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April 19, 2011 By

Groupon Says “No Deal” for Whrrl

Groupon Says “No Deal” for Whrrl

GrouponYesterday I was very surprised to read that Pelago the creators of the social location sharing app Whrrl had been bought by Groupon. I was even more surprised by the news that they were shutting down the Whrrl application with effect Apr 30th.

Groupon Not A Location Fit

While some people have applauded this move, I doubt it has a real chance of either improving social location marketing for consumers or marketers. I have several reasons why I believe this. Firstly, deal of day sites are cluttering the market – Groupon was unique, it is no longer and while it is still the giant in that space its a space that has a short life, which leads me to my second reason. Local businesses can’t maintain deep discounts. While some large retailers have seen some big wins through Groupon, smaller retailers and food & beverage outlets are not seeing the same returns. For some it actually damages their brand.

Read Write Web posted yesterday that this acquisition puts apps like Foursquare on notice. I couldn’t disagree more. Groupon is under the mistaken idea that location will save it from being just another coupon business. However, given that businesses that offer coupons are usually doing so to attract new customers, while businesses that use social location marketing are targeting their existing customers with rewards, the two are very different. As any business knows it is much harder to attract new customers than it is to provide excellent service and therefore keep existing customers.

Groupon Doesn’t Deliver

The fact that the Groupon model doesn’t work is not supposition, Rice University conducted a study last year and found:

Groupon promotions were profitable for 66 percent of the businesses surveyed; however more than 40 percent of the respondents indicated that they would not run such a promotion again. Among the service businesses (restaurants, educational services, tourism and salon and spa) restaurants fared the worst; salons and spas were the most successful.

So more than a third of businesses who tried Groupon didn’t make a profit from it. Add to this that businesses who get involved in deep discounting usually find that they actually over discount initially and can offer lesser discounts and achieve the same impact. Which means that online “deal of the day” sites become nothing more than the same coupons that are handed out at stores or arrive in your mail box on a daily basis – 5 – 10%, which is bad news for the consumer as well.

Groupon And Whrrl

What I find most amazing about this is that Groupon is shutting down a good app. It is the only one in the space that had built in consumer segmentation, segmentation that was completed by the consumer, which made it a marketers dream. Of course maybe Groupon is going to include those mechanics in its new app, but why not simply blend Groupon’s features into Whrrl?

Groupon faces class action lawsuits over its method of advertising its deals of the day. Some states are claiming that these deals in fact constitute gift cards which cannot expire. So merchants really have to think twice about whether offering coupons through this site is a good business model or whether instead, they, like RadioShack did recently, reward their existing customers and see a 3.5x spend per customer.

Will Groupon really be able to compete?

 

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Filed Under: Marketing, Social Location Sharing, Social Media Tagged With: , , , , , ,
About Simon Salt

Simon Salt has been creating online content since 1993 and blogging since 2000. He is an author, speaker and digital strategist. He can be found on most social networks as "incslinger". When he isn't working he is either taking photographs or riding his motorcycle - sometimes at the same time.

  • http://twitter.com/bryanchaney Bryan Chaney

    I see it as a relevancy move, because they understand that the email distribution of their deals is a diminishing channel. Also that there are lots of small LBS that will eventually consolidate to survive. I do agree that Groupon’s gotten too big for their britches. Personally, I can’t foresee myself turning down $6.5B. Maybe they thought Google was going to get 50% off.

  • http://www.alyssagardina.com/ Alyssa G

    I guess this is a talent and data play, but I really don’t see the value in Groupon buying Whrrl, only to shut it down. There’s a huge opportunity here to link location with deals, even doing something as easy as segementing which deals users see based on their check-ins.

    I think Groupon is playing it too heavy-handed, first with their ads/subsequent blame games and now with this purchase/shut down of Whrrl.

  • http://schneidermike.com schneidermike

    Whrrl was an application that was mired in problems. Sure, it was the location based geek’s location tool. The segmentation and influence models were (and I’m speaking like it’s already gone on purpose because it’s dead whrrlbot walking) and are brilliant and were in a lot of ways what the people who think a hell of a lot about LBS dreamed about.

    The problems were manyfold though. The first problem was that they pivoted a few times and angered early users. The people who looked at WHRRL as a content creation and promotion platform were alienated when they became a checkin platform. They never quite got a crisp value proposition out to the masses and even if the masses understood, there was a LOT going on in that application. It was never going to be a mainstream application.

    So Whrrl which I will liken more to a majestic phoenix than a robot, dies and becomes ashes. But don’t underestimate the influence of Jeff Holden, who, along with Jeff Bezos was responsible for the Amazon recommendation engine at Amazon.com.

    Groupon understands that they have a problem. The kinds of people who used their product are deal seekers and not necessarily the kind of people that become loyal customers unless deals persist (which they cannot because they are 50% off or better). Jeff Holden and the Whrrl team was interested in learning about you and making good recommendations and providing great content as well as great deals. Put that kind of technology in front of 60 million subscribers. Sounds like a recipe for success and a strategy to expand the profiles of people who use Groupon.

  • Anonymous

    Great conversation here. A few thoughts after reading the post along with Bryan, Alyssa and Mike’s comments:
    1) Like Simon, Mike and I loved Whrrl and gave them more love than you can imagine in the book. But at the end of the day, they probably weren’t going to survive as a stand alone.
    2) Jeff is a smart guy and this wasn’t his first rodeo. Having gone through a few different mergers/acquisitions, these conversations likely started 6-12 months ago (if not with Groupon, than with Whrrl’s investors and maybe one or two other suitors)
    3) The acquisition here was for a) Jeff’s smarts/track record b) the 1 million members and c) the street cred among those of us that are discerning about who “gets it” in the LBS space
    4) While I agree that the group couponing space is getting crowded/commoditized, there is a reason why Google offered them nearly $6 billion. Remember that Groupon ALSO took nearly $1 billion in investment which is a SHITLOAD of money (sorry for swearing here Simon). If you are a VC, you don’t bet that much money with bubble 1.0 in our rear view mirror and not have at least some reason for feeling bullish that they are going to do big things.
    5) The real win here is to get away from the 40-60% discounts and get toward true group buying discounts. For example, you get person to sign up, you get 1% off. 2, 2%, 3 4% and keep on doubling it until you get to 50% off. That way, small businesses can still get awareness, grow loyalty and NOT give away their shirts. Combine couponing with gamification AND some of the overlay of information/education that Whrrl brought to the table and you’ve got a real offering.

    So am I bullish on this deal? I wouldn’t go that far. Did I feel like this was a likely outcome? Yes. Am I ready to declare “game over” in the LBS space? Absolutely not.

    Best,
    Aaron | @aaronstrout

    • http://www.theincslingers.com/blog Simon Salt

      Where I differ from Mike and Aaron on this is quite simply the loyalty piece. True Whrrl doesn’t have the audience the size of Foursquare, or for that matter Groupon. However, what Groupon are doing by shutting down Whrrl rather than integrating new features is starting from scratch. How many previous users of Whrrl will bother to download their data and then on the off chance that the new app, whatever that is, allows for an upload (something hinted at by Jeff) will bother uploading that data – I’d hazard a guess at zero.
      Regardless of the Google offer – which given their other attempts at social I don’t put a whole lot of store in, I just don’t see Groupon coming back with something compelling enough for either consumers or marketers.
      It’s definitely not game over for LBS, Foursquare and others will continue to define and shape the market.