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Groupon has no viable business model

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Re: Groupon has no viable business model

#81

Post by tokenadult »

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?

Ask an informational question, get what I hope is an informative answer. Amazon's network helps me as a buyer of products because I see recommendations based on the behavior of other buyers ("Customers who bought this product also bought . . . "). To me, that was one of the coolest things about Amazon in the early years, when it was by far the most interactive website (other than discussion forums) that I regularly visited. It was full of new information each day, about cool products I had never heard of through other channels (and I browse brick-and-mortar bookstores and search online library catalogs A LOT, but still learn about many new books from Amazon). Now that Amazon sells more products than just books, these network effects are even better. Today, an Amazon recommendation ("Customers who bought items in your shopping cart also bought . . . ") can span product categories that I didn't even know existed. I can't search for information like that--I don't know what search terms to use until I've heard of the new product. Amazon has gained many, many sales from me precisely because of the large network of users who use it.

Does that help answer your question?

Re: Groupon has no viable business model

#82

Post by wisty »

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.

Aparently, network effect is not a buzzword for economies of scale. Well, I guess Amazon gains more a/b juice from customers, which lets it target you with better suggestions. But I doubt that's really what they meant.

Re: Groupon has no viable business model

#83

Post by jellicle »

ForrestN wrote: post #56
jellicle wrote: post #46

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…

I might have missed something, so apologies if this is readily available. Where are you getting the information that "For almost all businesses, Groupon adds negative value?" Is there any actual data on how businesses who use Groupon, in general, feel about it?

Sure, there's some:

http://blogs.wsj.com/digits/2010/09/30/rice-university-study...

Re: Groupon has no viable business model

#84

Post by nordsieck »

jellicle wrote: post #46

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…

"It costs money to fulfill these deals. 'Losing money on every sale' is not a way to build a real business."

I've been looking over the Groupon/etc. deals in my area. There's a reason why almost all of the deals are either low marginal cost - gym memberships, classes of various sorts, cruises, and theater and movie tickets - or they are small businesses where the major business cost is rent and employee time, time which is presumably not being currently filled with work - massages, acupuncture, spa trips and other beauty services.

Re: Groupon has no viable business model

#85

Post by ForrestN »

jellicle wrote: post #83
ForrestN wrote: post #56

Earlier quoted context omitted.

I might have missed something, so apologies if this is readily available. Where are you getting the information that "For almost all businesses, Groupon adds negative value?" Is there any actual data on how businesses who use Groupon, in general, feel about it?

Sure, there's some: http://blogs.wsj.com/digits/2010/09/30/rice-university-study...

Thanks! This study looks very small, but still came back with a healthy majority claiming that not only did it not harm them, but that they wanted to sign up again. It also says groupon's internal statistics (maybe they're lying, I guess) conflict with that data, and that 97% of respondents want to do another deal.

This article is also a bit older, so maybe things have changed. But I don't think it's fair to say that this article buttresses your claim that most business owners feel as if they are being hurt by these deals.

Re: Groupon has no viable business model

#86

Post by taeric »

RandallBrown wrote: post #76
peteretep wrote: post #53

Earlier quoted context omitted.

> For customers, Groupon adds almost no value And yet my girlfriend and her friends spend a shit-load of money on items they find on it, because "it's such good value".

I think they meant customers as in business paying groupon for the deals.

Parent's point stands. We have actively spent some money at places my wife found a groupon for that we otherwise would have spent no money at.

Re: Groupon has no viable business model

#87

Post by jamiequint »

coffeemug wrote: post #57

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…

The point is that its not real success, its fake success propped up by massive funding rounds and there are numbers to back it up. Note that their ARPU (for customers) is less than their marketing cost. Fixing this # before growing is what Clayton Christensen is talking about when he says "impatient for profit but patient for growth". Groupons unit economics suck and they're not getting better.

Revenue and subscriber growth

The median number of Groupons sold to each Groupon customer (someone who has bought anything): 1.

The median number of Groupons sold to each person on Groupon’s mailing list: 0.

Subscribers and acquisition cost

Percentage of mailing list who has purchased even one Groupon: 20%.

Cost per new list subscriber: $5.37.

Cost per new customer: $24.08.

Real revenue per subscriber: $3.43.

Real revenue per customer: $17.55 (less than acquisition cost — keep in mind most people buy only 1).

Real revenue per Groupon sold: $10.49 (less than acquisition cost).

Amount spent on marketing, full year 2010: $241.5 million.

Amount spent on marketing, first half of 2011: $345.1 million.

Source: http://blog.agrawals.org/2011/08/15/the-terrible-numbers-tha...

Re: Groupon has no viable business model

#88

Post by URSpider94 »

Those who are saying that this article parrots what HN has been saying must not be reading very carefully.

The author states that entrepreneurs should be patient for growth and impatient for profits. This flies exactly in the face of much of the teachings of PG and other lean start-up advocates. Instead, they advocate that start-ups should grow like hell to gain market share and mindshare, and focus on creating value ("something people want"), not profits. Profits, according to the lean start-up playbook, will come later, when the founders decide on the best way to monetize the value they've created.

The HBS piece aligns with PG's statements in one way -- the focus on keeping overhead low. I'd argue that Groupon is actually doing this -- their investments are going into buying deals, not paying for corporate jets.

Re: Groupon has no viable business model

#89

Post by duggan »

taeric wrote: post #86
RandallBrown wrote: post #76

Earlier quoted context omitted.

I think they meant customers as in business paying groupon for the deals.

Parent's point stands. We have actively spent some money at places my wife found a groupon for that we otherwise would have spent no money at.

Groupon's modus operandi is that the business is (usually) making a loss or zero/negligible profit from the deal for the opportunity to generate future (post-groupon) business from those customers (or their friends).

Spending no money at all might either be worse (they've lost more than they earned) or no better (zero sum) than buying the coupon depending on your future intentions.

Or do you mean that you've returned and purchased again from those places?

Re: Groupon has no viable business model

#90

Post by wnight »

coffeemug wrote: post #57

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…

> It's almost as if people derive personal satisfaction from poking holes in

Yes, many hackers/engineers like fixing things. The first step is to identify the problems.

It's almost as if people derive personal satisfaction from playing apologist for anything, no matter how crazy or unadvised.

> I really don't understand this part of human psychology. We cheer entrepreneurs on, until they see a massive success

What's a massive success though, a bubble supported entirely through hype and start-up capital?

Where is the real success, as in, the expected belief to be able to continue to turn some money into more money in the future, as a result of providing value to customers? Maybe if you thought about what a sustainable business model was you'd understand why the apparent lack of one is such an issue with other professionals in field.

If they weren't soliciting investment I doubt anyone would care but as long as they are we should be thankful for the wisely cynical.

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