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

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

#21

Post by scrollbar »

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?

This is a big moment that could potentially affect a lot of people. Some HNers may be considering investing- discussion of this opportunity will probably help with this decision making.

Further there are many parties incented to pump hot stocks so they can profit from the fees and possibly from pump-and-dump: investment banks, current investors, soon-to-be investors, etc. I enjoy hearing both sides of the discussion here, and I do feel bad about people being misinformed and taken advantage of, even if it's ultimately their choice whether they buy in to the bullshit.

The major question: is it bullshit, or not? Sounds like HN is undecided

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

#22

Post by nhebb »

Timely, since Groupon competitor LivingSocial is heavily backed by Amazon. Amazon invested in their infrastructure, whereas Groupon lined their pockets. Theres is no real comparison between the two, other than the article's title.

A few weeks ago LivingSocial publicly predicted that they'd surpass Groupon by January 2012. They're currently in ~40% of the markets that Groupon reaches and have ~40% of the revenue, so that's an aggressive goal. But (non-Ponzi) Amazon's backing lends it a lot of gravitas.

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

#23

Post by podperson »

dlevine wrote: post #8

I actually though about Amazon when I saw people starting to rag on Groupon and its bottom line. Another important thing to remember is that Amazon actually figured out its business model later. For a while, it was pretty much just a dot-com that was hemorrhaging cash. I remember reading articles for years predicting that Amazon would go belly up any day. It wasn't until they cut costs and really dialed in their oper…

Even today, Amazon's position is surprisingly precarious. It relies on loopholes in tax laws for competitive advantage which, if they are closed, are predicted halve its income.

And there are some analysts who argue that Amazon's "profits" are fictional, with all kinds of losses disguised as investments and hidden in other financial vehicles.

Recall that even today, Barnes & Noble is simply unable to sell you a book as cheaply as Amazon does, either in store or online, even before sales tax.

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

#24

Post by 9999 »

scottkduncan wrote: post #16

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.

The way that Groupon has defined the sector actually does present fairly high barriers to entry in that you need a dedicated sales force to 1) discover potential merchants and 2) arrange a deal that will work for the Groupon purchaser and the merchant. If someone redefines the sector by successfully removing the need for that sales force while maintaining the satisfaction of merchants and consumers, they will crush Groupon.

BTW, I think that's exactly what Groupon's competitors will do and are doing. Heck, all they have to do is steal Groupon's previous merchants now that the trail has been blazed.

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

#25

Post by jamiequint »

dlevine wrote: post #8

I actually though about Amazon when I saw people starting to rag on Groupon and its bottom line. Another important thing to remember is that Amazon actually figured out its business model later. For a while, it was pretty much just a dot-com that was hemorrhaging cash. I remember reading articles for years predicting that Amazon would go belly up any day. It wasn't until they cut costs and really dialed in their oper…

The fundamentals of Amazon's business are much better than Groupon's though. Its still unclear whether or not Groupon is sustainable for merchants. There are two questions that merchants should be asking when they are trying to decide whether or not to run a Groupon:

1. "Will I make money on this offer even after the discount and after Groupon takes their cut?" The answer here is NO for a large majority of merchants, which should lead to question...

2. "Will I attract enough new customers from this deal to account for the lost revenue of operating the deal at a loss?" The answer here for most merchants is "I have no frickin' clue".

Since almost no small business operates at 60-80% margins - the deal discount for most deals plus Groupon's cut is somewhere around this amount - its highly unlikely that the answer to the first question is "yes" for a significant portion of Groupon's merchants. As a result, its my opinion that the eventual success or failure of Groupon is highly depending on whether or not they can do two things:

1. Prove that the answer to the second question is "yes" 2. Prove that the answer to the second question is "yes" more often for them than for their competitors (otherwise they will experience decreasing margins as the space is flooded with competitors)

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

#26

Post by dreamux »

Back in 2000 online purchasing and e-commerce were still in their infancy. It was difficult to predict back then whether traditional models of commerce applied to these businesses, and to what degree consumers would adopt online buying.

We know much more now about online business, growth (long and short-term), scaling, value of users (and their cost of acquisition), logistics, all sorts of relevant business benchmarks/analytics, etc. Enough at least that many are concerned about Groupon in a more justifiable context than Amazon circa 2000.

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

#27

Post by nzoschke »

scrollbar wrote: post #21
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?

This is a big moment that could potentially affect a lot of people. Some HNers may be considering investing- discussion of this opportunity will probably help with this decision making. Further there are many parties incented to pump hot stocks so they can profit from the fees and possibly from pump-and-dump: investment banks, current investors, soon-to-be investors, etc. I enjoy hearing both sides of the discussion…

The discussion is great, don't get me wrong.

Company IPOs, people buy or don't buy for tons of reasons, the company executes on their plan, and the market adjusts.

Trying to label a company a ponzi scheme seems like little more than sensationalism to me.

That said, I would never invest in Groupon, simply because I don't use the product ever.

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

#30

Post by euroclydon »

jamiequint wrote: post #18
melvinram wrote: post #15

Earlier quoted context omitted.

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 o…

If you're a Groupon shopper, wouldn't the novelty, of say, going to that same spa wear off the second and third time you saw the deal? Similarly, if you keep selling your services on Groupon, don't you cheapen your brand. To me, there's not much incentive for repeat customers.
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