Why Groupon Is Poised For Collapse • Hacker News Board

Re: Why Groupon Is Poised For Collapse

#21

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

arturadib wrote: post #16

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 publici…

Authors don't really have ongoing costs once they get the money though like a restaurant as one example would. Publishers also handle promotion and distribution as well. You can self publish of course but then you don't normally get the same legitimacy, distribution, and other intangible benefits.

Re: Why Groupon Is Poised For Collapse

#22

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

Not sure if I entirely agree with this analysis. There's an element of inventory management which Groupon allows for, which has previously been unheard of for most small businesses. Maybe if you realize you are definitely getting x number of customers or x number of dollars), you can better manage your cash flow. Take the photo of the receipt provided in the article. A coke costs $2.00, and presumably it's a fountain drink, cause it mentions the refill is free. We've all been exposed to this, and let's face it, it's a blatant ripoff, but on some level its understandable - it's a way for the restaurant to make some additional cash, perhaps because the traffic is sporadic or perhaps to save up for a rainy day. But does coke really need to cost $2.00, if you have a better expectation of how much product you are definitely going to sell?

My guess is, probably not.

Re: Why Groupon Is Poised For Collapse

#23

Post by larrys » Mon, Jun 13, 2011, 5:57 PM UTC

bostonvaulter2 wrote: post #19

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.

If there are some nice public failures with people complaining I'm sure states will fix that with some legislation.

Re: Why Groupon Is Poised For Collapse

#24

Post by larrys » Mon, Jun 13, 2011, 6:00 PM UTC

raganwald wrote: post #17

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.

True and there is also (and I can't think of the name) a psychological principle for this which is how someone will pay money to insure against an event with a negative outcome but not to wager on something. Umm. I think it might be called "Prospect Theory" or some variation like that.

Re: Why Groupon Is Poised For Collapse

#25

Post by cletus » Mon, Jun 13, 2011, 6:01 PM UTC

ChuckFrank wrote: post #18

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 otherw…

Imagine a worst case scenario where Groupon files for Chapter 11 and defaults on all outstanding debts to merchants, which by that stage could amount to over a billion dollars (IIRC it's currently $280 million). Imagine that because of that lost revenue many small businesses end up collapsing.

At the same time it becomes more public knowledge that 2010 funding rounds were to buy out early investors, who made out like bandits, and retail investors, pension funds and so on lose a huge stack of money.

Now look at that (admittedly pessimistic) picture and try and tell me there won't at least be calls for "reform".

Re: Why Groupon Is Poised For Collapse

#26

Post by ChuckFrank » Mon, Jun 13, 2011, 6:02 PM UTC

With mounting evidence of Groupon's weak financials and long term business sustainability, we should all advocate against investing in Groupon. The better our market segment wisdom, the better for all of us. If we let crap float to the top, then top performing companies will always have their market stigma to overcome. See biotech 2000-2005. Besides Mason has already told us that Groupon is a joke when he told Charlie Rose that Groupon is to tech what Nsync was to pop. High-flying, fast - crashing products poised for brief nostalgia, and obscurity. http://techcrunch.com/2010/12/10/groupon-mason-charlie-rose/ O

ps. my favorite quote of this emerging IPO debacle has been thus far..

"Groupon's IPO prospectus should raise several red flags in a sensible investor's mind. Factor in Lefkofsky's checkered past, and this IPO is waving more red flags than a May Day parade."

Now that's a great visual.

http://tech.fortune.cnn.com/2011/06/10/groupon-eric-lefkofsk...

Re: Why Groupon Is Poised For Collapse

#27

Post by uptown » Mon, Jun 13, 2011, 6:04 PM UTC

I think that Groupon is likely to adjust their vig if they start to see their momentum decline. Instead of 50%, they take 40% or 30% …. at which point they can circle-back and offer their services to all of the business that may have declined their services due to the steep percentage of the offer they demanded. Sure, this means less revenue coming out of each deal, but it seems to give them a quick way adapt.

Re: Why Groupon Is Poised For Collapse

#28

Post by ajays » Mon, Jun 13, 2011, 6:05 PM UTC

One thing that a lot of analyses fail to account for are the number of Groupons that go unused. I would love to see some figures on how many Groupons are never redeemed (for whatever reason).

I had some friends visiting SF, and they had bought Groupons from various outfits for the trip. But they ended up not using a few of them, and gave them to me. Chances are I'll end up using them, but I wonder: how many such Groupons expire unused?

Re: Why Groupon Is Poised For Collapse

#29

Post by tomp » Mon, Jun 13, 2011, 6:05 PM UTC

arturadib wrote: post #16

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 publici…

Except for the upfront payment, which is obviously a sunk cost, book publishers have no other liability.

Unlike Groupon, which might have to reimburse its customers if a client business goes under.

Furthermore, AFAIK author deals are screened/filtered, a bad book will not get published (not that this is a 100% accurate process, see for example 4 Hour Work Week).

Judging from the article, Groupon does little screening, so their risk is much greater.

Re: Why Groupon Is Poised For Collapse

#30

Post by lichichen » Mon, Jun 13, 2011, 6:05 PM UTC

HN: just out of curiosity is there any examples of companies that have tanked based on speculation of failure regardless of track records?

Ie: Speculation leads to lower investor confidence leading to pulling out of investments and so on so forth