In Navigating Supply and Demand, Groupon Hopes for New Life

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grouponDuring an earnings call last month, Groupon CEO Eric Lefkofsky admitted to analysts that the company’s deal marketplace — its next big thing — was not coming along as planned. The number of deals purchased through the searchable database he said, was “not as strong as he would have liked,” accounting for less than 10% of all transactions on the site.

Lefkofsky’s concern underscores the critical role that the marketplace plays in Groupon’s turnaround strategy. The initiative is the leading edge of a wider effort to transform the business from a daily discounter to a more substantial local commerce business in hopes of generating the kind of recurring revenues that make companies like Yelp and Google such an attractive businesses for investors.

During a presentation at BIA/Kelsey’s Leading in Local event in New Orleans Tuesday, Dan Roarty, vice president of local commerce at Groupon, positioned the deal marketplace as one part of a much more ambitious effort to create a platform that connects local supply and local demand well-beyond the confines of an email blast. It’s a message we have heard from Groupon before, but the company’s plans seem to be closer than ever to becoming a reality.

On the consumer side of the business, Groupon has started to use a combination of discounts, in both deals and specials, and content, from reviews to inventory data, to create a meaningful discovery experience for consumers to find, and in certain cases, buy goods from local sellers. While the company has continued to reshape the way it sources deals, Groupon’s data efforts are slightly more under the radar. Over the past few quarters, the company has rolled out pages for merchants in select markets that include basic listings data as well as pictures and reviews.

“We want people to interface with us,” Roarty told Street Fight in an interview Tuesday. “We believe people are going to check us first because they believe they’re going to get a value advantage from our service. And even if they don’t buy from us, we at least want to have them to have the convenience of taking that next step [within the service.]”

For better or worse, the strategy implicitly positions Groupon as a potential competitor to Yelp and others in the local discovery market. By creating a more robust discovery experience, Roarty argues that the company can start to bring merchants into the fold well before running a deal. He says the company also plans to create other commerce capabilities, often through partners, to allow customers to order ahead or schedule an appointment even if its not a deal.

The company might face a challenge with consumers, but its efforts on the merchant side of the equation are substantially more ambitious. In May, the company debuted a lightweight version of its iPad point-of-sale system called Gnome and said that it expected every business that offered a deal through Groupon to start using the product. Roarty, told me Tuesday that the company planned to roll the product out from a few test markets to all of Groupon’s 105,000 merchants.

One of the reasons that the daily deal concept exploded in the past five years was that it allowed merchants to market without investing capital upfront. I asked Roarty whether the new system had an equally compelling feature to draw in merchants, and he pointed to customer data. Roarty said that the beacon technology built into Gnome allows the company to identify customers with the Groupon app even if they do not redeem a deal or make purchase.

It is still unclear whether merchants will adopt the new system en masse. There’s a host of point-of-sale alternatives, and merchants may be reticent to depend on Groupon to manage the core operations of their business. Either way, one thing is for certain: Groupon’s plans are built around its projected success.

Steven Jacobs is Street Fight’s deputy editor.