Last week Farhad Manjoo, who writes about technology for Slate, wrote an article with the (deliberately?) provocative headline “Ding Dong, Daily Deals Are Dead -- The thrilling demise of Groupon’s crummy business model.”
In the piece, Manjoo goes on to lament Groupon’s relatively weak performance since their November 2011 IPO and suggests that Groupon’s – and the many other “daily deal” sites – had a flawed business model that took advantage of many of their participating businesses.
Just based on the number of daily deal emails we get from Groupon and others, we presumed that it had to be a thriving business model. All those emails couldn’t be wrong, could they?
We decided to ask an expert.
Paul Hoban is a UCLA Anderson Ph.D. student entering his fourth year in the program. His research focuses on the effects of advertising, especially online advertising on consumer purchase behavior. His past projects focused on the effects of online display advertising (i.e., the banner ads that everyone loves so much). He examined the causal effects of these ads on site visitation and within site browsing behavior. His current project focuses on the impact of daily deals, with two distinct questions. The first question is: What drives demand for online deals (i.e., the discount percentage? the resulting price?, the quality of the merchant offering the deal?). The second question is how does running a deal affect a merchant in the long and short run? For this question, he is specifically looking at the impact of daily deals on the frequency and valence of a merchant's online reviews.
Hoban's views on the industry are not as pessimistic as Manjoo''s. Take a look at the accompanying video for Hoban’s opinion on Groupon and the daily deal industry.