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Groupon has no viable business model

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Re: Groupon has no viable business model

#31

Post by barrkel »

mseebach wrote: post #25
spanktheuser wrote: post #21

I'm not terribly impressed with this article. It rehashes the thinking of HN and other bloggers without adding anything new - other than the HBR logo at the top. I guess that's important for people who let HBR tell them what to believe. And the following point just seems completely wrong to me: >> And unlike the very few successful companies that scaled before they were profitable (think Facebook or Amazon), Groupon'…

> Can someone explain how Amazon's consumers benefit from network effects? Volume. Marginal cost of fulfilling 100,000 orders/day GroupOn's claim to scale is that you need eyeballs to convince businesses to put on good deals, and you need good deals to attract eyeballs. Also, there's a land grab going on. If they allow a competitor to become entrenched, taking him on later is going to be difficult, as I'd guess break…

These are economies of scale. I object to relating them to network effects. Network effect, if the term is to have any meaning at all distinct from economy of scale, should relate specifically to value added by edges joining nodes, where those nodes are customers, suppliers or partners etc., and the edges are something the company enables.

Re: Groupon has no viable business model

#32

Post by anactofgod »

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…

As I said in the comments field of the article, in response to a VC acquaintance's post...

A "land grab" strategy implies there is a means to lock out competition, and a strategy to defend and retain the land that is grabbed. So, one has to ask, what is Groupon's retention strategy for all this wallet-share they are grabbing?

Vendors and customers who are of the mindset to avail themselves of a Groupon-like service are driven by the value of the deals. There is no inherent loyalty to the voucher provider, or automatic lock-in of mindshare. If vendors and consumers can get a better deal from someone else, they will.

So, while Groupon, LivingSocial and the rest may currently enjoy decent margins, what prevents them from being locked into a race-to-the-bottom of razor thin margins as the markets saturate? To my mind, having the largest list of emails to spam with targeted offers is not a sufficient defense against this. It just slows the attrition.

So, then the question is, if there is nothing that prevents a race-to-the-bottom, aren't the companies that maintain the highest operational efficiencies (and profitability) - not the ones that grab fastest the most of the ultimately indefensible lands - going to be the ones that prevail, in the end?

And, let's not forget, this land grab strategy is/will be failure unless Groupon can actually raise the capital required to actually stay in operations and see through to fruition.

Re: Groupon has no viable business model

#33

Post by swah »

I can't understand why this isn't making tons of money: connect two parties and charge something for this, and keep your costs very low. I wonder if the Brazilians clones are doing ok, they seem to be.

Also, in the beginning everyone thought "Oh boy, I wish I had had that idea!"...

Re: Groupon has no viable business model

#34

Post by mseebach »

barrkel wrote: post #31
mseebach wrote: post #25

Earlier quoted context omitted.

> Can someone explain how Amazon's consumers benefit from network effects? Volume. Marginal cost of fulfilling 100,000 orders/day GroupOn's claim to scale is that you need eyeballs to convince businesses to put on good deals, and you need good deals to attract eyeballs. Also, there's a land grab going on. If they allow a competitor to become entrenched, taking him on later is going to be difficult, as I'd guess break…

These are economies of scale. I object to relating them to network effects. Network effect, if the term is to have any meaning at all distinct from economy of scale, should relate specifically to value added by edges joining nodes, where those nodes are customers, suppliers or partners etc., and the edges are something the company enables.

Actually I agree, that's why I put "groupOn's claim to scale". They clearly mean economies of scale when they refer to Amazon, so that just adds to the sloppiness of the article.

Re: Groupon has no viable business model

#35

Post by pinko »

namityadav wrote: post #29
mdasen wrote: post #28

Earlier quoted context omitted.

The question is whether this is a fad or not. Companies always try new marketing tricks. The type of marketing that stays is the marketing that benefits the company. This type of group buying is relatively new and lots of companies (small and large) are testing it out. They're willing to chance making a bad decision to see whether it works or not. The question isn't whether Groupon is getting a decent cut, but whethe…

I'm guessing you don't know this -- Even if a groupon expires, you can redeem it for the purchase price. Ref: http://www.groupon.com/terms#terms-of-sale

Amazing! I'm guessing 99.9% of Groupon users don't know this. I also can't imagine why Groupon is so generous in this respect, relative to other companies (even if it's clearly the "right" thing to do).

Re: Groupon has no viable business model

#36

Post by coenhyde »

The viable business model for Groupon is to shed 90% of it's 7500 employees, improve business satisfaction and let the businesses come to them. This may be hard now that Groupon has such a bad reputation amongst businesses.

Groupon was too enthusiastic to become big rather than good. I understand why they thought it was necessary and to some degree I agree that it was the correct game to play but I think they have destroyed their chance of retaining the customers (businesses) they acquired during their growth.

Seriously they need to downsize quickly and fix their customer satisfaction (taking a smaller cut would be a start). It would be rough but at least they might turn a business loosing a $100 or so million every quater into a profitable business.

I have a feeling though what's in the hearts of Groupon's leadership is not the desire for a profitable business but a pump and dump.

Re: Groupon has no viable business model

#37

Post by Rariel »

phereford wrote: post #15
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…

If you don't mind me asking, who do you work for and what makes the deal site sustainable for local businesses?

Re: Groupon has no viable business model

#38

Post by jeffh »

pinko wrote: post #35
namityadav wrote: post #29

Earlier quoted context omitted.

I'm guessing you don't know this -- Even if a groupon expires, you can redeem it for the purchase price. Ref: http://www.groupon.com/terms#terms-of-sale

Amazing! I'm guessing 99.9% of Groupon users don't know this. I also can't imagine why Groupon is so generous in this respect, relative to other companies (even if it's clearly the "right" thing to do).

Actually some of the others do this as well. I believe that facet exists because of many States gift card laws. Yet another area that Groupon et al may hit issues with in the future.

Re: Groupon has no viable business model

#39

Post by cjdavis »

pinko wrote: post #35
namityadav wrote: post #29

Earlier quoted context omitted.

I'm guessing you don't know this -- Even if a groupon expires, you can redeem it for the purchase price. Ref: http://www.groupon.com/terms#terms-of-sale

Amazing! I'm guessing 99.9% of Groupon users don't know this. I also can't imagine why Groupon is so generous in this respect, relative to other companies (even if it's clearly the "right" thing to do).

I'm not sure, but it could be that you are paying actual hard cash - much like a gift card. In many states it is illegal for gift cards to expire.

Re: Groupon has no viable business model

#40

Post by jpdoctor »

spanktheuser wrote: post #21

I'm not terribly impressed with this article. It rehashes the thinking of HN and other bloggers without adding anything new - other than the HBR logo at the top. I guess that's important for people who let HBR tell them what to believe. And the following point just seems completely wrong to me: >> And unlike the very few successful companies that scaled before they were profitable (think Facebook or Amazon), Groupon'…

> It rehashes the thinking of HN and other bloggers without adding anything new

Feature, not bug.

HBR: Helping to train managers for appearing to lead while actually following.

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