Will Groupon Become Irrelevant?

Groupon is hoping for a $20 billion valuation in its coming IPO. Yes, the company is growing fast, but as I wrote last month that its business model is suspect.

And now, in addition to Amazon-backed Living Social, a host of niche competitors are nibbling at Groupon’s heels. More significantly, both Google and Facebook are getting into the online couponing game. Analysts still give Groupon the edge because it has a head start in developing a big national sales force, but that’s also suspect.

With their immense daily traffic, Google and Facebook don’t need a distributed sales force. They’ve both managed to build pretty good ad businesses without one, and there’s no reason why getting small businesses to offer coupons would be any different from getting them to buy pay-per-click ads. It may be even easier, as there are few things retailers tend to be tempted by more by than the lure of discount-driven traffic.

Perhaps Groupon has an end game that hasn’t yet been revealed. But anybody who invests in the company based on its current lead in the digital-deals mania should consider how gold rushes tend to end.

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