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

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

#41

Post by Goladus » Sat, Jun 04, 2011, 2:49 AM UTC

AndyNemmity wrote: post #36

melvinram wrote: post #32

Earlier quoted context omitted.

That's just semantics. There are three parties involved: Groupon, end customers and merchants. It was pretty clear who marciovm123 and I were referring as the customers in the posts.

It was in no way semantics, and his point was actually very insightful.

There was some insight that was muddied by the confrontational language, and the semantic ambiguity introduced by marciovm123. There are two interesting issues:

(1) repeat customers to the merchants, which they obtain via groupon.

(2) merchants who use groupon and do repeat business with them.

melvinram was talking about (1), mattmanser was talking about (2).

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

#42

Post by rmrm » Sat, Jun 04, 2011, 2:54 AM UTC

AndyNemmity wrote: post #36

melvinram wrote: post #32

Earlier quoted context omitted.

That's just semantics. There are three parties involved: Groupon, end customers and merchants. It was pretty clear who marciovm123 and I were referring as the customers in the posts.

It was in no way semantics, and his point was actually very insightful.

"they're selling other people's products" -- as every reseller does. And who do they sell them to? Their customers.

Customers pay you. You pay producer. That makes you a merchant. You get a really, really good price from the producer? And sell it really cheap to your customers? That makes you a discounter.

I know it's 2011 and we live in the future, but it's not a new paradigm, and it hasn't reversed any relationships as we normally think of them. Discounters have existed forever.

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

#43

Post by Alex3917 » Sat, Jun 04, 2011, 3:24 AM UTC

ecuzzillo wrote: post #40

Alex3917 wrote: post #37

Earlier quoted context omitted.

Groupon can always lower their cut in the future though once they have built out their database of customers. It also wouldn't surprise me if they laid off half their workforce once their rate of customer acquisition starts leveling off.

To do that, wouldn't they have to admit that they aren't growing like nuts anymore, and wouldn't that kill their valuation? (Even established companies like Apple and Google base most of their valuations on the premise of future growth. When the premise of future growth goes away, you have Microsoft.)

It shouldn't negatively affect their valuation. They would still be able to grow at the same rate, but they would do it by widening the channel rather than by acquiring new customers. It would actually be a big win for investors.

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

#44

Post by twakefield » Sat, Jun 04, 2011, 3:44 AM UTC

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…

"I'd be very interested in a stat of how many of Groupon's merchants are operating these deals at a profit."

Isn't the point that it brings customers in the door albeit at a loss? Hopefully, the future value of the customer is more than the loss on the initial deal. I think that's what your getting at with your subsequent sentences. I am not in the retail business so this is just conjecture but it seems to me that it's almost impossible to operate one of these deals at a profit. Basically, you are renting Groupon's sales machine and hopefully you convert a big percentage of the customers the deal brings in. I would also guess few retailers have the ability to present value the customers future revenue correctly and I'm sure Groupon will (if they haven't already) offer tools to measure that and justify the ROI of their deals.

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

#45

Post by jamiequint » Sat, Jun 04, 2011, 4:16 AM UTC

Alex3917 wrote: post #43

ecuzzillo wrote: post #40

Earlier quoted context omitted.

To do that, wouldn't they have to admit that they aren't growing like nuts anymore, and wouldn't that kill their valuation? (Even established companies like Apple and Google base most of their valuations on the premise of future growth. When the premise of future growth goes away, you have Microsoft.)

It shouldn't negatively affect their valuation. They would still be able to grow at the same rate, but they would do it by widening the channel rather than by acquiring new customers. It would actually be a big win for investors.

My point is that it if the answer to the 2nd question is "no" for most merchants it doesn't matter how much you widen the channel the business is still unsustainable in the long-term. Even so, how do you see them widening the channel? Going into a completely different model that does not fit their brand? The entire discount space in every market is now chock full of competitors doing similar things to Groupon.

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

#46

Post by sushrutbidwai » Sat, Jun 04, 2011, 4:18 AM UTC

In Amazon's case, it was amazon which was taking up the losses and not the producers of goods.

In group on's case it is group on as well as merchants are taking up losses and both believe repeat customers will eventually get them significant ROI. Now you may question whether offering of group on is good enough to make that happen or not. But growth like this needs investment.

Another question is - Can group on defend itself against competitor, given that entry barrier is not big. I mean does group on sign any exclusive agreement with merchants? I dont think so. So there only entry barrier seems to be the large sales force which may not be enough to sustain this kind of growth.

And last think - Group on's acquisitions in emerging markets like India. How much growth can group on expect from it? eg group on has acquired a very small player, sosasta and now trying to turn that around and into the biggest deal site. If groupon can pull this off, they will be bigger much bigger than their current valuations.

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

#47

Post by shantanubala » Sat, Jun 04, 2011, 4:40 AM UTC

twakefield wrote: post #44

jamiequint wrote: post #18

Earlier quoted context omitted.

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…

"I'd be very interested in a stat of how many of Groupon's merchants are operating these deals at a profit." Isn't the point that it brings customers in the door albeit at a loss? Hopefully, the future value of the customer is more than the loss on the initial deal. I think that's what your getting at with your subsequent sentences. I am not in the retail business so this is just conjecture but it seems to me that it…

Yeah -- it's a really bad setup in the end though because Groupon attracts the type of customer that isn't likely to spend a lot of money in the first place unless there is a deal. In other words, Groupon can attract a lot of customers, but the quality of those customers isn't very good (at least from my personal experience, all of the people I know who heavily use Groupon don't really use it at places they haven't already heard of before). The ROI must be terrible, but it also can be difficult to measure.

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

#48

Post by robertp » Sat, Jun 04, 2011, 4:41 AM UTC

mattmanser wrote: post #17

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.

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 Group…

It is the other way around. My friend has a wine store and he was an early adopter of groupon. I think he started almost 2 years ago? He stopped doing it because it brought in riff raff customers that were cheap and were pretty much broke.

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

#49

Post by tvorryn » Sat, Jun 04, 2011, 4:45 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?

... and if you really don't like Groupon's numbers you can short the stock. Although, I'm not sure how practical that is for the individual investor. You can take a look at the most recent tech IPOs and see what you think. (dang, yoku, dmd, qlik, smt, motr, logm, ftnt, swi)

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

#50

Post by jeffool » Sat, Jun 04, 2011, 4:48 AM UTC

ecuzzillo wrote: post #40

Alex3917 wrote: post #37

Earlier quoted context omitted.

Groupon can always lower their cut in the future though once they have built out their database of customers. It also wouldn't surprise me if they laid off half their workforce once their rate of customer acquisition starts leveling off.

To do that, wouldn't they have to admit that they aren't growing like nuts anymore, and wouldn't that kill their valuation? (Even established companies like Apple and Google base most of their valuations on the premise of future growth. When the premise of future growth goes away, you have Microsoft.)

Ah yes, poor Microsoft, the lowly company that only makes billions a quarter.

Don't get me wrong, your point on stagnation isn't totally missed, but do we really still need eternal growth to be "successful?"