Could Groupon Already Be On Its Way Out?

As if Groupon, once a hot new start-up with millions of users with a highly anticipate IPO, hasn’t caught enough flak lately, now a new study conducted by Rice University shows that their services might not help local businesses as much as they thought. According to the study, while more than half of merchants participating in Groupon deals believe they made money from the deals, most said that they didn’t think customers purchased much else beyond the deal value.

The report surveyed 324 businesses conducting deals between August 2009 and March 2011 across different 23 U.S. markets, and didn’t just survey Groupon users but users of some of its less popular competitors, including LivingSocial (NASDAQ:AMZN), OpenTable (NASDAQ:OPEN), Travelzoo (NASDAQ:TZOO), and BuyWithMe. Of the 324 businesses, 55.5% reported making money, 17.9% reported breaking even, and 26.6% reported that they actually lost money with the deal.

The study also concluded that coupon sites like Groupon will likely have to settle for lower revenue shares in the future as they find it increasingly more difficult and more expensive to find businesses wanting to participate in their deals. Sites like Groupon are less attractive to businesses when considering that only 35.9% of customers spend beyond the value of the deal, and that 50% of the revenue from that deal goes toward Groupon. Even fewer customers actually return for a full-price purchase in the future (only 19.9%). And less than half of businesses indicated that they would like to run a deal again in the future, though 70% said they might consider a different daily deal site than the one they used previously.

A company like Groupon can only continue to do business for so long with such a high turnover rate and so few returning businesses. While consumers may love the deals, and Groupon loves the revenue, ultimately businesses are the ones taking all the risk, undervaluing their products in the hopes that it will increase revenue in the long run. And according to Rice’s study, that’s not always the case.

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