Riding Groupon’s recent success competitors are popping up practically daily (see the competitor list here). In the early days of commerce Amazon faced well funded competition from the likes of Pets.com, Buy.com, Furniture.com, and thousands of others. Many of these are not around anymore and others are simply shells of of their former selves. Amazon built up its defensives with broad product coverage (tons of categories and the marketplace) and innovating in features and services like product reviews (hard to replicate) and Amazon Prime (customer lock-in). So, what will Groupon do to quickly start establishing its defensibility? Here are three ideas:
- Multiple Parallel Deals: This is another way of saying broad offer selection. With only a deal or two a day per city (~50 or so cities) the activation energy a competitor needs to catch up is fairly small (sales force and some search marketing spend). If they had more liquidity on the supply side (hundreds of deals per day per city) it would be very hard to create this kind of supply with a sales force. To do this effectively they need to build a recommendation engine that ensures that I never see a deal for a pedicure.
- Turn Competitors into Sales Franchises: Local businesses don’t have the time or desire to transact with multiple group buying sites. Furthermore, Groupon’s competitor’s are starting to plateau, as this happens will seek new ways to generate incremental revenues. Groupon can avoid a bloody fight with these competitors by turning them into a local sales franchise. They bring deals to Groupon and in return get a cut of any deals sold. Of course, these local sales franchises have to use all the listings and contract management systems Groupon provides.
- Build Local Business Reviews: For each deal many hundreds of people experience the service. If 10% of these wrote a detailed review they could quickly become an excellent source of business reviews. Today’s Groupon in San Jose is running a deal for Cindy’s Yoga (see here) that 792 people purchased. If ten percent of purchasers wrote a review (or 79 reviews) Groupon would have 36 more reviews than Yelp’s listing for Cindy’s Yoga (see here).