Thursday, November 04, 2010

Did Facebook Just Kill Groupon?

Quote #1:

At TechCrunch Disrupt, Benchmark Capital's Matt Cohler said he wasn't sure if Groupon would succeed over the long term. I asked him if he wished he was an investor in Groupon:

That question keeps me up at night. the question for me is…if you look at it from a purely academic point of view, there are neither barriers to entry nor are there switching costs in that product. Typically when a product has those characteristics margins tend to collapse over time. In theory the only thing stopping that from happening is Groupon's brand…It may turn out that daily deals are ad units, and lots of different products can apply that ad unit.

And here's another key: Facebook CEO Mark Zuckerberg noted that Facebook is not getting paid at all for these deals. They're just doing them because they're great for users and businesses who use Facebook. (He did leave open the possibility that some partners may choose to advertise with Facebook, but that's not the main intent.)

I was really surprised and interested when I read someone like Matt Cohler citing academic business strategy principles to raise questions about Groupon's business model.  I mean, he's not an MBA type, right?  But there you go.  Wonder how Groupon will respond to Facebook's new initiative and how it'll all turn out.  But long-term, the only way Facebook can keep up something like this is if they have another way to make money on the side.  But the same could be said about most of Facebook's products.  And Google's for that matter.  Both are essentially just advertising companies that approach advertising with different strategies.  Very high-tech intelligent strategies, mind you.

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