Groupon-G-Logo-PremiumRecently, I’ve seen new indicators pointing toward Groupon Grouponomics and the vision for a Global (and local) Commerce Operating System. At Technori Pitch in Chicago last night, Nick Kokonas’ keynote reminded me of high end of the discount spectrum which is premium price and value. Then, this morning, Fast Company writes about Groupon’s acquisition of Breadcrumb and their mobile smartphone point of sale (POS) system. What’s really cool is to see Andrew Mason in his 07 May 2012 stockholder letter the use of the term “commerce operating system” that I first used in my original Groupon Blog post on March 17 of this year.

By now, my faithful readers know that I’m a platform specialist, who looks at things with the eye of an economist, both in terms of scalable technology and flexible business models. Getting ready to write this blog post was like listening to Hayden’s Messiah, and being the one person in the room that knows the conductor’s score and all the words from experience conducting this platform in previous performances.

Groupon Economics or Grouponomics?

I’m a fan of market dynamics, perfect information, and offering premium value. The concept of Grouponomics and a scale of Groupon Daily Deal discount to Groupon inevitable premium value seems obvious. I’m also a sideline predictor that as Groupon is scrutinized and criticized for reasonable daily deal snafus and operational hiccups, the real development is happening in the back room, and will surprise us since we’re not looking for it. The leadership at Groupon is sharp, and has the experience and ability to pull all these pieces together. The Daily Deals business will continue, but it is not the Holy Grail. What I heard from Nick Kokonas’ presentation was another element in the commerce Pabst1844operating system for Groupon to capitalize – in a big way.

Nick has the restaurant business figured out, perfected, and is in expansion mode. But, think about all the other premium products and services that provide an experience and high value that people will ultimately pay premium prices for? The list of luxury goods and services is long.  Think globally, and consider how many new millionaires are being made in China, and the demand for premium brands and products in China? (Do you know of the premium Pabst Blue Ribbon Beer 1844 product in China that sells for nearly $50 a bottle?)

Options Market for Future Premium Value

Nick Kokonas’ is an options-trader-turned-restaurateur. He knows about selling futures. He has perfected the pre-sale of restaurant reservations through his experience at Alinea, Next and The Aviary for haute cuisine, and has big plans for expansion. This concept is exceptional, and Nick reported that the price cap for this premium service has not yet been found. Nick’s online-anti-reservation system allows people to pay premium price for a premium table, service, and cuisine through an online marketplace. The dining public pre-pays for a seat at the table. Nick shared that dining out is really “entertainment,” and as such, is really a premium experience. The price consumers are paying for the promise of this kind of premium experience his restaurants have created is high because this anti-reservation system is a commitment between both the restaurant and the consumer. Consider the reason why. Unlike regular restaurant reservations, the customer always shows up because they prepaid for the seat at the table. In other words, the restaurant is always full to capacity, no one is waiting, and the value for that kind of customer experience is exceptional as demonstrated by the numbers Nick quoted.

Groupon from Discounted Daily Deals to Futures Options

What does this have to do with Groupon? Well, recall that back in March, and again in April, I noted that one element of a commerce operating system is loyalty. The quintessential loyalty program is one where consumers pay a premium value to be a part of your business – Nick has found that secret sauce for restaurants. Groupon has the potential to expand that to every other retail and consumer business. And, following my vision for this commerce operating system I shared in April, this kind of loyalty program for premium priced value that deliver premium customer experience drives the kind of growth that will shock us, when it is monetized to the Groupon bottom line.

Getting Consumers Involved in Real-time

Breadcrumb connects customers to Groupon even more tightly through the POS on consumer’s smart phones that will engage people in this new premium value marketplace. In addition, for non-restaurant markets (Nick Kokonas owns that market), Consumers will need always-on, anytime and anywhere interaction with the Groupon’s commerce operating system both for purchase, and payment.

Subtle Reveal of the Strategy

I find it really interesting that these little advances that Groupon is making are being announced on the Groupon Blog. I like this subtle style of PR and reveal of the real Groupon strategy. It allows maximum flexibility to maneuver and capitalize on technology that pops up opportunistically.  All the while, pundits, analysts and the press are focused on the negatives. Keep it up, Groupon; platforms always win over applications as they are the connective tissue that brings it all together for the best user experience in the long run.

Something to PonderFigure4Groupon09Apr2012

What will Groupon acquire next in assembling the grand unified commerce operating system (figure from April 15 blog, at right) that translates into ultimate consumer experiences and maximum margin potential for merchants – both on the discounted low-end, and on the premium price-value high end? I won’t make a prediction, but I have an idea.

I’m glad I sat in the front row and listened in all those Economics classes!

Please leave a comment. Along with other readers, I value your constructive thoughts.

2 Responses to Groupon, Grouponomics and Inevitable Premium Value

  1. Well, Andrew, you’ve done it again. I am going to have to rethink how I’ve been looking at Groupon as a business model. While I don’t agree with you that there is such a thing as “perfect information,” I do think that Groupon’s taken a new swipe at how to keep a business vibrant and growing.

    • Andrew Stein says:

      Thank you Emily. We are on the same page regarding “perfect information.” The economics concept exists, but in reality, perfect information is unstable and constantly shifting. Statistics helps us predict from it, but probability confidence intervals leave gaps.

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