Why Groupon Is Poised For Collapse • Hacker News Board

Re: Why Groupon Is Poised For Collapse

#51

Post by gojomo » Mon, Jun 13, 2011, 6:58 PM UTC

ajays wrote: 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…

They make a lot from vouchers that are never used. (The term of art for such revenues is 'breakage'.)

For a stored-value medium that's like a gift card, many states prohibit an expiration-to-zero-value. Groupon has been sued a bunch of times over this; at least in those states, I think their current policy is that the business must still honor the Groupon for the original purchase price (but not the ~2X face value).

This blog post by Andrew Mason suggested lawsuits were unnecessary because customers unhappy for any reason, including expiration policies, could always rely on 'the Groupon Promise' for a full refund:

http://www.groupon.com/blog/cities/groupon-organizes-class-a...

However, if you try to get a refund on an expired Groupon, they'll reject your request. So Mason's blog post and 'the Groupon Promise' are deceptive... and Groupon probably deserves to be sued over the gap between the unequivocalness of their 'promise' and the way they carve out exceptions in practice. They talk the talk of a 'customer is always right' retailer, but their model seems to require them to be stingy with refunds.

Re: Why Groupon Is Poised For Collapse

#52

Post by ilkandi » Mon, Jun 13, 2011, 6:59 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.

I've been refunded a couple of times from other deal sites when the business went bankrupt. It's just good customer service to do so.

Re: Why Groupon Is Poised For Collapse

#53

Post by cletus » Mon, Jun 13, 2011, 7:04 PM UTC

justin_vanw wrote: post #48

cletus wrote: post #25

Earlier quoted context omitted.

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 th…

> Lots of businesses have excess capacity that costs them nothing to utilize.

I dispute this assertion or, in the very least, see this as being far more complex than you suggest, for two reasons:

1. Customers who might otherwise pay full price will end up using these deals, which is a direct loss to the business; and

2. The inventory may be used up by such offers to such an extent that customers who might otherwise pay full price may not be able to do so.

> The problem with groupon is that it has no moat.

On this point you are I agree.

As for being "win win", apart from the above, you have to look at a number of factors:

- Do Groupon customers return?

- What word-of-mouth do they give to businesses as a result?

- How much do they spend (initially and on repeat visits)?

- Are they people brought in by Groupon representative of your existing or desired customer base? There is plenty of anecdotal evidence suggestings "Grouponers" are "cheap" (both in spending habits and tips).

The "offer marketplace" providers (Groupon, LivingSocial or whoever) seem to be missing a golden opportunity to mine useful data here by tying an offer redemption to an actual person.

Re: Why Groupon Is Poised For Collapse

#54

Post by commandar » Mon, Jun 13, 2011, 7:16 PM UTC

tomp wrote: post #29

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…

>(not that this is a 100% accurate process, see for example 4 Hour Work Week).

While I got a chuckle out of this, given the financial success of the book, it's a good book from the publisher's perspective.

Re: Why Groupon Is Poised For Collapse

#55

Post by imjustatechguy » Mon, Jun 13, 2011, 7:16 PM UTC

justin_vanw wrote: post #38

It's almost absurd how closely Groupon is following the classic 'tech bubble' road to disaster. 1. Hype (check) 2. IPO talk (check) 3. Turn down acquisition at incredibly high P/E (check) 4. Superbowl Advert (check) 5. IPO just in time to avoid running out of money (on the way) 6. Market goes rational (inevitable, forces pushing it irrational can't do so forever), valuation plumets 7. Unable to raise money by selling…

I'd agree exceot for #8, everyone is actually talking about it for once and generally in agreement. It is sort of surreal.

Re: Why Groupon Is Poised For Collapse

#56

Post by ilkandi » Mon, Jun 13, 2011, 7:24 PM UTC

On the plus side, Groupon has high name recognition, an international rolodex of contacts with small businesses clients (whether or not deals were made), an international rolodex of customer names with contact info and preferences, huge number of international offices and sales staff, a large profit margin from the business clients, interest-free loans from customers in exchange for a pdf coupon, the clients handles delivery/fulfillment to the customer months to a year later (assuming the customer remembers the coupon exists). And more. They've got a TON of room to grow if they can plug any revenue leaks. Sure, a lot of places can handle local deals. What if Groupon starts synchronizing deals? Every hair salon 10km apart in every city and country gives a touchup for $20? All dance schools, first salsa lesson free? It could drive trends. A mobile app that tracks all customer clicks? Tied to a recommendation service that tells the customer to wait for an upcoming deal within a week, or tells the Groupon office the kind of deals they should pursue that month? A service to tell retail entrepreneurs the sales demographics per area and business? Sell retailer data to financial and IT services to help them manage and modernize their businesses? I see a lot of possibilities for a big network.

Re: Why Groupon Is Poised For Collapse

#57

Post by encoderer » Mon, Jun 13, 2011, 7:30 PM UTC

justin_vanw wrote: post #38

It's almost absurd how closely Groupon is following the classic 'tech bubble' road to disaster. 1. Hype (check) 2. IPO talk (check) 3. Turn down acquisition at incredibly high P/E (check) 4. Superbowl Advert (check) 5. IPO just in time to avoid running out of money (on the way) 6. Market goes rational (inevitable, forces pushing it irrational can't do so forever), valuation plumets 7. Unable to raise money by selling…

You left out "generate massive sums of actual revenue from real, paying customers, and become the fastest growing company by revenue in history."

I think a bunch of armchair analysts on this thread are going overboard with their predictions of imminent failure.

Re: Why Groupon Is Poised For Collapse

#58

Post by [deleted] » Mon, Jun 13, 2011, 7:33 PM UTC

qeorge wrote: post #7

It seems his main point is this: Google Offers pays merchants faster (80% of the money goes to the merchant right away, vs 33% with Groupon). The OP expects this will force Groupon to make the same deal with merchants, which will change their business model, which will put them out of business. That or Groupon won't change its business model, and Google Offers will run them out of business by virtue of this better de…

[deleted]

Re: Why Groupon Is Poised For Collapse

#59

Post by commandar » Mon, Jun 13, 2011, 7:33 PM UTC

qeorge wrote: post #7

It seems his main point is this: Google Offers pays merchants faster (80% of the money goes to the merchant right away, vs 33% with Groupon). The OP expects this will force Groupon to make the same deal with merchants, which will change their business model, which will put them out of business. That or Groupon won't change its business model, and Google Offers will run them out of business by virtue of this better de…

The thing is, Groupon is already burning cash like it's going out of style with their current model, which is hugely lopsided in Groupon's favor compared to the merchant. If Google starts pushing things toward a position that's a bit more equitable for the merchant, it could end up being a huge problem for Groupon.

The number of articles that have been published talking about how poorly Groupon works out for many merchants means there's a lot of room for somebody to step in with more favorable reimbursement and revenue-split terms. Groupon either has to match those or watch their userbase jump to the competition.

Re: Why Groupon Is Poised For Collapse

#60

Post by gaius » Mon, Jun 13, 2011, 7:35 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…

But it will tho', because remember that the actual money comes from people who think in terms of asset classes, not individual companies. If a pension fund or a university endowment says, let's reduce our exposure to Internet companies, then VCs get less money to play with.