Groupon Pulls a Netflix with Groupon Now (and That’s a Good Thing)

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As with other Groupon subscribers, a $10 credit landed in my in-box this week. The catch? I have to subscribe to Groupon’s mobile app. It’s part of the ongoing and accelerating full-court press by the biggest daily deal site around the launch of Groupon Now, a geotargeted deal product with much tighter time limitations. This is part of Groupon’s grand plan to shift towards becoming a real-time, location specific, expiring inventory deal site rather than a glorified coupon clipper.

They’re timing is probably not a coincidence. I had a conversation with a very smart guy at a cloud-based computing company about his Groupon experience that same day. He told me this. He had tried Groupon for a week, found that it didn’t deliver him anything he wanted, then turned it off. Further, he said most of the friends he talked to about it said the same thing. “I just thought it was kinda useless,” he said.

Give Groupon credit for taking a page from the Netflix playbook in rapidly moving to seize a better sales mechanism after spying the declining value of its existing one.

I’ve experienced something similar. The quality of the restaurant deals on Groupon has generally tracked downwards. Most of the restaurants I am interested in are no longer selling through group buying services, it seems. Perhaps it’s because they got burned (Reuters blogger Felix Salmon says that, in fact, restaurants are the most likely to get burned by Groupon). Perhaps because they didn’t need the help. Perhaps they feel that a second hit from Groupon would only provide a very marginal gain. Perhaps the pick-up in the economy has removed the sense of desperation. After all, Groupon scaled during one of the worst recessions ever.

Whatever the case, for me and many, many others, so goes the quality of the restaurants, so goes Groupon. Without them, the service would likely collapse. Which is why, I think, Groupon is dashing headlong into mobile. The idea of this Groupon push is to serve up a deal customized to the user’s tastes delivered only when the user is in a location near the merchant and only when the merchant wants to offer the deal. This is, of course, the Holy Grail. And it’s a much better business model than Groupon’s existing email version.

Here’s why. First, Groupon’s current market is highly constrained by its deal-per-day regimen. Opening up to a structure based on personalized deals could allow Groupon to far more effectively segment the market. Second, owning email addresses is valuable but it’s a lot more to valuable to own location-specific interactions such as SMS information. People respond more quickly to those sorts of notifications. Third, merchants tired of the out-of-control chaos resulting from Groupon’s current email-based model will likely be more receptive to a model constrained by time and place to a much greater degree.

Lastly, Groupon certainly realizes that the easy days are over in their existing business. Margins, from what I hear, are already eroding and Facebook can offer far better personalization and socialization (and therefore virality) than Groupon, while matching Groupon’s sales force. Oh, and Facebook is already expanding Facebook Deals. Then there’s Google, which also has a local sales force and a slow-building deals site. Both Google and Facebook, of course, are likely to quickly move their own offerings into mobile and, probably into more real-time. So give Groupon credit for taking a page from the Netflix playbook in rapidly moving to seize a better sales mechanism after spying the declining value of its existing one. If Groupon can grab ahold of a similar sized chunk of the mobile market, then perhaps its much doubted rejection of Google’s $6 billion offer may in the end appear quite justified.

Alex Salkever’s Personal Fight column appears every Friday.