Groupon fired its CEO today, and Twitter has lit up with derision, which of course is Twitter’s raison d’être. But I think a moment’s pause shows that there are really good things about Groupon.
More specifically, Spa World’s business model is characterized by extremely high fixed costs and extremely low marginal costs. The cost of operating Spa World at all (and it is permanently in operation) are probably absurdly high – it is filled with rooms that need lots of energy to heat and cool and pools with jets and just keeping that place clean I’m sure is a total nightmare, plus there’s a restaurant and snack bar and gym and arcade and, you get the drift. But each additional individual guest at Spa World at any given moment in time costs them next-to-nothing (probably the cost of laundering those silly-but-sanity uniforms they make you wear). So Spa World faces a challenge – they really, really, really want to price discriminate, but price discrimination is really hard.
Enter Groupon. Spa World is a monster on Groupon. Every time there is a Spa World Groupon, they sell out, practically instantly. And every time a Spa World deal expires, there is a new one usually the next day. And it’s great! Spa World doesn’t even have to care that Groupon’s taking half because the money they get is still more than the marginal cost of all the new guests they just got, which is to say, practically zero.
And there are lots of businesses like this! Movie theaters, good-old-fashioned theater-theaters (ergo Goldstar), sporting events, etc…none of them quite as perfect an example of Spa World, but all still ripe opportunities for price discrimination. And Groupon is great at that.
The problem with Groupon is that a) this business model is limited, and b) once the idea is out there in the ether they have no value-added other than a first-mover advantage in their user base. And now they are way too big and they squandered their first-mover advantage. But it doesn’t mean the fundamental idea of charging a middlleperson fee connecting would-be price discriminators to discriminating consumers is a bad one.
UPDATE: I write a post saying Spa World is awesome, then this happens. FML.