I believe the following thought to be timely since rumours are roaring about Google acquiring Groupon for such a ridiculous amount of money that I should refrain from writing it here (although it’s $5.3 billions + $700 millions earn out).

Anyway, I’m probably writing more because I found myself buying half a dozen Groupon deals lately. All very good deals I’d say.

Now, Groupon in the UK is what used to be MyCityDeal (and I will call it Groupon MyCityDeal here to distinguish it from their US operations), which they acquired earlier this year. From a couple of conversations I had with business owners where I used my vouchers it came out a fairly dubious side of their business model, which I heard before the acquisition (of MyCityDeal) and that apparently still stands true post acquisition.

This regrettable practice - indeed lucrative for Groupon MyCityDeal - is to pay the client only for the vouchers which have been actually used / redeemed. Why is this wrong in my view?

a) Because it steals (yes, steals) money from businesses which made a campaign on their platform.
b) Because it allows them to easily inflate the real numbers of people who purchased the deal, which can’t be verified otherwise.

On the former, I just bought a deal for £10 which gives me a free Xbox 360 and 3 months of broadband when I sign up for 18 months with Orange broadband. Since the deal must be used within 3 months and I may or may not be in a new flat by then, chances are that I will not be able to use this great offer - tough luck. But I accept the fact that I may lose a tenner… What I don’t like is the fact that if I don’t redeem the voucher Groupon MyCityDeal won’t pay Orange. I may not care much about a tenner (actually, £6 since I believe that Groupon MyCityDeal takes a whopping 40% of the price paid) going or not going to Orange after all, but when it’s the local shop or small business it annoys me. And after all, why should Groupon MyCityDeal keep money that don’t belong to them in any way? I tried to look at it from different angles (from a CPA perspective for example) but couldn’t find a single good excuse for not giving the money (deducted of their fees) to the merchants.
Although I don’t have any empirical evidence, I’m quite sure that for every deal there is a significant chunk of people buying it and then not using it, for various reason, and I can infer from what I heard and read that this non-redemption rate is a good 15-20%. If you consider Groupon MyCityDeal’s significant volume of business this dubious practice turns into big numbers by the end of the year. 

On the latter point, with this method it becomes far too easy (and a bit insulting for merchants) to inflate the number of people who *bought* the deal. In theory group buying was initially based on an incentive I don’t see anymore, ie you need to sell at least x deals in order to activate the promotion. Most of the viral effect of the service and the marketing incentive for the client was in that detail, which now seems to be forgotten (or simply the thresholds are so low that they became meaningless). However, Groupon MyCityDeal can make any deal tip artificially and that’s bad for the group buying model as a whole. On top of that, they can go to potential clients and show inflated numbers to prove how successful a campaign on their platform can be. It may not be too relevant now but it surely helped the pre-acquisition MyCityDeal to emerge from the competition (they didn’t succeed just for that, mind you, but that may have been a crucial help in the early days to win customers).

I don’t know whether this is how Groupon works outside UK (probably Europe, since it’s all coming from the former MyCityDeal operations), however I hope that they (or Google) will set this straight ASAP because it’s quite a hideous way of doing business.

And so my rant is over.

Always happy to hear what people think about it though.