An Open Letter to Groupon

$6 BILLION dollars wasn’t enough? $6 billion, with a “b”. The YouTube guys got $1.6 billion back in 2006 and they seem perfectly content padding around the mansion in gold plated bunny ear slippers. $6 billion buys a lot of Skittles and beer.

Here’s why you’re going to look back on this in a few years and wonder how you could have been so short sighted.

1-      Your business model has a very low barrier to entry. I currently subscribe to your emails and Living Social’s emails. The other day a 3rd email newsletter normally not geared to coupons had a social deal in it. Anyone can get in on this game. Expect a dozen competitors in your space by the end of 2011 including….

2-      Google. You teased and poked the bear, he’s awake, he’s pissed and he’s hungry. Scorned, Google is building out their own coupon / social platform. I’m sure you heard. Combining their 70% search market share with a decent user interface and you’ll never compete with the variety and specifically targeted deals they could come up with. They know that I search for Mexican restaurants in zip code 10003 on Wednesdays – BOOM! A perfectly tailored deal for half off a pitcher of margaritas is sent to me. Do you know what kind of deals I would like to increase my take rate? Clearly not, because your deals are 93% girly stuff I would never buy. I remember even telling you I was a dude when I signed up and yet you keep serving me coupons for spa treatments and stretch mark removal services and pole dancing classes. Dude, I’m A DUDE!

But Google is not infallible. Let’s say that they screw it up and their proprietary platform goes nowhere like Google Video or Buzz or Wave. They have so much cash they’ll just buy up all the coupon sites that did get it right and infuse them with enough cash to crush you. What do you think $6 billion smells like? Imagine what it smells like because that’s as close as you’re going to get to that kind of money again.

3-      The internet has a short memory and a hugely inflated sense of worth. This past summer Lycos was sold for the 3rd time. Remember Lycos? No? It was a search engine. A search engine that sold for $12.5 billion in 2000, $95 million in 2004 and recently sold again for $36 million.  I suspect in 3 years time Groupon will be spoken in the same breath as Alta Vista, Friendster, MySpace and

You’ve got moxie, Groupon. I have to give you that. But I think you watched The Karate Kid a few too many times, because often in life the little guy doesn’t win.

Good luck,