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Why Groupon Is Poised For Collapse

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Re: Why Groupon Is Poised For Collapse

#41
Anyone else getting tired of these? Why are these companies not being held responsible for their own negligence? If you do not do the math and cannot afford to lose the money then how dare you agree to the terms.

This is not on Groupon or any other Daily Deal service. It solely relies on the Small Business owner that does not do his due diligence.

This model is no different than bulk purchasing from a supplier. However, the supplier still makes money because they have figured out how much they can give to still turn a profit.

Small business owners need to either look at how much they stand to lose or take this as a advertising expense that they can afford.

The whole get money now and cry about it when people actually expect to collect what they were promised is ridiculous, where do they think the money comes from?

If you want to say that this model is only sustainable as long as small business owners are incompetent then yes, lets say that. However, to say that this business model is bad based on Groupons lies is just ridiculous. No one is holding a gun to your head and saying, give us coupons for all your stuff.

Re: Why Groupon Is Poised For Collapse

#42
post #20

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…

I'm sorry, but justifying a $15 Billion (with a B) valuation on a business that Groupon isn't even in yet is pointless. It smacks of Enron, to be honest.

Re: Why Groupon Is Poised For Collapse

#43
post #12

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.

Good to see at least one article about this in the mainstream media. Have there been any others?

Re: Why Groupon Is Poised For Collapse

#44
Here's the money quote:

> If Groupon matches these payment terms, they’ll need cash faster and need to grow faster. (Google Offers accelerates the rate at which Groupon’s scheme has to draw in new suckers.) If Groupon doesn’t match, it gives Google a key differentiator to win deals. If those businesses go with Google’s more generous terms, that too will starve Groupon of the cash it needs to pay earlier merchants.

I found myself laughing villainously as I read that. Google offers to by Groupon. Groupon demurs. Google destroys Groupon by forcing the Ponzi scheme into overdrive. Oh, it feels so good! Google, I forgive you everything!

By the way, didn't we all flip the scam bit on Groupon months ago when this article showed up here on Hacker News:

Groupon in Retrospect (posiescafe.com) http://news.ycombinator.com/item?id=1698833

Re: Why Groupon Is Poised For Collapse

#46
post #28

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 Grou…

I would love to see the breakage figures on Groupon. I haven't looked at the S1, but do they account for them in revenue?

Re: Why Groupon Is Poised For Collapse

#47

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

Sega and the repeated negative news on the Dreamcast. It was a great system, and ahead of it's time (compared to the PS1).

Re: Why Groupon Is Poised For Collapse

#48
post #25

Earlier quoted context omitted.

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…

This is just 'the sky is falling' thinking.

If groupon defaults, the businesses will just not honor the groupon coupons. After all, they haven't been paid for.

The entire hypothesis of this article is that Groupon amounts to a marketing firm where you pay most of the cost in kind much later, instead of paying up front for a big marketing campaign. The 'in kind and later' part makes your scenario absurd.

However, I this article basically misses the point. Lots of businesses have excess capacity that costs them nothing to utilize. For example, a hair salon which employs 4 stylists will have several hours per week, and perhaps many more, where a stylist is idle. Giving someone a very cheap haircut when otherwise idle is a chance to win a future paying customer, and has basically no cost. It's a win for the customer and a win for the stylist, and of course groupon is getting a fee for that.

The same is true of items, like designer clothing and food, that have absurd markups. Selling it for closer to cost will cannibalize some future purchases, but overall isn't really that harmful, and may generate recurring income from newly converted customers. It is certainly MUCH lower risk than an advertising campaign, in that all the cost is baked in to people who actually show up in your store, instead of spread to the wind in the hopes of hitting the right people.

The problem with groupon is that it has no moat. http://37signals.com/svn/posts/333-warren-buffett-on-castles... Any competitor can come along and set up an identical business, and there is basically no network effect to speak of to keep customers coming to groupon instead of living social or any other competitor, and no risk for retailers or customers of trying another competing site. This is why there is 1 classified site in the US (craigslist) and 1 auction site (ebay), but innumerable comparison shopping sites all sharing the same retailers (amazon, half, cnet, shopping.com, pricegrabber, etc etc).

Re: Why Groupon Is Poised For Collapse

#49
post #28

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 Grou…

According to the article, it doesn't sound like they really keep track of redeemed vouchers.

Because some merchants track redemptions on paper, Groupon has no way of knowing how many unredeemed Groupons are outstanding.

Re: Why Groupon Is Poised For Collapse

#50
post #28

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 Grou…

It probably works out as high as regular gift cards. They're easier to find (just search your email) but they're easier to buy so one can get much more of them. I have friends who bought "pay $X for 10 workouts" but only end up going once before it expired.
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