Network effect of Business

Karan Girotra, Simone Marinesi and Serguei Netessine in their HBR Blog Can Groupon Save its business model examine the rise and fall of Groupon as a concept and as a business model. From its high valuations to its loss of business as a concept. What comes out of their study is the fact that the Groupon’s business model is not aligned with the business models of its key components i.e. its suppliers. Businesses want to give discounts when they have a lean phase or excess inventory and not when its peak season and sold out inventory. So if your discount offers are not aligned your model is bound to fail.

Extending the argument, a business must benefit both its suppliers and its customers. It must leave something substantial for the suppliers on the table and must do some value addition for the customers. If you think of benefiting from everyone without giving anything in return, you may not be building a sustainable business. A business is a part of a chain that has suppliers and customers and unless the component benefits both ends, it would not be required.

Anuradha Goyal