Why Groupon will fail: A Puerto Rican case study

by Carlos Solorio

I took a trip to Puerto Rico last week. I stayed in the Condado district of San Juan and had an amazing five days. During my stay I did what any tourist should do nowadays. I checked out the local daily deal sites. I have a Puerto Rican friend who recommended Gustazos and I double checked with Groupon. 

Groupon created the daily deal business model after their founder, Andrew Mason, struggled to monetize a prior idea called ‘The Point’.  They’ve grown exponentially since increasing from 1.8 million to 83 million subscribers in 15 months. Their revenue figures reached $645 million in their first quarter of 2011 which nearly matches the amount of revenue they made in all of 2010.  The executives are already seeking an IPO for the business with a model that hasn’t yet been proven. A business model that will likely fail.

Puerto Rican daily deal site, Gustazos was founded in late 2010. They opened up their operations only a few months before Groupon launched their website in Puerto Rico. Using their local expertise, they’ve been able to corner the market. Their Facebook page currently has 37 thousand likes versus Groupon Puerto Rico’s 12 thousand likes.

What I saw when I compared sites in Puerto Rico spooked me from ever investing in Groupon.  The deals at Gustazos are better. For example, Groupon’s current offerings are a cellulite treatment and a $20 for $10 deal. Gustazos currently offers piloting lessons, a hotel stay, a $50 for $20 restaurant deal, among others. So not only is the quality better on average, but the quantity also surpasses Groupon.

Why does Gustazos have nearly three times more subscribers than Groupon? Why do they have better deals? A few factors come into play. Gustazos is well connected within the community and has been able to cement relationships with vendors that Groupon can’t. More importantly, Gustazos is a local business that solely operates in Puerto Rico. Everyone knows about Groupon and any tourist can take advantage of it, whereas few international consumers know about Gustazos. I will probably never go back to Puerto Rico so as a customer I’m practically worthless to a Puerto Rican vendor. The fact that I, as a tourist, could get a discount on a local company’s product without ever returning seriously deteriorates the value proposition that Groupon offers.

You can extrapolate this to other markets. Hundreds of daily deal sites have cropped up throughout the nation with some more niche than others. Dailydealmedia, an industry website, lists over 250 different sites that are competing in the space. In order to target a truly local audience, local merchants will turn to these companies to build their customer base, not Groupon. The daily deal medium is trending local and a national company won’t be able to compete.

To learn more about Carlos, visit his web site.

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Disclaimer: The views and opinions expressed in this article are solely those
of the author and should not be understood to be shared by Being Latino, Inc.

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