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Groupon Buys LivingSocial, a Rival Once Valued at $6B

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Re: Groupon Buys LivingSocial, a Rival Once Valued at $6B

#21

Post by jacquesm »

downandout wrote: post #19
jacquesm wrote: post #16

Earlier quoted context omitted.

There is no absolute threshold it is more a matter of whether or not you could argue that your decisions would have been different had you known about it. That leaves a lot of legal wiggle room.

Well but I think the rule that most companies generally use is if it's under 5% of assets. That's why I was asking.

That really depends on the situation. For instance, even a small amount might make the difference between 'profitable' or 'not profitable' and that could easily trigger sell orders and send the stock down, which would make that small amount material.

So what is material depends on the eye of the beholder.

Also, if it's good news then there will be a higher threshold for what is material than when it is bad news.

Re: Groupon Buys LivingSocial, a Rival Once Valued at $6B

#22

Post by downandout »

dmerrick wrote: post #17

Back in 2010 I worked at a startup that ended up pivoting to a regional Groupon clone. It seemed like a good idea at the time, but the company ended up going under a year later. What I remember most vividly was trying to come up with a good name. LivingSocial was starting to get traction and we wanted to differentiate ourselves from them. The conversation went like: Boss: What's the opposite of LivingSocial? Me: I du…

I'm curious how you could possibly lose money in a business like this. Sure there is a sales cost, but there are alternatives to having a full-time sales force. I'd have tracked every company that has used Groupon/LivingSocial and figured out a way to electronically contact or advertise to as many of them as possible for very little cost (LinkedIn/Facebook enable advertising to employees at specific companies, for example).

Re: Groupon Buys LivingSocial, a Rival Once Valued at $6B

#23

Post by CPLX »

jamestnz wrote: post #20
fullshark wrote: post #11

Earlier quoted context omitted.

I think the big problem is that it was a bad deal for most vendors except for very high margin ones. When places like restaurants realized that it wasn't getting them repeat business and the deals were dominated by stuff like Day spas it kind of collapsed.

I agree, it's probably a terrible deal for almost every retailer, especially small businesses. As I recall, the standard deal with Groupon etc is 50% off retail price, then Groupon (or whoever) takes 50% of what's left. So consider a product or service you usually sell for $100, which costs you $40 to deliver. When doing one of these deals, you're now selling it for $50. You get $25 of that, and the platform operator…

You've just described the main dynamics involved, with one key part left out.

The vendor would realize the revenue up front, when all the "coupons" would be sold. Then they would fulfill the orders over a period of weeks or months, with some sort of breakage rate involved. Needless to say that put the incentives of the buyers and sellers in tension.

But overall the main model was not really just a simple loss-leader approach, it had a lot in common with loan sharking.

Re: Groupon Buys LivingSocial, a Rival Once Valued at $6B

#24

Post by TuringNYC »

downandout wrote: post #22
dmerrick wrote: post #17

Back in 2010 I worked at a startup that ended up pivoting to a regional Groupon clone. It seemed like a good idea at the time, but the company ended up going under a year later. What I remember most vividly was trying to come up with a good name. LivingSocial was starting to get traction and we wanted to differentiate ourselves from them. The conversation went like: Boss: What's the opposite of LivingSocial? Me: I du…

I'm curious how you could possibly lose money in a business like this. Sure there is a sales cost, but there are alternatives to having a full-time sales force. I'd have tracked every company that has used Groupon/LivingSocial and figured out a way to electronically contact or advertise to as many of them as possible for very little cost (LinkedIn/Facebook enable advertising to employees at specific companies, for ex…

Problem is these companies have two sided acquisition costs -- the vendors and the customers themselves. Even if the vendor acquisition cost was zero using your technique, you still need to acquire users (along with the 50 other Groupon clones.)

Re: Groupon Buys LivingSocial, a Rival Once Valued at $6B

#25

Post by fullshark »

jamestnz wrote: post #20
fullshark wrote: post #11

Earlier quoted context omitted.

I think the big problem is that it was a bad deal for most vendors except for very high margin ones. When places like restaurants realized that it wasn't getting them repeat business and the deals were dominated by stuff like Day spas it kind of collapsed.

I agree, it's probably a terrible deal for almost every retailer, especially small businesses. As I recall, the standard deal with Groupon etc is 50% off retail price, then Groupon (or whoever) takes 50% of what's left. So consider a product or service you usually sell for $100, which costs you $40 to deliver. When doing one of these deals, you're now selling it for $50. You get $25 of that, and the platform operator…

Seems to maybe work well for things like yoga classes also. If the class isn't full then that's unused space that you can give to an interested consumer for basically free with a daily deal (and hope they become future subscribers). But that's about it.

Re: Groupon Buys LivingSocial, a Rival Once Valued at $6B

#26

Post by icebraining »

jamestnz wrote: post #20
fullshark wrote: post #11

Earlier quoted context omitted.

I think the big problem is that it was a bad deal for most vendors except for very high margin ones. When places like restaurants realized that it wasn't getting them repeat business and the deals were dominated by stuff like Day spas it kind of collapsed.

I agree, it's probably a terrible deal for almost every retailer, especially small businesses. As I recall, the standard deal with Groupon etc is 50% off retail price, then Groupon (or whoever) takes 50% of what's left. So consider a product or service you usually sell for $100, which costs you $40 to deliver. When doing one of these deals, you're now selling it for $50. You get $25 of that, and the platform operator…

It can still make sense if you have low marginal vs fixed costs. I know restaurants that are happy to use them to fill up time slots when they're usually empty¹. Since most of their costs are fixed (rent, salaries, etc), they still make a profit at the margin.

¹ I don't know about Groupon, but other deal sites allow them to put certain conditions on the use of the voucher

Re: Groupon Buys LivingSocial, a Rival Once Valued at $6B

#27

Post by jonathankoren »

TuringNYC wrote: post #24
downandout wrote: post #22

Earlier quoted context omitted.

I'm curious how you could possibly lose money in a business like this. Sure there is a sales cost, but there are alternatives to having a full-time sales force. I'd have tracked every company that has used Groupon/LivingSocial and figured out a way to electronically contact or advertise to as many of them as possible for very little cost (LinkedIn/Facebook enable advertising to employees at specific companies, for ex…

Problem is these companies have two sided acquisition costs -- the vendors and the customers themselves. Even if the vendor acquisition cost was zero using your technique, you still need to acquire users (along with the 50 other Groupon clones.)

It's not just the two-sided acquisition costs, it's also that on the vendor side of the equation, daily deal sites have absolutely horrible retention.[0] No small to medium sized business would repeat, because the massive discounted price of the Groupon deal was never recouped by repeat customers. Instead they just attracted deal seekers.

[0] http://www.businessinsider.com/groupon-survey-results-2011-7

Re: Groupon Buys LivingSocial, a Rival Once Valued at $6B

#28

Post by dmerrick »

TuringNYC wrote: post #24
downandout wrote: post #22

Earlier quoted context omitted.

I'm curious how you could possibly lose money in a business like this. Sure there is a sales cost, but there are alternatives to having a full-time sales force. I'd have tracked every company that has used Groupon/LivingSocial and figured out a way to electronically contact or advertise to as many of them as possible for very little cost (LinkedIn/Facebook enable advertising to employees at specific companies, for ex…

Problem is these companies have two sided acquisition costs -- the vendors and the customers themselves. Even if the vendor acquisition cost was zero using your technique, you still need to acquire users (along with the 50 other Groupon clones.)

Pretty much this.

A little background... the company was in the television industry. The original product was "clickable TV," in which they'd managed to deploy a small Java app to set top boxes over the cable lines, which could display a small icon appear at the bottom of the screen. When a user pressed 'select' on their TV remote, they would get an email sent to them with more information. It launched in a small US city and they approached local news channels ("click now to get the full story") and local businesses ("click to get a coupon code") to sell it.

The product did work (even if you DVR'd the program, which was my favorite feature), but most of the local business that were contacted said "cool idea, but we don't have any TV commercials, so come back to us if you can do something else."

When it proved too hard to sell the clickable TV product (perhaps obviously -- even in 2010 it was 10 years too late), they decided to reach back out to the local businesses with a new idea... a Groupon clone. We ran it for a while and it did "okay," but not well enough to keep the lights on, and the company closed its doors soon after.

Re: Groupon Buys LivingSocial, a Rival Once Valued at $6B

#29

Post by jamestnz »

CPLX wrote: post #23
jamestnz wrote: post #20

Earlier quoted context omitted.

I agree, it's probably a terrible deal for almost every retailer, especially small businesses. As I recall, the standard deal with Groupon etc is 50% off retail price, then Groupon (or whoever) takes 50% of what's left. So consider a product or service you usually sell for $100, which costs you $40 to deliver. When doing one of these deals, you're now selling it for $50. You get $25 of that, and the platform operator…

You've just described the main dynamics involved, with one key part left out. The vendor would realize the revenue up front, when all the "coupons" would be sold. Then they would fulfill the orders over a period of weeks or months, with some sort of breakage rate involved. Needless to say that put the incentives of the buyers and sellers in tension. But overall the main model was not really just a simple loss-leader…

Good point, thanks for the clarification.

Re: Groupon Buys LivingSocial, a Rival Once Valued at $6B

#30

Post by x0x0 »

fullshark wrote: post #25
jamestnz wrote: post #20

Earlier quoted context omitted.

I agree, it's probably a terrible deal for almost every retailer, especially small businesses. As I recall, the standard deal with Groupon etc is 50% off retail price, then Groupon (or whoever) takes 50% of what's left. So consider a product or service you usually sell for $100, which costs you $40 to deliver. When doing one of these deals, you're now selling it for $50. You get $25 of that, and the platform operator…

Seems to maybe work well for things like yoga classes also. If the class isn't full then that's unused space that you can give to an interested consumer for basically free with a daily deal (and hope they become future subscribers). But that's about it.

But group yoga is zero marginal cost for unused slots in a class. There's not many other businesses like that.
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