Are the Days of Group-Buying Sites Numbered?

Groupon announced disappointing earnings for the latest quarter. This makes it the second consecutive quarter that the group-buying site suffered losses. Its stock also stumbled some 30 percent and is now at an all-time low of US$2.76.

Its competitor Living Social also posted losses. Part-owner Amazon also posted a quarterly loss after the company declared a write down of its investment in Living Social.

Industry analysts said both Groupon and Living Social are planning to diversify. Plans are also underway to get involved in generic e-commerce businesses like off-price sales via LivingSocial’s Shop and Groupon Goods.

Raymond James analyst Aaron Kessler said it appears that group-buying days are numbered. The good news is that these group-buying sites seem to have other business models to develop.

Utpal Dholakia said the mistake of these group-buying sites is that they ventured into this business model without fully understanding what it requires. Some studies have also shown that repeat business is not guaranteed and that participating in group deals are costly.

Dholakia is an academician at the Jones Graduate School of Business in Rice University.

The observation is supported by the findings of a Raymond James survey, where it showed close to 40 percent of participating merchants do not want to participate in another Groupon deal.  These merchants said commission rates are too expensive while repeat customers are not sustained.

More than 30 percent of merchants also lose money from the promotions instead of earning more. Some 40 percent also said Groupon deals are just not effective.