Christmas came early for Groupon this month when its IPO rocketed and shut up (at least briefly) many of the daily deal giant’s critics. A 31% increase in stock price and valuation of $12.7 billion puts Groupon second only to Google on the list of most successful tech IPOs — an impressive feat in the face of all the scrutiny Groupon has faced over these past months. But as the confetti settles and the champagne goes flat, what does the IPO mean for the future of Groupon and the industry it created? History gives three hints:
1. It validates the daily deal industry.
While red flags remain about Groupon’s specific business model, a successful IPO of the industry leader forces the market to recognize it and other players. Case and point: internet search.
It was Yahoo in 1996 which first made the market perk up and pay attention to the space. Then came Google, Ask Jeeves, and a multitude of others. Russian search giant Yandex IPO-ed this past May to an $11 billion valuation. Yahoo and its successors have since seen struggles, growth, and evolution — but they are now the foundation of one of the most powerful industries in technology.
And, so too does Groupon’s success set the stage for other daily deal players to be taken seriously and carve out a niche of the market for their own. This IPO is not a happy ending for daily deal industry. It’s a happy beginning.
2. Deal commerce will be democratized, and Groupon could get passed up.
With the daily deal business firmly legitimized, other players are now all systems go in driving innovation and improved value propositions. And as history shows, the first mover in a new category often gets a big valuation when going public, but does not always have the last laugh.
Take Broadcast.com. The audio/video streaming site’s stock soared 250% at its IPO in 1998 — but enter “broadcast.com” into your browser today and you’ll find it no longer exists. Why? Because it was followed by YouTube, Pandora, Hulu, and a thousand other content-streaming sites which, though they weren’t first in the game, beat Broadcast because they were better players.
Groupon is a behemoth and should be wary of smaller, more agile players eager to disrupt its business. Even today, some niche sites are already garnering a respectable share in their geographic markets. Example: 225BestEats.com. With a focus on the culinary culture of Baton Rouge, 225BestEats draws a quality, cuisine-oriented audience to whom local restaurants are eager to offer deals, because they know the deal program brings customers who come back. As a result, 225BestEats regularly beats Groupon in its home market.
3. The winner won’t be a single site, but the arms dealer to many.
Just as SaaS pioneers like Salesforce and Concur cemented their position as market leaders by enabling others with powerful, consumer-facing CRM and expense-management applications, the winner in the deal commerce game will be the player who perfects the infrastructure behind daily deals and makes it available to many.
Media companies, niche bloggers, and digital content creators of almost any kind have credible brands, local sales forces, and engaged audiences — critical components that Groupon spent hundreds of millions to grow. The only piece these companies are missing is the technology on which to build a deal site. It will be the supplier of this technology that wins.
After months of media scrutiny, Groupon answered its critics’ questioning with a blockbuster IPO, providing a boon to the daily deal business. And, if history is any indication, its success will legitimize the industry, encourage other players to stay in the game, and open an opportunity for a top deal commerce technology provider to take the market lead. So, kudos on the big win, Groupon. And for everyone else, it’s game on.
Martin Tobias is founder and CEO of Tippr, a premier provider of group buying solutions and PoweredByTippr , a white- label platform that enables publishers to create successful group buying services. A Seattle entrepreneur and venture capitalist, Tobias has 25 years combined experience in the venture capital and technology industries. His Twitter handle is @MartinGTobias .