Why Groupon Is Poised For Collapse • Hacker News Board

Re: Why Groupon Is Poised For Collapse

#11

Post by cletus » Mon, Jun 13, 2011, 5:36 PM UTC

This is one of the best and most damning analyses of Groupon I've seen yet, which is kinda surprising coming from TC but I guess it is a guest post.

The biggest parts of this are the account risk, the needing to grow revenue to pay existing liabilities (which is and should be a huge warning flag for any enterprise) and just how much room there is for someone to do this better.

My only fear is that a collapse of Groupon--which I actually see as a non unrealistic possibility--will taint other Internet/tech IPOs and, even worse, prompt the Federal government into more kneejerk regulation even stupider and more onerous than Sarbanes-Oxley.

Re: Why Groupon Is Poised For Collapse

#12

Post by kul » Mon, Jun 13, 2011, 5:42 PM UTC

Very interested to see how this plays out, because there's a faltering consensus around Groupon, and it's getting closer to their IPO.

See: http://www.guardian.co.uk/business/2011/jun/10/only-fool-inv...

It reminds me a little of when there were a few dissenting voices claiming the US housing market was due a correction and yet prices kept going up.

Re: Why Groupon Is Poised For Collapse

#13

Post by brk » Mon, Jun 13, 2011, 5:42 PM UTC

wccrawford wrote: post #10

saddino wrote: post #8

Earlier quoted context omitted.

The problem is that there is no guarantee any of those customers are actually new. It appears that in many cases, most are ALREADY your customers and you're simply giving them discounts.

That's almost always the case with coupons, though. Sure, you can exclude current customers under some coupon schemes, but you risk alienating them... And losing an existing customer is costly, since you put so much into gaining them in the first place.

Right, but a "$2 off your next $20 order" coupon is much much different than a "$19 off your next $20 order" Groupon.

Re: Why Groupon Is Poised For Collapse

#14

Post by mcdowall » Mon, Jun 13, 2011, 5:45 PM UTC

Having dealt with the local advertising model myself (restaurant virtual tours) I can testify how god damn hard it is to get money out of small business owners so the success of Groupon is a surprise to me.

From a consumer perspective I unsubscribed a few months ago as I really didnt want to hear about a Botox or Massage deal each and every morning. It was good for xmas presents I will admit but in my local area the variety of the offers was somewhat limited (and Its by no means a small town), I shouldnt imagine I will check the site until around mid December again.

Re: Why Groupon Is Poised For Collapse

#15

Post by [deleted] » Mon, Jun 13, 2011, 5:48 PM UTC

[deleted]

Re: Why Groupon Is Poised For Collapse

#16

Post by arturadib » Mon, Jun 13, 2011, 5:48 PM UTC

Insightful article, but notice that the business model being criticized is in many ways well known (and successful): namely, that of book publishers.

When an author deals with a book publisher, he/she gives up some of their future revenues in exchange for cash in advance and publicity.

Likewise, when a local business deals with Groupon, they are giving up part of their revenue in exchange for upfront cash and publicity.

The main difference might be in the actual numbers (cash upfront, revenue share %, etc).

The risks pointed out remain, and are very real though.

Re: Why Groupon Is Poised For Collapse

#17

Post by raganwald » Mon, Jun 13, 2011, 5:49 PM UTC

mcdowall wrote: post #14

Having dealt with the local advertising model myself (restaurant virtual tours) I can testify how god damn hard it is to get money out of small business owners so the success of Groupon is a surprise to me. From a consumer perspective I unsubscribed a few months ago as I really didnt want to hear about a Botox or Massage deal each and every morning. It was good for xmas presents I will admit but in my local area the…

I can testify how god damn hard it is to get money out of small business owners so the success of Groupon is a surprise to me.

Well, now we know how to get $62,500 out of a small business: Offer them $7,000 within about 5 days. This is the salient point of the article: Groupon is more than just a marketing vehicle, it has a financing angle to it that should be evaluated in terms of risk.

Re: Why Groupon Is Poised For Collapse

#18

Post by ChuckFrank » Mon, Jun 13, 2011, 5:52 PM UTC

cletus wrote: post #11

This is one of the best and most damning analyses of Groupon I've seen yet, which is kinda surprising coming from TC but I guess it is a guest post. The biggest parts of this are the account risk, the needing to grow revenue to pay existing liabilities (which is and should be a huge warning flag for any enterprise) and just how much room there is for someone to do this better. My only fear is that a collapse of Group…

Based upon the mounting evidence about the condition of Groupon, cletus' fear "that a collapse of Groupon--which I actually see as a non unrealistic possibility--will taint other Internet/tech IPOs and, even worse, prompt the Federal government into more kneejerk regulation even stupider and more onerous than Sarbanes-Oxley." makes absolutely no sense.

Suggesting that a poorly performing companies weak IPO, or otherwise, will taint other IPOs and prompt regulations makes no sense whatsoever. For the health and vigor of the tech markets, Groupon's IPO should be a spectacular failure based upon the poor business model and weaker financial position.

Re: Why Groupon Is Poised For Collapse

#19

Post by bostonvaulter2 » Mon, Jun 13, 2011, 5:53 PM UTC

The part about how groupon will refund the price of the groupon if the business goes of out of business is interesting because Living Social specifically does not do that.

Re: Why Groupon Is Poised For Collapse

#20

Post by ig1 » Mon, Jun 13, 2011, 5:54 PM UTC

All these attacks rest on the assumption that Groupon aren't going to change their business model at all. It's seems a near certainty that they're going to move into the dynamic yield management business which is likely to be highly profitable.

For a lot of businesses their excess capacity is a lost cost anyway. They have to pay their staff regardless or not they do work. A customer might cost $X to service, but that completely ignores the fact that the company would have to pay $X even if that customer wasn't there.

Sure Groupon might not be matching that spare inventory to it's deals with great precision at the moment, but it's only going to be a matter of time.

Look for example at GrouponLive, their partnership with Livenation who are the largest entertainment ticketing company in the world. Does anyone seriously think Livenation are having wool pulled over their eyes ? - they know that yield management is important and Groupon are probably going to become the leaders in that space.