If any of you have ever watched a children’s football (soccer) game, you’ll likely have witnessed the following. One of the pint-sized twinkle-toed geniuses kicks the ball up the field, and then every player on the pitch instinctively runs after it. This repeats every 45 seconds until a Prozac-riddled parent attacks the referee or the game ends, at which point the little scamps can get back to playing Call Of Duty 7: Balkan Assault and eating Lard and Quadruple Cheese stuffed Hot Pockets.
Those of you who know a thing or two about football will appreciate this is not how the game is meant to be played. Maintaining a good shape is essential for any team and that means not constantly darting after the ball en-masse like the Kardashians bolting towards a camera lens.
Now of course what the child footballers display is a classic exhibition of human herd mentality. Their natural instinct is to rush headlong to where they think the action is without any rational thought around the wider strategy for the game. This is a disturbing but very real trait of human behavior.
You see human history is littered with examples of collective human stupidity. In the 17th Century the Dutch went temporarily insane and began paying unbelievably inflated prices for….wait for it….tulips. It was dubbed tulip mania and for a period of time a single tulip bulb cost ten times what the average Dutch skilled craftsman made in a single year. We’ve seen the equivalent happen in our lives during more recent times. From the dot com boom and bust to the recent real estate bubble, we can’t resist chasing the football even when logic tells us it’s not the smartest move.
We hear a lot about crowd-sourcing and the wisdom of the crowd, but rarely the flip side – the wisdom of the herd. Because while we’re always quick to highlight how the “community” can be such a great source of knowledge and information (which it can), we don’t like to admit the more uncomfortable truth that sometimes groups of people collectively do very dumb things. If they didn’t, Russell Brand wouldn’t have a career.
The wisdom of the herd is not something you want to follow. It generally involves a bunch of people being aimlessly led in a hypnotic fashion toward some unrealistic and unattainable goal that turns out to be a giant trapdoor to Abe’s Abattoir. And while the slaughter seems so obvious after the fact, it’s something the herd can’t detect until it’s too late.
Which brings me on to group buying. Unless you’ve been living in North Korea for the last 12 months you’ll likely have run into one of the host of group buying sites that have emerged. The big guns in this space are Groupon and Living Social, but there are others too who are trying to ride the coattails of the group buying phenomenon.
And let’s be clear – the growth of these sites has been incredible. Depending on who you believe, Groupon has revenue at a run-rate of about $2 billion. It recently managed to raise $1 billion in funding and felt confident enough to repel an acquisition attempt from Google.
The advocates out there claim that group buying is a revolutionary movement that is changing the face of local advertising as we know it. You better get into the action quick otherwise you risk missing the boat. People who even suggest this might be a bubble or a fad just don’t get it, because Groupon is tapping into some special magic like never before. Only time will tell if these people are right, but there are a few elements around the Groupon model that make me uneasy. Here are the main ones:
a) Targeting . In this new era of hyper personalized content the stuff that Groupon sends out seems a little scatter-gun at best. They know where I live and some of the things I like but that’s about it, and let’s be honest North Jersey (where I live) is a fairly large place with a lot of businesses so it’s always going to be difficult to send really targeted offers. And that struggle shows. Twenty percent off an aquatic hernia massage here. Half-price on a Bulgarian belly dancing lesson there. Those of you who know me will appreciate that while I might be at high-risk of a hernia, I don’t yet have one, and if I took-up belly dancing I’d likely wipe out the Western Hemisphere with the gravitational pull of my swinging gut. So right now unless Groupon gets lucky, it’s essentially emailing me fairly random offers every day.
b) Technology. Again, without being overly cynical Groupon is about just sending a coupon through email. While it has no doubt built a strong technology platform to support this experience, it’s not doing anything groundbreaking. It’s technology that could be replicated and there are a host of people who are replicating it. In fact the group buying concept isn’t a new one. Go back to 2001 and you’ll find the roots to group buying, but obviously Groupon has executed on the idea better than anyone.
c) The future of email. While email is far from dead, its use among young people is on the decline. A recent report from Comscore revealed that email usage in the 12-17 age group declined by 59 per cent in the last year. Now Groupon clearly isn’t targeting 12-17 year-olds and there’s no doubt that email – particularly in a work/business setting – is still THE number one communications channel. But we exist in a world where rapid change has become the norm. Facebook grew from nothing to the biggest site in the world in just a few years. So while email is clearly not going to disappear tomorrow, the odds of it growing substantially in the long-term are not good.
d) It’s easy to get popular by giving away free money. Living Social recently offered users the chance to buy a $20 Amazon gift card for $10. That’s the kind of economics you’d only expect to see in a company with immensely deep pockets, or the Government of Zimbabwe. But my point is that building an audience by giving away no-strings-attached free stuff isn’t exactly rocket science. Despite having a readership of about 17 people, if I posted links on this blog giving away $50 in iTunes gift cards for $10, the odds are that it would get enough organic momentum to bankrupt me within a couple of weeks. And this very much ties-in to point A). Living Social sold $1 million of these in a single day. That’s a lot of people, but what sort of quality of customer did this offer bring in? I don’t know, but an offer like this isn’t the most targeted in the world because how much do you really learn about somebody who just signs-up to get free money? Not that much. It will be interesting to see how many of the 1 million people convert into repeat Living Social customers. This seems like one step away from a sweepstakes model where you attract large amounts of fairly low quality customers off the back of huge incentives.
e) How Long Will Businesses Eat The Cost? Groupon takes about a 50 per cent cut of every deal it sells. That’s a sizable chunk of change and is great for Groupon. But for local businesses, the decision they have to grapple with is simple – how much of a financial hit is it acceptable to take in return for a funnel of new customers? The jury is still out on that question and it will clearly differ from business to business. But 50 per cent is a difficult pill to swallow for a company that’s already offering on wafer-thin margins. Again, time will tell.
The Group Buying phenomenon is clearly burning bright right now and lots of people are clambering to get on the train. But if giving away a $20 gift card for $10 isn’t a sign that this space is getting a tad bubbly, then I’m not sure what is.
My intention isn’t to criticize Groupon. After all, it has a $2 billion business and I don’t. But rather it’s commentary on the proliferation of group buying services that are springing up everywhere. The general rule is as soon as a sector warrants the existence of one or more aggregators, there’s just too much stuff in the first place!
Ultimately human nature provokes us to want to rush headlong after the ball. With Group Buying, I’m not sure how long it will take to reach the final whistle or how many players will be left on the pitch, but as with most things – if it looks too good to be true it probably is. And that was taken from my “101 Business Cliches For Any Occasion” book that I picked up at a great price from a group buying site yesterday 
Tags: Group Buying, Groupon, Living Social
