Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000) • Hacker News Board

Re: Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

#11

Post by dr_ » Fri, Jun 03, 2011, 11:39 PM UTC

The biggest issue with Groupon is the fact that while it may offer a great deal for consumers, and may make tremendous revenue on each deal, it doesn't appear to be a great deal for the merchants involved. Oftentimes it seems like a losing proposition in order to have customers come thru the door - people who may never return until there's another Groupon.

That may work while the economy is bad, but don't expect merchants to give in so easily once the economy improves. Groupon will have to either take less of a cut from the deal or offer a worse "deal" to the consumer.

Re: Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

#12

Post by nzoschke » Fri, Jun 03, 2011, 11:48 PM UTC

Hilarious comparison. I love it.

Isn't the whole point of an IPO to allow everyone participate, therefore letting the market decide?

If you don't like Groupon's numbers, don't buy the stock. Simple enough.

I'm seeing a lot of: "Think of the poor regular investors when it pops!" sentiment. Are not these investors rational people acting on the same information we all have?

Re: Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

#13

Post by ankrgyl » Fri, Jun 03, 2011, 11:51 PM UTC

marciovm123 wrote: post #3

"...when you consider that better than 60 percent of Amazon's sales come from repeat customers--which implies that they're loyal..." That seems to be the key figure missing from the Groupon discussion. If they are buying loyal users and customers, their mad-dash growth strategy would seem rational. If their retention is poor, it would seem more like a Ponzi scheme.

Additionally, an article on HN earlier today pointed out that Amazon had to spend a lot of money investing in infrastructure, whereas the only similar thing Groupon has done is assemble a "phone book" of interested businesses and consumers.

Re: Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

#14

Post by gcb » Sat, Jun 04, 2011, 12:03 AM UTC

The essence of that critique is that Amazon is just buying customers, and that once it runs out of the money to do so the Ponzi scheme will collapse. Of course, Amazon is buying customers, just as all companies do. Some companies do it by dumping money into advertising, some by offering discounts. Amazon does both. The only important question is whether Amazon is spending too much on those customers, and the answer seems pretty clearly to be no. In its latest quarter, Amazon added 3.8 million new customers, and spent an average of $19 to acquire them. When you consider that better than 60 percent of Amazon's sales come from repeat customers--which implies that they're loyal--and that the average customer spent $116 in 1999 (10 percent more than in 1998), $19 seems like something of a bargain.

Re: Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

#15

Post by melvinram » Sat, Jun 04, 2011, 12:04 AM UTC

marciovm123 wrote: post #3

"...when you consider that better than 60 percent of Amazon's sales come from repeat customers--which implies that they're loyal..." That seems to be the key figure missing from the Groupon discussion. If they are buying loyal users and customers, their mad-dash growth strategy would seem rational. If their retention is poor, it would seem more like a Ponzi scheme.

I think the piece of the puzzle that most people have trouble with is not that they'll have repeat customers. It's that those customers are loyal to Groupon... or more specifically, loyal to the concept of deep discounts. The part most people, including myself, have a hard time grok'ing is that merchants will continue to punish themselves by doing business with Groupon.

Re: Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

#16

Post by scottkduncan » Sat, Jun 04, 2011, 12:05 AM UTC

Amazon had to deal with customer acquisition and customer retention, while Groupon has the added challenges of merchant retention and margins being squeezed by competitors in a sector with relatively low barriers to entry. To me, it's a steeper uphill climb for Groupon.

Re: Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

#17

Post by mattmanser » Sat, Jun 04, 2011, 12:16 AM UTC

melvinram wrote: post #15

marciovm123 wrote: post #3

"...when you consider that better than 60 percent of Amazon's sales come from repeat customers--which implies that they're loyal..." That seems to be the key figure missing from the Groupon discussion. If they are buying loyal users and customers, their mad-dash growth strategy would seem rational. If their retention is poor, it would seem more like a Ponzi scheme.

I think the piece of the puzzle that most people have trouble with is not that they'll have repeat customers. It's that those customers are loyal to Groupon... or more specifically, loyal to the concept of deep discounts. The part most people, including myself, have a hard time grok'ing is that merchants will continue to punish themselves by doing business with Groupon.

I think that perhaps you're not grokking Groupon, the customers of Groupon have never been the bargain hunters, they've always been the merchants. The bargain hunters are the product Groupon sells.

You can then look at the model and realize Groupon have been screwing their own customers.

It's a shame as I think the core concept of the business is pretty sound in my book, but I was astounded when I found out the Groupon were taking 50-100% of deals. Just seemed like short term gain for long term loss. I thought that at least they'd be making crazy profits, but it turns out they're making a loss! That was what truly astonished me. They don't even have any physical good, they're selling other people's products for free and they're making a loss. Jeezus, what a royal screwup.

The discussion of the model here this last day has explained how/why they dug themselves into this terrible hole.

If, and tbh it's still an if, groupon unravels, it'll be quite a few years before this model will surface again. Which is a shame as done in moderation it seems a sound one to me and a win for all involved.

Re: Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

#18

Post by jamiequint » Sat, Jun 04, 2011, 12:16 AM UTC

melvinram wrote: post #15

marciovm123 wrote: post #3

"...when you consider that better than 60 percent of Amazon's sales come from repeat customers--which implies that they're loyal..." That seems to be the key figure missing from the Groupon discussion. If they are buying loyal users and customers, their mad-dash growth strategy would seem rational. If their retention is poor, it would seem more like a Ponzi scheme.

I think the piece of the puzzle that most people have trouble with is not that they'll have repeat customers. It's that those customers are loyal to Groupon... or more specifically, loyal to the concept of deep discounts. The part most people, including myself, have a hard time grok'ing is that merchants will continue to punish themselves by doing business with Groupon.

Exactly this. I'd be very interested in a stat of how many of Groupon's merchants are operating these deals at a profit. I know one SF merchant personally that does, but I suspect its very few. Even more importantly, I'd be interested in how many of these Groupon customers are returning to the merchant. If that number is high than Groupon has hope, if its low then they aren't actually adding much value and they can only continue fleecing small businesses for so long.

Re: Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

#19

Post by dablya » Sat, Jun 04, 2011, 12:18 AM UTC

imjustatechguy wrote: post #10

dreamdu5t wrote: post #9

Earlier quoted context omitted.

Not a business model, a strategy to generate profit from their current model. Groupon's current strategy is to take a customer base that doesn't generate profit, and make it larger. Yet they haven't shown any way that scaling will reduce costs much. How does capturing more merchants drive their costs down, when they have to pay significantly more for each one? Amazon had the answer of vertically integrating as much o…

The founders have already found a business model that has generated them in excess of $500M. Thus Groupon for them has already been successful.

First few people in a Ponzi scheme make money as well...

Re: Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

#20

Post by 46Bit » Sat, Jun 04, 2011, 12:23 AM UTC

nzoschke wrote: post #12

Hilarious comparison. I love it. Isn't the whole point of an IPO to allow everyone participate, therefore letting the market decide? If you don't like Groupon's numbers, don't buy the stock. Simple enough. I'm seeing a lot of: "Think of the poor regular investors when it pops!" sentiment. Are not these investors rational people acting on the same information we all have?

No. Of all the things you can describe the stock market as, rational is not one of them - and that's before you consider the amount of computer trading.