Here’s where it all gets interesting: very recently, Groupon announced that it would be entering into the premium restaurant reservation business with the launch of “Groupon Reserve.” Reserve combines restaurant deals, the hallmark of Groupon’s core business, with online instant reservations. While it sounds like Groupon is making strides to encroach on OpenTable Inc (NASDAQ:OPEN)’s territory and will probably take some share of the reservation revenues, the amount isn’t likely to be large enough to be of concern to OpenTable.
For now it should be noted that OpenTable Inc (NASDAQ:OPEN)’s decision to scrap Spotlight does not weigh negatively on my opinion on Groupon, and that Groupon is not going to become a restaurant reservation company – it’s most likely using reservations as an added incentive to convert more subscribers into active users or to acquire new subscribers.
Outside of daily deals (in the form of goods and services) and restaurant reservations, there’s a whole other category not yet discussed – travel deals. Travelzoo Inc. (NASDAQ:TZOO), a global Internet & media company with a subscriber base of 26 million, launched a “Local Deals” service in August of 2010. The service enables customers to buy Groupon-esque coupons for local businesses. Travelzoo Inc. (NASDAQ:TZOO) has the advantage of packaging local deals with placements in its core product, the Top 20, a weekly newsletter highlighting the best 20 vacation deals of the week. This will in turn drive higher Local Deal revenues.
In addition, Supersearch and Fly.com, Travelzoo Inc. (NASDAQ:TZOO)’s two search engines that direct people to travel-booking websites, can benefit from Local Deals in several ways. There is an element of the deal business in general that is about discovery, and this is crucial to the company’s long-term growth – as people get more comfortable with the idea of couponing, they will also look to the company as a source of discovery.
While the Local Deals arm of Travelzoo Inc. (NASDAQ:TZOO)’s core business is not a primary driver to the company’s success story, the discount and coupon business is a potentially additive advantage to revenue growth. This further supports my positive view of the Groupon story – that the couponing business deserves a more positive evaluation than it has been given in the past year.
Conclusion: Sustainability is key
While it’s too early to buy any significant amount of Groupon stock, it is worth reevaluating as a potential profitable long-term investment based on what the company has been doing recently. Groupon has shown that, while young, it is adaptable; it has a large user base and a growing international geographical footprint, and is gaining traction in mobile.
The couponing world is unproven, and only time will tell if it is sustainable. However early signs indicate that Groupon might have tapped into something extraordinary with its enormous customer and merchant reach.
The article Couponing: Good Deal or Flawed Business Model? originally appeared on Fool.com is written by Colin Tweel.
Colin Tweel has no position in any stocks mentioned. The Motley Fool recommends OpenTable.
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