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Groupon has no viable business model

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61–70 of 129 posts

Re: Groupon has no viable business model

#61
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…

> business owners (national and local) that participate on Groupon, for the most part, are having bad experiences

My understanding is that Groupon's satisfaction rate is well above 50%. It seems that everyone forgets that, at worst, this is an advertising expense that guarantees revenue and foot traffic.

Re: Groupon has no viable business model

#62
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.

> And $334M of the $1 billion of venture capital money went to buying stock from early investors Isn't that a different way of saying that the early investors are cashing out(to the company too, not even other outside investors) at the current valuation? That raises more questions, why would they cash out if they think the valuation is going to go up?

It was in return for turning down the $6b Google offer.

Re: Groupon has no viable business model

#63
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.

Paying $6b for a $20-30b company seems smart to me. The Groupon model is insanely profitable once you trim SG&A, sales and marketing (useful for hyper growth, not useful for sustenance).

Re: Groupon has no viable business model

#64

It's almost as if people derive personal satisfaction from poking holes in Groupon's success (or any startup, for that matter). Groupon has no viable business model, people will get tired of Zynga's games, Twitter can't monetize, Facebook will be killed by Google+/is useless/the ads on it aren't worth anything, etc. Every time one of these things gets pointed out, people show up and start high-fiving each other, say…

I think the subtext to a lot of Groupon hate is the suspicion that their success is going to come at the expense of honest but smaller players.

It's legitimate to be concerned that an insolvent Groupon could leave thousands of small businesses without promised rev share from promotions. It's legitimate to be concerned that an over-zealous sales team will make one-sided deals that favor Groupon and shaft the small business owner.

And it's legitimate to be concerned that practices not publicly disclosed, along with obviously goofy accounting, could mean that IPO investors could be buying shares in a shady, radioactive concern.

I saw Andrew Mason be asked, point-blank, if his business was sustainable. The brittle, curt, brief response, when compared to his otherwise exuberant, voluminous presence, left me pretty startled – and planted the seeds of my personal skepticism.

To me, the many people looking askance at Groupon have no beef with their success. The beef seems largely about the source of that success.

Re: Groupon has no viable business model

#65

The 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 isn't adding value to anyone.

I don't think this is true. The fact that so many people are using it is proof to me that it provides value. I can safely say that Groupon provides value to me.

I can't say that it provides value to any business',as I'm not a business owner, but that's not what you said above.

Re: Groupon has no viable business model

#66
post #59
post #54

Earlier quoted context omitted.

I can say that my site is IPOing for 50 billion...until I actually raise the amount, it's just a dream. Same with groupon...yes they want to raise that much...but it's just a pipe dream at this point

What are you talking about? Groupon's IPO could occur in a matter of weeks. Bankers have been selected. Road show planning is under way. Barring a global economic meltdown, Groupon is likely to IPO for $20-30 billion. Unless your site is Facebook, Twitter or Zynga, I don't think your comment has merit.

it wont be hard for them to IPO on a small float at 20-30B valuation... what will be hard is for VC's and employees to sell at that valuation once the lockup expires.

Re: Groupon has no viable business model

#67
post #62

Earlier quoted context omitted.

> And $334M of the $1 billion of venture capital money went to buying stock from early investors Isn't that a different way of saying that the early investors are cashing out(to the company too, not even other outside investors) at the current valuation? That raises more questions, why would they cash out if they think the valuation is going to go up?

It was in return for turning down the $6b Google offer.

I still don't get it. If the offer was turned down, it would be because they think that either the offered price was too low, or because they think they can do better on their own(thus make even more money later). Why would any of those scenarios need a 'gift' from the company like this?

Re: Groupon has no viable business model

#68

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 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 bus…

this is dead-on... local = massive sales expense.

elon musk tried to create one such company, Zip2, back in the late 90's. cost of sales ate it alive.

reachlocal, profitfuel, etc has been successful by making their companies into freakish sales-driven machines. the core competence of any "local" is maximaizing sales effectiveness.

Re: Groupon has no viable business model

#69
post #62

Earlier quoted context omitted.

It was in return for turning down the $6b Google offer.

I still don't get it. If the offer was turned down, it would be because they think that either the offered price was too low, or because they think they can do better on their own(thus make even more money later). Why would any of those scenarios need a 'gift' from the company like this?

Well, yes, Groupon thought the offer was low and that it could do better on its own. And so cashed out some investors and employees in return for delaying a complete exit.

Re: Groupon has no viable business model

#70

It's almost as if people derive personal satisfaction from poking holes in Groupon's success (or any startup, for that matter). Groupon has no viable business model, people will get tired of Zynga's games, Twitter can't monetize, Facebook will be killed by Google+/is useless/the ads on it aren't worth anything, etc. Every time one of these things gets pointed out, people show up and start high-fiving each other, say…

There are certainly cases of naysayers besmirching companies and entrepreneurs. There are also cheerleaders who get sucked into hype and think every new thing is going to change the world forever.

The truth of course is somewhere in between. You can't judge people or what they say on whether it's positive or negative but on the merit of what's said.

I for one have been critical of Groupon [1], even before the S1 filing. Large funding rounds to pay out early investors prior to an expected IPO are always a red flag for me but it goes way beyond that: dodgy accounting practices (ie treating customer acquisition as an extraordinary cost), account risk, the payment model that encourages last-ditch efforts by failing businesses to stay alive, the fact that Groupon's model in reality suits very few businesses, customers aren't particularly loyal or valuable and so on.

As for Twitter, my personal opinion is that Twitter is one of those phenomona that is magnified in the Valley bubble. Outside of the Valley, it seems it's used to follow celebrities and most people don't know about it. I believe their own user figures are exaggerated (Twitter publishes figures on registered accounts not N-day usage like Facebook and others do). Also the 140-character limit and the huge reliance on third-party clients present huge barriers to monetization.

I can't say I've ever said anything negative about Zynga. They produce games that operate (very well) on human compulsion. All they really need to do is keep introducing new games and refreshing the old. The one huge danger for Zynga has is their almost total reliance on Facebook.

As for Google+ (disclaimer: I work for Google), I like what we're doing here but success is by no means guaranteed. The biggest problem for Google+ (IMHO) is that people are tired of using social networking not that people are tired of using Facebook. I also believe that Google does a much better job of respecting user data and privacy and it would be good for the Internet as a whole if Facebook where not to be a monopoly on identity and social networking. None of that guarantees success. Or failure for that matter.

I also think the value of social search is completely over-exaggerated. The biggest innovation in the early days of the Internet was that suddenly you could find information from everyone in the (connected) world, not just your circle of friends and whatever print publications you had access to. The idea that we want to go back (even in part) just seems backward to me, especially given that most people consume information rather than produce recommendations.

What makes Google so successful in advertising (compared to any other company on the Internet) is intent. The act of searching for something means you want to find out more about it, find where to buy it maybe, etc. Let's face it: advertising in almost all other sites is an intrusion and a distraction that doesn't match out intent (of, say, sharing photos, posting updates or whatever).

So count me as being negative on Groupon. I think of all big IPOs for some years, it is the dodgiest and it strikes me that they're trying to cash out before the bubble bursts. To attribute my reaction as some flaw in human psychology that simply wants to drag others down however is rather dismissive of the arguments I make and those made by many far more erudite than I.

[1]: http://news.ycombinator.com/item?id=2870186

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