Groupon And The Problem With The Daily Deal Religion [Video]


With the debut of Groupon personalization, I have little doubt that the daily deal site will double the number of deals (and double its revenue run rate) in just a few months.

According to CEO Andrew Mason, the service is churning out 75,000 transactions per day. Through personalization, Groupon will be able to offer 20, 30 or more deals per city per day. Assuming the current growth rate in subscribers — in the last four months the site has more than doubled to 12 million registered users— 2x is likely a prudish estimate.

It’s hard to fault a company that is making money hand over fist; however, as a user, I do have one piece of advice: loosen that death grip on the daily deal mantra.

According to Mason, the personalization system will give a user one deal a day based on their preferences, their purchase history and their profile. Although there will be several, simultaneous deals in any given area, a user will only be able to access one main deal from his/her account. However, if the user finds a link to a different deal from a friend, a blog, or a daily deal aggregator, that link can be used by anyone. (In the early stage of the personalization program, Mason says, Groupon users may see multiple deals but eventually Groupon will turn that off.)

Thus, all the local deals are theoretically open to every subscriber but Groupon is playing air traffic controller in order to maximize the number of deals they can offer (aka cha-ching) and to ensure a nice distribution of users for their advertisers.  It’s easy understand Mason’s rationale here, at just one deal a day their hands were somewhat tied, unable to fully absorb the number of interested advertisers. In turn, Groupon’s limited inventory has directly benefited the “army of clones,” who have swooped in and picked up impatient retailers.

“We believe in the deal a day model, but we were running into a problem where the demand for merchants to be featured has been absolutely overwhelming,” Mason says. “We have something like 35,000 businesses lined up that want to be featured, 97% of the businesses that we feature want to be featured again, so the problem is only getting worse. And what it means is for every business we’re featuring, we have to turn away 7.” (See video above.)

Understandably, Groupon is trying to optimize the bottom line and enhance the consumer experience with personalized deals, but this structure also potentially creates a frustrating user experience. Under this system, a user knows that there could be 20, 30 deals floating around but s/he can only automatically access one. Thus, if a user doesn’t want their preselected deal of the day, she will have to scour the web and ping friends in a cyber goose chase. Of course, this search will be eased by the plethora of daily deal aggregators— but that doesn’t seem like an ideal solution for Groupon either. Why encourage users to jump off your website and spend more time on independent aggregators, where their wallets will be exposed to competitors’ deals.

From the launch of Groupon, Mason has adamantly defended the model of one deal a day, a structure that has obviously served his company well (and its army of clones) and catapulted Groupon to a billion-dollar-plus valuation. However, I believe the massive demand in the market indicates that there’s some flexibility in the business model. The data suggests that consumers can stomach several deals a day— maybe not hundreds— but certainly more than one.  From the vantage point of a user, I would like to see Groupon send just one personalized deal a day to my inbox because I think there is real value in that spotlight. However, on Groupon’s website, I also want the option to log-in and access all (or at least several) of my local deals in one simple repository, perhaps ranked according to my tastes and profile.

Groupon, consider this my 700-word comment card. However, regardless of how you tackle the challenge of personalization, I get the feeling you’ll probably do just fine.

Mason dropped by TechCrunch TV on Wednesday and we got a chance to discuss the new personalization campaign (above) and Groupon’s early days. In the second video (below), he discusses the key moment when Groupon kicked into second gear.

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