Why Groupon Is Poised For Collapse

> 1.Mkt isn't like BM. BM permits -ve values & any market index say SPY must be non-negative.

That's one reason everybody models log-returns, which map non-negative prices onto the whole real line.

> 2. We (quants) model market indices like SPY as a log-normal process like so : dS = rSdt + sigmaSdz ... But that doesn't make S itself Brownian.

That's a geometric Brownian motion with drift. It is in fact the model developed by Louis Bachelier in his thesis of 1900 that presented the first mathematical description of Brownian motion.

Much of the argument you're trying to make can be made better, in my opinion, simply by pointing people to the Grossman-Stiglitz paradox [1]: markets cannot be fully informationally efficient or no one would have the incentive to provide information to them through trading.

1 - [PDF] http://www.math.ku.dk/kurser/2003-1/invfin/GrossmanStiglitz....

Given Rocky's claim that investing a large amount up front for a traditional advert placement is equivalent to receiving a short-term loan from Groupon for running a deal on the site, then Groupon is merely like all other direct marketing/direct response operations. So you can probably predict how successful Groupon could be by comparing it to something like Valpak.

Despite the fact that Groupon shifts the marketing costs from the merchant to the customer, it probably won't affect couponing behavior in the long run. To me this is like chess where the players have switched sides after a match. It's the same game, but a new player gets the first-move advantage this time around.

Groupon Now! seems slightly more interesting and possibly has more potential.

My wild, unsubstantiated prediction is that they'll IPO, fizzle out and be bought out by some media/new media conglomerate by 2014.

It's not really tap dancing. Accounting aims to give a meaningful account of the life of the business. Dividing up subscriptions into parts and recognising that a pre-payment is also a liability more accurately represents the nature of subscription than merely booking a single payment up front.

In this scenario, income is appearing each time the magazine is sent out, but the cash is in hand all along. The hardest part of understanding accrual accounting is to learn that a sales event is not necessarily a cash event.

This article has some serious problems. There's a huge anti-Groupon bias (apparently shared with most of HN). This is fine, it's ok not to like Groupon, but some of the points this article makes are absolutely terrible.

For example, take this: "I had been struggling to understand why some businesses ran repeat Groupons or cycled among the various daily deal vendors, given that the economics clearly suck if you can’t drive repeat traffic. Some let the same customer buy 3 or more of the same deal. That’s a clear no-no for a loss-leader designed to acquire new customers.

A conversation with Forkfly (a Groupon Now competitor) CEO Paul Wagner was enlightening. He suggested that they were doing what struggling families do when they max out a credit card—they get another one."

Let's look at what's happening here. There's actual, real-world evidence that the author may be wrong - small businesses are returning to Groupon. This doesn't make sense if Groupon is really such a terrible deal. So the author tries to explain this evidence.

What's the best way to do this? Go talk to the business owners who return to Groupon, and ask them why. That's what most people would do when trying to understand their behavior.

But instead, what does the author present? He talks to one of Groupon's competitors! The competitor, non-surprisingly, tries to dismiss this evidence. And he specifically tries to imply that the businesses doing this are not acting properly, comparing them to people who habitually overspend.

I'm not saying the author is wrong - but this is not the right way to make this point, and is simply a way to take a dig at Groupon, and dismiss the people who might prove that Groupon is worthwhile.

Or take this: "I’ve also heard from merchants who say Groupon has changed their deals at the last minute to make them more profitable for Groupon."

This is a cheap-shot, thrown in at the end of an (otherwise legitimate) paragraph. Either there are real cases or there aren't, but just saying "I've heard some people complaining" is just terrible reporting. If you think Groupon's done something wrong here, talk about it, don't just mention it offhand to tarnish their reputation.

Conclusion: Like I said, I don't know whether Groupon is good or bad for businesses. I don't know if many people truly know, actually. But articles like this, which go out of their way to bash Groupon, are not the right way forward.

Right, because obviously a small business owner is going to be happy to tell some random journalist who phones them up, "Yeah, we did that third GroupOn deal because otherwise we weren't going to be able to pay the rent".

They'll make up some waffle that regurgitates GroupOn talking points in order to justify their actions to an outsider without giving away the fact that the company is on the verge of bankruptcy & if word gets out all their staff will walk.