Amazon to feast on Groupon?
As the Wall Street Journal so succinctly puts it with regards to Groupon’s business model…”The clones are attacking in droves.”
According to Monday’s Journal, another company has joined the fray to compete with Groupon…but this time it’s a formidable competitor with deep pockets and a successful history of getting what it wants.
“While Groupon has become perhaps the fastest-growing company in the history of humanity, Groupon fans have been forced to fend off nagging questions about when and whether competitors would start pecking away at its business model.
Well, here comes another peck, from one very big duck.
Amazon.com is quietly launching its own deal-of-day discount offers in Chicago, a launch reported earlier by the Chicago Tribune. The Windy City, of course, is the corporate home of Groupon. Pause to let the symbolism sink in.”
Amazon is already attacking Groupon with its investment in Living Social–a direct competitor of Groupon–but in this case, they’re flexing their muscles even more by leveraging the relationship with their millions of existing customers.
“Customers already know and trust Amazon.com for their online purchases, and now with Amazon Local, they can also find great deals right in their own city,” the company said in a statement. “AmazonLocal is a great way for residents of the Windy City to enjoy the restaurants, spas, and activities in their backyard.”
A Groupon spokesman declined to comment on Amazon’s salvo into the company’s backyard. Groupon has filed materials to go public, so the company is obligated to keep mum about everything. (Well, except for stray declarations that Groupon will be “wildly profitable.“)
Amazon is also leveraging its investment in Living Social to help with the start-up process.
Amazon said it also has its AmazonLocal offering up and running in Seattle, Boise, the Los Angeles area and Palm Beach, Fla. For now, sales people from LivingSocial — a Groupon rival in which Amazon has an investment — are roping in the merchants for the Amazon local-deals offering.
But Amazon said it has hired its own sales team for a standalone daily-deals offering planned for the latter part of this year. That can’t be good news for Groupon and its planned IPO. (Yes, it also may mean Amazon is competing against its own partner, LivingSocial.)
The real question is whether Amazon’s direct entry into the coupon space is a game-changer or not. Will they be like the myriad of other competitors who are in the space; nipping at Groupon’s heels but unable to gain real traction? Or will Amazon be able to leverage their vast resources and successfully bring Groupon down to earth?
“To be sure, Groupon so far has withstood an army of deal-of-the-day clones, from Yelp to Gilt Groupe to LivingSocial. The local deals business has grown bigger and faster than anyone has expected, and there may be plenty of money to go around for multiple multi-billion-dollar initial public offerings.
But the competition also is starting to get bigger and meaner. Google has started slowly rolling out its own Groupon-like offerings not-so-imaginatively called Google Offers.
One reason Amazon might be an even more formidable Groupon rival than Google? Amazon has a raft of loyal customers who are used to buying everything from DVDs to sporting goods from the popular online retailer. Meanwhile, Groupon had to spend $262 million last year to attract new subscribers.”
Here’s the takeaway: Groupon’s race to the top has been unhindered by other competitors. Amazon’s direct entry into this space will be a game-changer; Groupon should be worried…really worried. What do you think?
Patrick Lefler is the founder of The Spruance Group – a management consultancy that helps growing companies grow faster. He is a former Marine Corps officer; a graduate of both Annapolis and The Wharton School, and has over twenty years of industry expertise.