31–40 of 75 posts
Groupon still exists? I am surprised.
The money they raised in their IPO gave them a very long runway. As of a year ago or so they had just over a $1B cash on hand.
And Groupon has been steadily burning cash-on-hand since then.
It's a very ill business.
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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.)
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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.
Yeah, I've run high margin deals before and even those aren't really worthwhile. For it to be successful you have to be fairly sophisticated with your methodology, and most small business owners (the people who tend to use Groupon the most) just aren't that sophisticated in their setup.
Maybe it's more accurate to say 'the people who easily fell for Groupon's sales people'. In my area the various daily deal sites have very aggressive sales fleets, who literally go door to door in shopping streets convincing owners to put up a deal. Many of them lose money or barely break even; but then again some of them owe it to themselves (I bought a deal once and went back afterwards; she then said 'I'll give you the same price you paid for the groupon, because other customers have complained that they didn't think it was fair they had to pay more when they came back' Wtf?)
Anyway, I don't have exact data of course, but I've been interested in the business model for years, so I tried to get as much information from business owners as I could every time I bought a deal. The overall picture I got even after a few years (so since 2010-2011 maybe?) was that the typical groupon customer had distilled to the cheapskate vendor-hopping type (before that, when groupon was the hot new thing, it was mostly early adopters who weren't really price sensitive, but for whom getting a 'deal' was more about the social validation aspect of looking like a savvy consumer).
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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
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…
Many small businesses don't adhere to professional norms of communication, negotiation, payment, etc -- that's not a big surprise, considering that many of them are owned by people without a lot of background in big business. The amount of time put into each deal is very high compared to the money you can get out of it.
This is why enterprise sales are so much easier than small business sales. You can make millions dealing with a small handful of enterprise companies, or you can try to make the same amount of money by dealing with hundreds or thousands of small businesses.
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To add another one, Linden Lab (Second Life) is still around too. Though it's not in that range--brings in about $60M/year [1] Certainly not the revolutionary thing it was going to be once but the shocking part is that it exists at all. [1] http://www.zdnet.com/article/second-life-lessons-what-linden...
Is that 60 million in Linden or US currency? Seriously, though, they could have a renaissance with the next AR/VR round.
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…
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Yeah, I've run high margin deals before and even those aren't really worthwhile. For it to be successful you have to be fairly sophisticated with your methodology, and most small business owners (the people who tend to use Groupon the most) just aren't that sophisticated in their setup.
"(the people who tend to use Groupon the most)" Maybe it's more accurate to say 'the people who easily fell for Groupon's sales people'. In my area the various daily deal sites have very aggressive sales fleets, who literally go door to door in shopping streets convincing owners to put up a deal. Many of them lose money or barely break even; but then again some of them owe it to themselves (I bought a deal once and w…
Everybody was suffering and cutting costs. I don't think it was so much as wanting to be price savvy, but rather, wanting to go out and not being able to afford it.
Groupon actually stemmed from a different startup that was supposed to be about something like community building. (The name alludes me, but I used to work for the "parent" company of Groupon and in the same offices as it was getting big. That startup never materialized, but the one they did was got a campaign that if they got x number of people, Motel Bar (which is bar in the same building) would give a deep discount. Andrew Mason, Eric Lefkowsky, Etsy al, quickly realized that that was a real business model, pivoted, and exploded.
Had it been in a different when people were not so price conscious and businesses were not on the edge of going bankrupt, I'm not so sure it would have done as well.
The businesses in that space that seem to still be going strong (see Gilt for example) tend to focus on more luxury items/markets, where they're either selling factory seconds (in the case of retail) or experiences that will likely target a higher class of consumer and will bring them back.
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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…
Dealing with small businesses is a total pain. Dealing with thousands of them is a major challenge for any business. Many small businesses don't adhere to professional norms of communication, negotiation, payment, etc -- that's not a big surprise, considering that many of them are owned by people without a lot of background in big business. The amount of time put into each deal is very high compared to the money you…
This is burying the lede, IMO. Your sales structure should either be set up to catch shrimp or whales. You can have a product that sells itself and provide it cheaply - say, a smartphone app that summons a car to get you where you want to be. Or you can have a product that takes a full-time professional sales force, and get a lot of money out of the few sales you make there.