Groupon and Expedia announced earlier this week that they are ending their co-branded relationship on Groupon Getaways by Expedia. Here is an article that covers it pretty well:

http://www.geekwire.com/2014/honeymoon-expedia-groupon-longer-co-branding-travel-deals/

This was inevitable. I know this because even though I initiated and helped negotiate the deal, I didn’t like the final version.

Was a bad deal inevitable? I don’t think so. Here is what I wish the deal had been:

1. Fully co-branded (Not Groupon Deals by Expedia, But Groupon/Expedia Deals)
2. Full partnership. 50/50 on everything
3. One deal per email (at least at the start)
4. One email a day

The reason for the first two should be obvious. It’s basically so both sides are inceted to grow the pie, instead of spending time and effort gaming who gets the bigger piece.

The second two might be less obvious if you haven’t read my post on the power of scarcity. When we launched Groupon Getaways the product was a dozen deals a week and have a weekly (opt-in) email sent out once a week featuring the deals. I was against it from the beginning. Here’s why:

When an email comes out every week (especially a Wednesday) it is not part of your ‘routine’. When you get an email every morning that is worth opening, you open it. It’s part of your morning routine. It was something Groupon mastered in the early days.

When you go to the market and talk to hotels and you need a dozen deals a week (or more – we were often going for two dozen). That means you need to convince them to offer a good deal. You might get a good deal, but you sure won’t get a great one. Why would you? As a hotel getting slotted into somewhere in the middle of an email is nice (it is going to millions of people) but it’s not nice enough for you to give up all your margin. And even if you would give up all your margin, you don’t have to – you can negotiate with the Groupon/Expedia team. The G/E team needed dozens of deals a week. They wanted deals that were ‘good enough’ so they could move on and get the next one. So that’s what they did.

The result: A lot of ‘okay’ deals that were loaded with limitations (only good Tuesday-Friday was a favorite for tourist destinations).

What would have happened if it had been one-deal a day (for five days a week) with an email every day?

I don’t know.

But here is my vision:

1. The E/G team goes out to hotels and tells them they are creating a product to offer smoking good deals. And only one hotel will be featured in each email. That email will go to 20 million or more people and will have 30%+ open rates who will consider your property
2. That should be enough to get some good deals. But it doesn’t stop there. Those deals are forced ranked from best to worst. The best deals are shown to customers first. If a hotel only offers a good deal, they will keep getting knocked back in the queue as other hotels offer better deals. It’s effectively an auction on awesome deals
3. The fact the deals are awesome is what gets people to open that email
4. The deals are all set-up so that you need to buy that day (and in some cases a limited amount available), which creates urgency. But you don’t have to select your date when you buy the coupon. This lets you make impulsive hotel purchases. You don’t need to check with your spouse. You don’t need to plan for someone to take the kids. You just see a great deal for a San Francisco hotel and say, “Wow. I would love to go to SF in the next year. This is a great excuse. I’ll buy this now and then figure out a way to plan that trip.”
5. Now you are getting incremental sales – which is what Expedia and the Hotel partners want. You are getting people to buy these coupons who might not have even bought in that city before.
6. Some people won’t use the coupons. In fact many won’t. People will buy them as an option (“$100/night for a four-star in Manhattan! Great. I’ll buy 3 nights and make it a long weekend…”). But then life will get in the way and what seemed like a great idea in January is becoming too hard to plan in September. And besides, flights were more expensive than we though. I guess I’ll write off that $300. Hopefully I will make it up next time.
7. The non-use of coupons (breakage) will allow hotels to offer even better deals (if there is 50% breakage, than a discount with is actually no discount at all!). And as the deals get better the cycle repeats itself

Unfortunately that world never happened so we will never know. But hopefully the story helps you the next time you are trying to create a new product. Remember the power of scarcity.