Groupon’s stock price: a symbol of the inherent problems with the group-buy model?

I’ve written several times about group buying services and the problems they can pose for businesses and for consumers. Here in Ottawa, a Byward Market butcher shop nearly ran itself into the ground after trying to use group deals to dig itself out of business trouble.

Well, I have to revisit the topic based on two news stories that I saw today.

First was news that king of the group-buy services Groupon had missed already cautious revenue and earnings targets. This led to its stock price dropping as low as $3.21, from a giddy IPO price of $20.

And back in Ottawa again, consumers are VERY upset with ambitious group-buy company Your City Deals. Why? They offered a $100 gas card for $49. After nearly 10,000 were sold, they announced they couldn’t fulfil the deal — the SAME DAY they announced a $50-million deal to expand their service.They’re getting lots of negative feedback on Facebook and on Twitter, as you might guess.

So there are a few things to point out here. Number 1: Don’t go on TV when you’re trying to drum up business and support for your fledgling group-buy company and say you’re in the business of supporting small to medium business marketing efforts when you’re offering up gift cards to a national gasoline retailer. What business is that helping?

Number two: What chump threw $50 million into a market segment that seems to be falling apart?

Number three: if you’re a business with $50M in financing, shouldn’t you do something about an office beyond renting a post-office box at a photocopy shop? That’s what CBC found out.

I have no idea whether this fiasco is just one more in a series of roup-buy fiascos, whether the people behind this company are simply in over their heads or whether there’s something more nefarious at play.

But if you didn’t already think that group buys were a really bad idea for businesses and consumers, I don’t know what more evidence you’d need. Or am I wrong? Tell me if I’m off base in the comments.


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