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Doubts Grow about Daily Deal Sustainability

Groupon is sowing more doubts about the long-term sustainability about the very model that it created as it continues to make public its finances in the run up to its IPO.

Its net loss in the second quarter of this year almost tripled compared to the same period last year with its hire of 1,000 plus employees, TechCrunch points out. The company has grown from 37 employees as of June 2009 to 9,625 employees as of June 2011. "Basically, the company is still growing like gangbusters but losing money like crazy in the process," TechCrunch says.

The company also came under significant scorn, at least in accounting circles with a metric it first used in its initial filing with the SEC, which it later amended. This metric, Adjusted Consolidated Segment Operating Income, inflated the company’s worth by ignoring marketing costs.

For the most part, attention has been paid to the problems some merchants have had with daily deals - namely being overwhelmed by one-time customers. New tools are emerging to address that.

Emphasizing the Wrong Issue?

Little focus has been given to the model itself, based on the assumption that its wild popularity will translate into long-term success. Indeed it very well might, although some legal issues may be pending for the model as well. However if Groupon - the granddaddy of the daily deal sites - is finding it difficult to make ends meet, then local advertisers must take that possibility into account as they plan their long-term strategies.


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