeks at a time instead of just one day.
4. Has 20,000 discounts ready to go.

Their database includes clearance sales, refurbished items, promo codes, daily deals, traditional coupons and every other discount people want.

Source - New Website Offers Groupon Level Discounts at Major Retailers PRWeb - SFGate April 5, 2011 04:00 AM Copyright SFGate.

If you buy something you found on their site they will get a referral fee from the company you brought it from. This is a true win win for the merchants and the buyers and will pull merchants away from the Groupon program. This a winning business model. That's why they are stoppable.

April 06 2011 at 5:25 AM Report abuse rate up rate down Reply