Groupon’s interesting Q2 results: A new marketplace channel emerges! Plus – LivingSocial is in the game too…

August 14, 2012

ChannelAdvisor ChannelAdvisor By ChannelAdvisor

Over the last year or so, long-time readers will recall that I’ve been keeping a pretty close eye on Groupon’s offering called Groupon Goods (GG for short).  The first post from Sept 11 is here, second post from Oct is here and  and Jan 12 here.

In those posts, we were very interested in GG because it seemed to leap out of the gates.  Yesterday when Groupon announced their Q2, something interesting happened:  Because GG now is > 10% of their business, it became ‘material’ and they disclosed a lot more details about the program.

I thought this was a good time to update everyone on what we’re seeing and what Groupon disclosed around this exciting new area we are tracking that we call Daily Deal Marketplaces (DDM).

If you are an online merchant, I think the emergence of this DDM channel is one of the biggest e-commerce developments of 2012, so we are going to dive into this in-depth with these topics:

  • What is a DDM and who are the players?
  • How big is Groupon Goods?! (The cat is out of the bag!)
  • How can I participate in this exploding new channel?
  • What’s the future of this channel?
  • Sidebar for my Wall St readers

What is a DDM and who are the players?

There are two primary players in the local daily deals space: Groupon and LivingSocial.  As you know, these companies have exploded onto the scene in the last four years and email millions of customers daily deals for ~50% off local services.

Back in 2010 they did some experiments with gift cards at e-commerce shops (gap.com for example).  Then we started to notice that they were both experimenting in Europe with actual physical, e-commerce type goods in addition to local services.

Last year Groupon introduced Groupon Goods and seemed to have a pretty strong Q4.

The way it works is:

  • On a weekly, heading towards daily basis, GG highlights 10-20 products
  • These products have deep discounts and limited quantities – when they sell out they are gone.
  • Groupon is able to integrated GG into it’s many touch points with 38m active buyers:

1. It’s on the site here.

2. 30% of groupon’s traffic comes from mobile and GG is featured prominently in the mobile app:

Groupon_mobile

3. Groupon sends out a specifc Groupon Goods email twice a week.

4. Groupon has started carving off space in the daily emails for GG: (this is the bottom 1/3 of the daily local service emails)

Groupon_goods_2

Between all those touchpoints, GG is hard to miss and this expansion of exposure has led to explosive growth as you’ll see in the next section.

Before we jump to that, Groupon is a big player, but not the only game in town.  LivingSocial is now active in the

LivingSocial enters the game

In mid July, LivingSocial quietly launched their GG competitor called LivingSocial Shops (LSS), Like GG, LSS has it’s own branded weekly email and is now accessible from the site: (notice the left nav – these are the deals fo rthe week of 8/13/12)

Ls_shop_1

When they launched, I ordered a couple of items from LSS and here’s what the packaging looks like:

LS_DEAL

Since launch, LSS has been ramping up the frequency of emails and the number of deals.  As of this writing they on a weekly frequency (Wednesdays) and pushing 16-20 products a weekly cycle.

How big is Groupon Goods?

With that overview of the DDM space behind us, let’s dig into what Groupon disclosed yesterday.  First and most interesting was they disclosed the GMV/sales for Groupon Goods for the first time and gave Wall St. a rear-view mirror on the numbers as well.

Here’s the details Groupon revealed on the Groupon Goods GMV for the last year:

Groupon_goods_1

WOW!  Your eyes are not deceiving you, GG grew from $19m to $65m – a 3X jump in one quarter.  Annualized, that makes GG a > $200m marketplace and if you even assume some conservative growth, it has a shot at $300-400m this year.

A couple of other interesting tidbits from Groupons Q2 results and conference call:

  • 38m active buyers across all of Groupon
  • 1/3 of traffic is mobile
  • In Q2, they sold over 54,000 heart rate monitor watches in one day
  • In a 72hr period they sold over 181,000 pairs of earrings

Finally, here’s a quote from the call transcript where Groupon CEO, Andrew Mason, answered a question about what they need to do to continue to grow the GG business:

So what else do we need to build in order to get Groupon Goods going? I’ll tell you, the success that we’ve had in Groupon Goods, I think, is a reflection of the power of the consumer brand that we’ve built through our local business. Our customers think of us as a way to find unbeatable deals on great stuff, and we are able to transfer that same value proposition from spa packages to home ice cream — or home yogurt kits, I think we’re selling one of those today. For $15, you can make your own artisan yogurt. So we’ve been able to do that largely off of the brand that we’ve built and the internal infrastructure for procuring great deals. It reminds me of the very early days of our local business where consumer demand outpaced the technology offering that we had. We still don’t have a lot of basics that we think will drastically improve the customer experience. We don’t have a very shoppable marketplace where customers can come in and pull deals. We only really allow customers to engage with the good deals on our terms via e-mails that we’re sending every week. So there’s an awful lot to do. And the value proposition, the brand that we’ve built of offering unbeatable deals on high-quality stuff and having the trust of our customers, we think, is what’s at the source of the success that we’ve had thus far, and we think that we can continue to leverage that for success in the future.

How can I participate in this exploding new DDM channel?

As Groupon (and now LS too) are scaling up, we are finding more and more merchants are interested in exploring this channel.  We’ve actually had many ChannelAdvisor customers explore the channel with some very interesting results.  Like any online channel, it’s not for everyone.  If you have:

  • Deep quantities
  • Liquidation type items
  • The ability to mark down significantly from retail (30-60%)
  • Inventory on hand
  • Inventory that fits seasonal promos like Back to school, holiday, etc.

Then this could be the channel for you.  If you are interested in learning more, let your ChannelAdvisor rep know and we’ll put you in touch with the folks running these programs at Groupon and LivingSocial so you can learn more.

What’s the future of the DDM channel?

In the Mason quote above, there was this hint: “We don’t have a very shoppable marketplace where customers can come in and pull deals. “

What that means, or at least my interpretation is that today, GG sends you 10-20 deals and that’s it.  What if you went to GG and there were hundreds, thousands, tens of thousands of deals available?  What if some where time limited, some were persistent, and they were across all different categories?  You’d essentially have a more eBay/Amazon like experience, but with just ‘deals’ type inventory.

If that seems far fetched, all you have to do is look at what Groupon and LivingSocial are doing outside the US and you’ll find they are well down this path in some markets and for example, in Australia, Groupon already has all of this live today.  Here’s grouponshop.com.au:

Grouponshop_au

Notice:

  • Thousands of deals available all the time
  • Category and search navigation like a marketplace
  • Hundreds of sellers
  • Shopping cart!?
  • Hmmmm

Will the US and EU go this route?  Stay tuned!

Sidebar for my Wall St. Friends

It’s interesting to see the similarities between Groupon’s change in mix (from local services deals to goods) and Amazon’s from 1P to 3P.  Amazon is moving from gross to net and low margin to higher, while Groupon is moving the other way, but still the similarities are interesting.  Perhaps in 2-3years, GG will be the bulk of the biz and Local deals will be a side biz… At this growth rate and with technology like we’ve seen in AU, it maybe sooner rather than later.

SeekingAlpha disclosure – I am long Amazon and Google, eBay is an investor in ChannelAdvisor where I am CEO.