Loopt today announced a product called u-Deals that turns the Groupon model on its head.
Instead of a large team of sales people who go out and sell businesses in anticipation of consumer demand, Loopt is trying to collect the consumer demand and use it to generate merchant interest.
It’s an interesting twist, but it has a lot of challenges. The biggest challenge is cannibalization. People are going to want discounts on places they already frequent. Businesses generally don’t want to offer huge discounts to regulars. If they want to reward someone, they don’t need to pay a hefty cut to a deals provider to do it.
Here are some others:
- The places that come to mind to most people are the popular places. Those places typically don’t have an incentive to discount. If you’ve already got a 1-hour wait for tables on a Friday night, why would you lower your prices? That would be silly. I would really love a discount to flour+water, but I’m not getting one.
- Groupon and LivingSocial have set unrealistic expectations for people in terms of discounts. Many businesses can’t afford to offer such steep discounts. I would expect that consumers would ask for similar steep discounts and the businesses would refuse.
- The businesses that typically need to offer deals are businesses that people haven’t heard of. The deal is a mechanism of creating awareness of a business. Obviously this doesn’t work with the Loopt model — in order to create the deal you have to be aware of it.
- Consumers are generally passive and reactive. u-Deals requires consumers to do too much work in exchange for an uncertain payoff. Even if you could get all of your friends excited and wound up about it, there’s a good chance the business doesn’t accept the deal. I don’t want to risk my social capital like that.
- The model doesn’t work for many categories. Restaurants don’t generally offer group discounts. (Despite the name, Groupon isn’t a group discount.) It may work for things like amusement parks.
- There is a lot of latency. With Groupon and the other daily deal providers, you can use your deal within 1 day of seeing it. With Loopt, you’d have to request a deal, encourage your friends to request it, wait for Loopt sales to close a deal and then redeem it. This could take days, if not weeks.