Groupon, one of the rising stars of the online marketing world has announced it is preparing for its Initial Public Offering. To the non banking world that means the ordinary public will soon be able to buy shares in this fast rising business.
It’s not known yet what value these shares will initially offered at but sources close to current shareholders are placing Groupon’s value at anything from $20 to $30 Billion. Those eye-watering figures place Groupons potentially in the same league as Google, when the search engine giant first floated in 2004 the value was $27 Billion.
Now as we all know Google has gone on to take over the world since 2004 as is the number 1 online business, even Facebook has yet to lay down any serious challenge.
So how can Groupon possibly be worth as much as Google in 2004? Well the short answer is that it isn’t. With the benefit of hindsight Google was worth much more than $27 billion in 2004, it has since gone on to dominate the Search Engine market to the same extent as Microsoft dominated the market for Operating Systems.
The real question that should be looked into is if the online market that Groupon is currently dominating will ever grow in the same way as Search did?
Well everyone likes a bargain and Groupon certainly offers some very good deals to its 83 million (and growing) subscribers. However there are some factors that may limit the potential for growth.
Firstly the Groupon discounts are offered for restaurants, retailers and the leisure companies that are looking to get customers through the door. They are very much a loss leader so local businesses can get some word of mouth spreading and build custom. It’s a very effective form of promotion however at some point those local businesses are going to need to make money which they will not be able to do offering Groupon style discounts.
Secondly as shoppers, even though we all like to save money, we know what we are going to purchase. We usually roughly know the brand, company or service we are looking for. All we want is to get what we want as cheaply as possible, for that we will still head to Google and Search. We make look to Groupon for the occasional bargain.
Groupon’s a great company using a great idea with plenty of room for growth, however remember it still makes an annual loss, and it will come up with more avenues for growth but it will never rival Google as its IPO suggests as the market it will come to dominate simply doesn’t have the potential of Search.