Will Groupon’s Margins Disappear with Mounting Competition?

Earlier this year, Groupon rejected a $6 billion takeover bid from Google (NASDAQ:GOOG). Most economists agree that Google significantly overvalued the long-term viability of the local bargain website and that Groupon should have accepted this offer when they had the opportunity. Although Groupon helped carry the coupon industry into the 21st century, it will likely have fleeting success given the market pressures from an increasing number of new entrants.

With over 400 competitors, Groupon faces significant challenges in the market. One of its largest competitors, LivingSocial, has strong ties with Amazon (NASDAQ:AMZN) (a $175 million investment), and has expanded its membership base to over 240 markets. The basic concept behind Groupon – offering sufficiently demanded discounts once enough consumers have committed to pay a reduced price– is in itself quite easy for competitors to replicate. Facebook and Google, in addition to various airline and hotel discount companies, are all able to replicate the core of Groupon’s business model.

Despite these challenges, Groupon still possesses a unique advantage – the convenience the website offers consumers. While consumers used to have to find coupons, cut them, and store them for later use, Groupon provides an online market where individuals can go to receive great deals. Due to Groupon’s established following, marketers know they can reach larger audiences by promoting their products and services on the website.

Whether Groupon will be able to persevere in spite of the competition remains to be seen.

Don’t Miss: A Sneak Peek at the 5 Leaders of the Coming Social IPO Bubble.

More from The Cheat Sheet