I think Steven Blank was right about Customer Development methodology.
Groupon has no viable business model
41–50 of 129 posts
Re: Groupon has no viable business model
#42Earlier 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.
Amazon benefits from network effects by hosting reviews. When I am thinking about buying something I often go to Amazon first because of the reviews.
Re: Groupon has no viable business model
#43I 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!"...
The trick is the sales process: finding companies who are willing to give what amounts to a 75% discount. This is the part that's so expensive in Groupon, and what's eating into their profitability the most.
Re: Groupon has no viable business model
#44Their business model is profitable, but is it sustainable? How many merchants, after they have tried Groupon, will be likely to use Groupon again for advertising? Not bloodly likely. Advertisers/merchants keep going back to Google AdWords because they're getting ROI. There's not much ROI from Groupon.
"Their business model is profitable" Dwight Schrute: False, they are losing $ [unless you don't count marketing ;-)].
I don't get the Office reference. Do enlighten me please ...
Re: Groupon has no viable business model
#45Is 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 a…
> 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?
Yes, yes, yes. As the OP correctly notes, this business model does not generate positive network effects for subscribers and, in my opinion, for merchants either (i.e. the larger the list of subscribers the smaller percentage of high quality sales leads generated). I think Groupon was scaling under the assumption that their business model was social and that network effects would be generated somewhere down the road once they were at scale. As we have seen, in mature Groupon markets where they are locally at scale, this has not occurred.
From my outside perspective, it seems that Living Social might be in a more sustainable place than Groupon (although I might be biased as I'm in their home market of DC). They generated some goodwill by taking a smaller cut of deal revenue than Groupon and, anecdotally, do a better job at maintaining good relationships with their merchants. Their deal quality (i.e. range/quality of merchants) has also been consistently better than Groupon's in my experience.
Re: Groupon has no viable business model
#46The long-term problem is simply this: Groupon isn't adding value to anyone.
For customers, Groupon adds almost no value. A great marketing deal will get publicized anyway - there are hundreds of websites devoted to coupon/code sharing. So if a business wants to offer 50% off, they could spend five minutes mailing a couple of these sites, and there would be plenty of publicity for their deal.
For almost all businesses, Groupon adds negative value. It costs money to fulfill these deals. "Losing money on every sale" is not a way to build a real business. The customers are the worst possible: solely money motivated, never going to do repeat business, and all coming in a giant surge which your business is not likely prepared to cope with... that's absolutely the opposite of the kind of customers you want.
Groupon has been able to paper over these problems with creative accounting and venture capital. This will not last forever.
Re: Groupon has no viable business model
#47The long-term problem is simply this: Groupon isn't adding value to anyone. For customers, Groupon adds almost no value. A great marketing deal will get publicized anyway - there are hundreds of websites devoted to coupon/code sharing. So if a business wants to offer 50% off, they could spend five minutes mailing a couple of these sites, and there would be plenty of publicity for their deal. For almost all businesses…
It is simply not true that a "great deal" will get publicized by itself, or that any pre-2009 channel for publicizing great deals was effective for most businesses. I find this comment facile. Small businesses die all the time because nobody discovers them.
I don't know about Groupon, but it's flat out wrong to say that small businesses don't have the problem Groupon claims be addressing. They clearly do have the problem.
Re: Groupon has no viable business model
#48The long-term problem is simply this: Groupon isn't adding value to anyone. For customers, Groupon adds almost no value. A great marketing deal will get publicized anyway - there are hundreds of websites devoted to coupon/code sharing. So if a business wants to offer 50% off, they could spend five minutes mailing a couple of these sites, and there would be plenty of publicity for their deal. For almost all businesses…
I have said this before and I will say it again. Groupon were idiots to leave money on the table and walk away when they were working with Google. They will never be able to get that much free cash ever again.
Re: Groupon has no viable business model
#49The long-term problem is simply this: Groupon isn't adding value to anyone. For customers, Groupon adds almost no value. A great marketing deal will get publicized anyway - there are hundreds of websites devoted to coupon/code sharing. So if a business wants to offer 50% off, they could spend five minutes mailing a couple of these sites, and there would be plenty of publicity for their deal. For almost all businesses…
I have said this before and I will say it again. Groupon were idiots to leave money on the table and walk away when they were working with Google. They will never be able to get that much free cash ever again.
First, they did take quite a bit of money off the table. Second, they are on target to do a $25+ billion IPO (ie, 4x the Google price). Doesn't sound idiotic to me.
Re: Groupon has no viable business model
#50The 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 de…
let the businesses come to them
That will never happen. That's the fundamental problem with "local". Small businesses and mom-and-pop shops need to be called and convinced. They need their hand held. They aren't studying lean marketing practices or split testing their offers.
Look at the head counts for ad sales vs editorial for any local publication (newspaper, magazine, newsletter). If you want to sell to local businesses, you have to call them.