Today MySpace has finally been sold for $US35 million. Like a fireworks display MySpace caught every body’s attention with peaks at 200 million users (compared with an estimated 30 million now) and a sale for $550 million to NewsCorp in 2005.

In an interview at NExTWORK, Sean Parker accounts for the MySpace decline in part due to the bad design and the fact that the user experience on MySpace was ‘fraudulent’ and ‘virtual’. According to Parker, “people (with profiles) were putting their best foot forward living in a fantasy world of their own construction” and the virtual self on MySpace did not accurately represent the real self. Facebook as a smaller player at the time won because the experience and people’s identity was more real.

In the same interview I was interested in Parker’s views on product suggesting that you don’t want people using your product because it’s ‘cool’, because then it’s a fad, and that what you want is “people using your product because it’s a part of their life and they can’t stop using it”.

Listening to Parker made me think about another more recent company that has captured attention in 2011 due to its phenomenal growth and promise…

So is Groupon different to MySpace?

1. MySpace design issues meant that Facebook could beat them with a better product. Do the design issues of the Groupon  business leave them exposed to competitors with better design? By design I’m referring to business trading terms, ease of competition, loyalty concerns, sustainability of deep discounts and margins.
2. Do people (including businesses) use Groupons because it’s cool or because it’s part of their life and they can’t stop using it.

My view is that the Groupon model fails on both of these questions.

By design Groupon relies heavily on a large and expensive sales force to attract businesses, and marketing spend to attract more users to their network. They also rely on significant margins from deals sold of up to 50% and let’s not forget about the loyalty to their brand.

The problem is Groupon has competitors in every market and the result is, the cost to acquire a new customer is increasing rapidly, it’s getting more expensive to attract businesses with new deals, and their margins for each deal are being reduced. Studies are also raising questions around business loyalty with less than half of businesses that run daily deals saying they would run another daily deal and of those remaining, the majority of businesses would be open to promoting on ‘many’ daily deal sites. There are also issues around consumer loyalty with migration of some customers to deal aggregator sites indicating the loyalty is to the deal on offer at that time, as opposed to the daily deal network.

Todays sale of MySpace would have been hard to believe back in 2005. There are things that they could have changed back then that would have seen them maintain their position as the leading Social Network. My view is that Groupon are in a similar position and their future will depend on their ability to adapt to the current challenges with the design of their business model…their ability to provide something that businesses and users can’t live without.

Technorati Tags: Daily Deals, Groupon, MySpace, Sean Parker