Groupon wants to be the “operating system” of local commerce

Change in focus

Groupon is reportedly working on a major change in focus that will see the site shift from just daily deals to a local commerce service that allows users to search for new ideas and recommendations on where to dine, as well as compare prices and access deals, reports StrategyEyeSpeaking to Bloomberg, CEO Andrew Mason says the site is building an “operating system” for local commerce aimed at both consumers and merchants. Businesses would be able to use the system to advertise their services through up-to-date profiles and offers, as well as to take bookings and payments. The move is just the latest sign that Groupon’s focus on daily deals may not be enough to lead it to profitability, with the firm’s shares hitting their lowest levels since it went public in November, as concerns over its long-term success mount.

Right now, we’re just this advertising solution,” Mason says. “Over time, our relationship with merchants will shift from being episodic in nature to a completely perpetual relationship where they’ll plug in their business into the Groupon operating system and the right thing will happen.”

Mason claims that the firm is already working on the system, which is headed up by former Amazon exec Jeff Holden, who started Pelago, a mobile check-in service Groupon acquired last year. The service will incorporate a number of Groupon’s current offerings, including its online booking service, loyalty programme and feature for finding deals on the go, with a wide-ranging payment system that businesses can use to take payments, keep track of transactions and calculate tax. Currently, some 500 merchants in San Francisco are testing the service

If we can come up with an ecosystem that local merchants use to run their business and it’s connected to consumers, then I think that’s a pretty sizeable business,” he says.

Certainly Groupon needs to do something to restore merchant, analyst and investor confidence. While the firm was valued at USD12.7 billion in its IPO, that figure has since shrunk substantially. Groupon now has a market cap of little more than USD5 billion, lower than the USD6 billion that Google offered in late 2010, and raising questions Mason’s decision not to sell. The firm is also struggling to turn a profit, with its latest results revealing a net loss of USD11.7 million on revenues of USD559.3 million.

A move to become more of an e-commerce player, rather than purely deals, makes sense for Groupon. It already has relationships with more than 35 million consumers globally and the thousands of merchants that have run deals on its site. However, it will have to prove to small businesses that its offering makes their company run more efficiently. It also faces huge competition across a number of markets, from OpenTable in the bookings space to Square and PayPal in payments and Yelp in recommendations.

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