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Posted by Sucharita Mulpuru on November 7, 2011
After months of drama, Groupon finally had its IPO last week, concluding perhaps the most anticipated event in the daily deals space. Now, however, is the even bigger challenge of actually proving out its valuation. The obstacles aren’t small and we lay them out in a report out today called Myths and Truths About Daily Deals. We define daily deals as both the purveyors of prepaid vouchers like Groupon and Living Social as well as the flash sale sites like Gilt Groupe and Woot. Two of the biggest challenges for prepaid voucher companies are the following:
That said, the daily deals companies do have some big advantages. The consumers who do subscribe to these sites (especially the younger shoppers) all love to discover new products, brands or offers. And at the heart of all of these businesses, particularly the prepaid voucher space, are fundamentally profitable concepts. Groupon’s model of discounted offers that are presold and require no inventory investment could actually be very profitable. But it would also require being a significantly smaller company that would contradict the narrative that’s positioned it as the world’s fastest growing company. Here are the paths to profitability for the players in prepaid voucher space:
Net-net, Groupon will stick around and eventually get to profitability. It’ll get there with far less interesting deals for shoppers and probably as a smaller company.