Talked to ECommerce Times about Groupon this week. Here is the upshot.

Groupon reported another quarter of disappointing earnings as its core business stagnated. It’s stock went down 30 percent to an all-time low of $2.76 and this might not be the end of it. Also one of its major rivals, Living Social, is piling up losses. Amazon.com was forced to write down its Living Social investment as result. There are a number of reasons why companies such a Groupon are struggeling. The macro economic headwinds are one of them. But they won’t explain the landslide in the stock price from $25 in November of 2011 to sub $3 only 12 months later.

The key question is: Is Groupon’s current model good business. Let’s take a look at the merchant side first. A Raymond James survey of roughly 115 merchants that used daily deals services during the fall found that 39 percent of merchants said they were not likely to run another Groupon promotion over the next couple of years. That is a big blow. The top reasons were high commission rate and low rate of repeat customers gained through offering a promotion. 32 percent of the merchants reported are losing money on the promotions. Nearly 40 percent said the Groupon offer was less effective than other types of marketing.

Let’s take a look at the consumer side. Existing customers interested in signing up for daily deals has waned too. Groupon reported last week that the average revenue per active customer (defined as an account that has purchased a deal from the site in the previous 12 months) fell to $63.96 in the 12 months to September 30 from $76.49 a year earlier. Meanwhile, Groupon has to knock on increasingly more doors to find willing merchants who want to participate. What’s even more important is that this approach scales with the size of the sales work force. It doesn’t scale as a function of its superior technology. In short this means high operating costs, less profits, increasingly higher management complexity.

It’s time for Groupon to reinvent themselves. The daily deal aspect of its business doesn’t have to go. It needs augmentation. Other companies have successfully transformed themselves. Take eBay as an example. They were once the leader of the “used goods” market place. It’s now one of the dominating e-Commerce platforms for all types of merchants featuring a same day delivery service rivaling Walmart and Amazon.com. A similar transformation for Groupon is needed. Groupon Goods is the right step in this direction.

Here you find the full story: http://www.ecommercetimes.com/story/Groupon-Loses-Its-Grip-76600.html