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Investors, Your Revamped Groupon Is Here, and It Has Much More Appeal

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The originator of the daily email deal announced its $43 million acquisition of online fashion retailer Ideeli earlier this week. Here's what Groupon's latest acquisition may signal about the company's future.

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As the saying goes, if you can't beat 'em, join 'em. Earlier this week, Groupon (NASDAQ:GRPN) confirmed the purchase of online fashion flash-sale site Ideeli for $43 million in cash. Though the purchase won Groupon instant access into the ranks of higher-end apparel and home decor "flash" sites like Fab.com, Gilt Groupe, and Zulily (NASDAQ:ZU), Ideeli's appeal may have hinged on its significant mobile presence. For online deals and e-commerce, mobile is everything now. Here's what we might expect from Groupon as it paves the way for its reinvention.

Back in 2008, Groupon brought to market an idea that had not yet been experienced in the world of e-commerce. Though it's been just six years since daily deals were introduced, the core of the business model -- and the hundreds of subsequent flash-sale sites that emerged on its heels -- appear to have reached a crossroads, forced to adapt to a new mobile consumer.

Though it's unlikely that flash-sale sites will disappear, an evolution towards commerce that's more accommodating to mobile shoppers (and a little less "flashy") appears imminent. Speaking of the Ideeli purchase, Groupon CEO Eric Lefkofsky confirmed as much: "By broadening our reach in this space, Groupon is even better positioned as the place you start when you want to do or buy just about anything, anytime, anywhere."

Similar flash-site leaders like Fab.com share the same forward-looking strategy: Internet Retailer reports that more than 33% of Fab.com's sales are made from mobile devices, and that two-thirds of its revenue does not even stem from flash sales, but rather is driven by consumers who search and browse the site.

Alen Malkoc, current CEO and founder of email marketing firm Optyn, has a seasoned history in the daily deal space, having started and sold two daily deal companies (Chitown Deals and Dealster). He says that with the Ideeli purchase, Groupon is primed for reinvention.

"The 'Goods' vertical is one of the biggest opportunities; [Groupon] now has to emerge as the leader once again. As they continue to grow and optimize the Goods part of the company, they will become one of the leaders for products, into the direction of Amazon (NASDAQ:AMZN)," says Malcok. "Consumer targeting will change-consumers will go to Groupon to see if items are available before buying elsewhere."

Wells Fargo (NYSE:WFC) analyst Trisha Dill, who upgraded Groupon's stock in December 2013 to a price target of $13 or $14, seems to support that point. In a December interview with CNBC, she said Groupon has just scratched the surface of the online marketplace, noting that the "addressable and local market is huge." Further, she noted that Groupon's brand, a name that is almost synonymous with "deal," will support its evolution.

In many ways, the timing couldn't be more perfect for Groupon to change direction. Earlier this month, it closed a $260 million deal with Living Social to buy Korean-based Ticket Monster (TMon). Though the online-ticket marketplace has enjoyed explosive revenue, it has reaped far fewer profits. Why would Groupon, a company that has so publicly struggled to reach market expectations, want to take on such a lag? It represents a key entry point into global commerce that Groupon needs to develop.

Despite the fact that Groupon publicly acknowledged Living Social will sell off its 13.8 million shares as part of the deal, 2014 may very well be the year Groupon reclaims its rightful ownership of the online-deal space.

Does that mean your inbox will all of a sudden become sparse? Not entirely, says Malcok, who predicts that there will still be a Groupon vertical serving the local market, albeit structured differently than it has been in the past. "They will continue to sell [small business] deals and get new customers, but I think that model will change with time; they will focus on more of a self-service marketplace."

Twitter: @WellnessOnLess
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No positions in stocks mentioned.
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