Groupon has no viable business model • Hacker News Board

Re: Groupon has no viable business model

#11

Post by eggbrain » Wed, Aug 17, 2011, 3:36 PM UTC

ceejayoz wrote: post #6

eggbrain wrote: post #5

Is the business model really so nonviable? Companies are coming to Groupon willing to give them exclusive coupons for their businesses, and Groupon gets to take 50% of the money from every Groupon bought. I thought the only reason they were unprofitable was the issue of scale -- they were blowing large amounts of money trying to become as big as possible, as fast as possible. Once they are the 500 pound gorilla on th…

> Companies are coming to Groupon willing to give them exclusive coupons for their businesses, and Groupon gets to take 50% of the money from every Groupon bought. Companies are not likely to be willing to give up 75% of revenue all that frequently, and there's a limited number of companies willing to do it even once in any given area. In Rochester, NY, Groupon seems to have already blown through the low hanging frui…

Great point. I have also noticed the decline in Groupon quality recently for my area.

That being said, once you are the 500 pound gorilla in the market, will people really have a choice but to go through you? I don't like ebay, but I deal with it because that is where everyone is. There must be some point where the hassle or loss of income is overcome by the potential benefits of advertising through Groupon. Even if that means they may have to tweak their % taken some, I could still see them being wildly profitable.

Re: Groupon has no viable business model

#12

Post by fragsworth » Wed, Aug 17, 2011, 3:37 PM UTC

acak wrote: post #7

It's interesting that a smart company like Google almost paid $6B for them. Did they not understand the business model well enough or did they just want it to bolster other services (like payments) despite it not being profitable? How Google Offers goes should tell us. Maybe they've found a way to make the model work.

Or maybe Groupon declined the offer because they knew they couldn't scam Google once they started their due diligence.

Re: Groupon has no viable business model

#13

Post by hop » Wed, Aug 17, 2011, 3:41 PM UTC

He forgot to mention Groupon brought in $878 million in the second quarter of 2011, 10x more than they did a year ago at $87.3 million. And $334M of the $1 billion of venture capital money went to buying stock from early investors, not pouring into the company.

Re: Groupon has no viable business model

#14

Post by [deleted] » Wed, Aug 17, 2011, 3:42 PM UTC

eggbrain wrote: post #5

Is the business model really so nonviable? Companies are coming to Groupon willing to give them exclusive coupons for their businesses, and Groupon gets to take 50% of the money from every Groupon bought. I thought the only reason they were unprofitable was the issue of scale -- they were blowing large amounts of money trying to become as big as possible, as fast as possible. Once they are the 500 pound gorilla on th…

[deleted]

Re: Groupon has no viable business model

#15

Post by phereford » Wed, Aug 17, 2011, 3:42 PM UTC

eggbrain wrote: post #5

Is the business model really so nonviable? Companies are coming to Groupon willing to give them exclusive coupons for their businesses, and Groupon gets to take 50% of the money from every Groupon bought. I thought the only reason they were unprofitable was the issue of scale -- they were blowing large amounts of money trying to become as big as possible, as fast as possible. Once they are the 500 pound gorilla on th…

Disclaimer: I work for a sustainable deal site for local businesses.

One factor that hbr is not mentioning is business owners (national and local) that participate on Groupon, for the most part, are having bad experiences. Obviously this depends on the industry (sky dive plus all around, coffee shops down all around) but not all industries can live off of 25% of their goods sold. I know many local business owners who ran a Groupon and promised themselves that they will never Groupon again because of the poor customer experience, and the large financial loss per Groupon.

The scale part is what worries me. I don't think Amazon needed as much money as Groupon needed to scale which is the biggest worry. At some point, the financial well will dry up on Groupon.

When that happens, I don't know what will become of Groupon. Maybe they should have taken the purported Google deal of a buyout for $6 billion :).

Re: Groupon has no viable business model

#16

Post by gallerytungsten » Wed, Aug 17, 2011, 3:42 PM UTC

arturadib wrote: post #10

I think such finance practices are deceitful and shouldn't be allowed. But re: biz model viability, remember it did take Amazon seven years to turn in a profit. Everyone was nervous, but Bezos was determined to build brand reputation before making money. Maybe that's what Groupon is doing too.

I think a key difference between Groupon and Amazon is the opportunity cost. Amazon spent tremendous amounts on warehouses and inventory, among other hard costs. Groupon has mostly burned through their money on customer acquisition.

Amazon spent a lot of money on developing an online shopping system that has a high degree of reliability, ease of use, and functionality. Groupon's web functionality appears to be something that cloners can copy pretty easily.

This past week, I saw that my local "alt-weekly" newspaper was launching their own Groupon clone. If they can do it, it obviously doesn't cost millions; thus, the barrier to entry is low.

Even worse for Groupon, potential competitors, such as the alt-weekly, already have sales staffs; their salespeople can sell the "daily deal" proposition as an add-on to their advertising offerings. They already know the local market, which is another advantage in competing with the out-of-town giant that has to learn it.

Re: Groupon has no viable business model

#17

Post by jimmywanger » Wed, Aug 17, 2011, 3:49 PM UTC

fragsworth wrote: post #12

acak wrote: post #7

It's interesting that a smart company like Google almost paid $6B for them. Did they not understand the business model well enough or did they just want it to bolster other services (like payments) despite it not being profitable? How Google Offers goes should tell us. Maybe they've found a way to make the model work.

Or maybe Groupon declined the offer because they knew they couldn't scam Google once they started their due diligence.

http://li82-18.members.linode.com/google-deal-said-have-25-b...

That breakup fee would have been paid right after due diligence.

Re: Groupon has no viable business model

#18

Post by yid » Wed, Aug 17, 2011, 3:54 PM UTC

eggbrain wrote: post #11

ceejayoz wrote: post #6

Earlier quoted context omitted.

> Companies are coming to Groupon willing to give them exclusive coupons for their businesses, and Groupon gets to take 50% of the money from every Groupon bought. Companies are not likely to be willing to give up 75% of revenue all that frequently, and there's a limited number of companies willing to do it even once in any given area. In Rochester, NY, Groupon seems to have already blown through the low hanging frui…

Great point. I have also noticed the decline in Groupon quality recently for my area. That being said, once you are the 500 pound gorilla in the market, will people really have a choice but to go through you? I don't like ebay, but I deal with it because that is where everyone is. There must be some point where the hassle or loss of income is overcome by the potential benefits of advertising through Groupon. Even if…

The choice there is not to go through anyone at all. It's not like all businesses wanted to hold flash 75% sales and just didn't know how before Groupon.

Re: Groupon has no viable business model

#19

Post by yid » Wed, Aug 17, 2011, 3:55 PM UTC

hop wrote: post #13

He forgot to mention Groupon brought in $878 million in the second quarter of 2011, 10x more than they did a year ago at $87.3 million. And $334M of the $1 billion of venture capital money went to buying stock from early investors, not pouring into the company.

You seem to disagree with the author, but ask yourself if they should still be posting a hefty loss with those numbers.

Re: Groupon has no viable business model

#20

Post by nsimplex » Wed, Aug 17, 2011, 3:56 PM UTC

Two numbers. In my mind that is all what is needed to determine if Groupon is the next Amazon, or if their business model is sustainable; and they are far more telling than the silly financial metrics they were throwing around:

1 - % repeat customers.

2 - % merchants who would like to repeat.

I have seen people try to guesstimate them from the financials, or throw around wild guesses based on a sample of anecdotal evidence. Nothing convincing so far.

Also Groupon and other daily deal did publish some of these in the heydays of daily deals, but no continuous updates (I think the most recent claim by Groupon was early this year)

I am sure Groupon keeps a close watch on these metrics, why aren't they releasing it? That in itself is very telling...

Edit: formatting.