In its upcoming edition, Forbes publishes a glowing profile of Groupon, the group-buying Internet phenom that was valued at $1.35 billion back in April when it raised $135 million from Digital Sky Technologies. Little wonder: the company is reportedly on track to pull in more than $500 million in revenue this year.
Indeed, if I’d sat down with its 29-year-old CEO, Andrew Mason, I’d have swooned over the numbers being thrown out, too. Here’s just one snapshot from the piece:
In May Groupon sold 6,561 tickets to a King Tut exhibit in New York’s Times Square for $18 apiece, little more than half the list price. The campaign brought in $120,000 at virtually no marginal cost to the exhibit; Groupon pocketed about 50% for a day’s effort. The most popular item so far: a $25 ticket for a Chicago architectural boat tour sold for $12. In May Groupon moved 19,822 tickets in eight hours and split the $238,000 with the tour operator.
The speed and ease with which Groupon is making money is stunning — and possibly unsustainable. In fact, Forbes points out numerous potential obstacles to Groupon: the domestic startup clones; the foreign rip-off sites, like www.groupon.cn in China; the giants, including Amazon and Twitter, that are now offering their own daily discounted deals.
What the otherwise detailed piece doesn’t touch on is the model’s long-term sustainability. While Groupon may “pull in $1 billion in sales faster than any company in history,” the bigger question is whether it will be in business years from now. After all, Groupon and its clones can be a bittersweet deal for small businesses, given that they must give Groupon half their revenue off already steeply discounted products.
Forbes highlights, for example, East Coast Aero Club, a flight school in Bedford, Massachusetts. The school wanted to offer introductory helicopter flying lessons. The school usually charges $225 for the lessons; in its Groupon deal, the school slashed that fee to $69.
As Forbes reports, the “deal had to be shut down at 11 a.m. after subscribers signed up for 2,500 lessons; the club had expected perhaps 200.” Said the head helicopter instructor to Forbes, “I knew we had a problem when I checked in right after receiving the e-mail and 30 lessons had already been sold.”
The instructor calls it “incredibly effective advertising.”
He’s lucky Groupon agreed to shut the offer down. Already, at a loss of roughly half a million dollars — possibly for students who will never pay full-price for follow-on classes –the “deal” proved acutely expensive for the school, which I doubt will be advertising through Groupon again anytime soon.
Do people in Bedford know now about East Coast Aero Club? They might, unless the stimulation of new Groupon deals has already clouded their memories. Either way, it’s worth noting that $500,000 is roughly the amount of money the school could have used to purchased two more helicopters.