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Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

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Re: Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

#51

Post by Steko »

dreamdu5t wrote: post #9
mortenjorck wrote: post #4

Earlier quoted context omitted.

Well... Groupon has always sold tangible goods and services to actual customers, too. Customers that are every bit as fickle as the ones Amazon had to win over a decade ago. They may succeed or fail at this, but it's not like they're still looking for a business model.

Not a business model, a strategy to generate profit from their current model. Groupon's current strategy is to take a customer base that doesn't generate profit, and make it larger. Yet they haven't shown any way that scaling will reduce costs much. How does capturing more merchants drive their costs down, when they have to pay significantly more for each one? Amazon had the answer of vertically integrating as much o…

Scale allows them to offer better deals -- if Groupon can generate 1,000 takers for a Dreamdu5t Cafe coupon and Google Offers can only come up with 200 then Groupon can drastically undercut whatever margin Google is taking and win your sale.

Scale is THE moat in this arena.

"Yet they haven't shown any way that scaling will reduce costs much."

This is simply Parkinson's Second Law: expenditures rise to match income. Hence the IPO. They need as much cash now as possible in order to scale as fast as possible to build that moat as big as possible to fend off the barbarians.

As the cost of getting more quality customers goes up you'd expect their costs in that area to proportionally decrease. And at that point, if they've defended their dominance in the deal-of-the-day market then they'll become massively profitable else if they're in a decent 2nd place then maybe Microsoft will buy them out for $5 bln more then they're worth, else they'll end up going the circuit city route.

Re: Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

#52

Post by prodigal_erik »

tvorryn wrote: post #49
nzoschke wrote: post #12

Hilarious comparison. I love it. Isn't the whole point of an IPO to allow everyone participate, therefore letting the market decide? If you don't like Groupon's numbers, don't buy the stock. Simple enough. I'm seeing a lot of: "Think of the poor regular investors when it pops!" sentiment. Are not these investors rational people acting on the same information we all have?

... and if you really don't like Groupon's numbers you can short the stock. Although, I'm not sure how practical that is for the individual investor. You can take a look at the most recent tech IPOs and see what you think. (dang, yoku, dmd, qlik, smt, motr, logm, ftnt, swi)

Even shorts who are eventually right still get blown up unless they correctly anticipate when the market will realize the price is too high. Put options aren't dangerous like this for the buyer (your loss is limited to the price of the option) but you have to wait for sellers to decide to start writing those, and I don't know much about holding or trading them.

Re: Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

#53

Post by potatolicious »

warmfuzzykitten wrote: post #39
marciovm123 wrote: post #3

"...when you consider that better than 60 percent of Amazon's sales come from repeat customers--which implies that they're loyal..." That seems to be the key figure missing from the Groupon discussion. If they are buying loyal users and customers, their mad-dash growth strategy would seem rational. If their retention is poor, it would seem more like a Ponzi scheme.

I seriously question the loyalty of new Groupon customers. Typically they sign up because of one deal. They might even buy the deal. Then Groupon proceeds to spam them every day with deals they aren't remotely interested in, at locations far from their home. Unsubscribe.

This. The problem is that Groupon's variety of merchants is very low - I suspect because it's only worthwhile to merchants with an incredibly wide profit margin (e.g., spas or other services that have low variable costs).

I unsubscribed after I kept getting deals I had zero interest in. It seems once in a while they'll get a "big deal" from a well-known merchant to get people back in - but 99% of the deals I've seen from Groupon are utterly useless.

Re: Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

#54

Post by lurker19 »

podperson wrote: post #23
dlevine wrote: post #8

I actually though about Amazon when I saw people starting to rag on Groupon and its bottom line. Another important thing to remember is that Amazon actually figured out its business model later. For a while, it was pretty much just a dot-com that was hemorrhaging cash. I remember reading articles for years predicting that Amazon would go belly up any day. It wasn't until they cut costs and really dialed in their oper…

Even today, Amazon's position is surprisingly precarious. It relies on loopholes in tax laws for competitive advantage which, if they are closed, are predicted halve its income. And there are some analysts who argue that Amazon's "profits" are fictional, with all kinds of losses disguised as investments and hidden in other financial vehicles. Recall that even today, Barnes & Noble is simply unable to sell you a book…

Amazon hasn't taken on notable investment or debt in a long time, and vendors and employees still get paid every month. Amazon maybe be making some small fraction of what they claim, but it is certainly a positive fraction, which is the most important consideration for solvency.

Re: Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

#55

Post by sorbus »

Steko wrote: post #51
dreamdu5t wrote: post #9

Earlier quoted context omitted.

Not a business model, a strategy to generate profit from their current model. Groupon's current strategy is to take a customer base that doesn't generate profit, and make it larger. Yet they haven't shown any way that scaling will reduce costs much. How does capturing more merchants drive their costs down, when they have to pay significantly more for each one? Amazon had the answer of vertically integrating as much o…

Scale allows them to offer better deals -- if Groupon can generate 1,000 takers for a Dreamdu5t Cafe coupon and Google Offers can only come up with 200 then Groupon can drastically undercut whatever margin Google is taking and win your sale. Scale is THE moat in this arena. "Yet they haven't shown any way that scaling will reduce costs much." This is simply Parkinson's Second Law: expenditures rise to match income. H…

> Scale allows them to offer better deals -- if Groupon can generate 1,000 takers for a Dreamdu5t Cafe coupon and Google Offers can only come up with 200 then Groupon can drastically undercut whatever margin Google is taking and win your sale.

If customers who arrive at a store through Google Offers are more likely to return to the store in the future without a coupon than customers who arrive at a store through Groupon, then stores will prefer Google Offers as a way to obtain loyal customers. And if stores prefer Google Offers to Groupon, then Groupon collapses. From the point of view of the merchants, this is all about getting repeat customers who will make up for the loss that they are taking on the coupons (or, in some cases, betting on customers spending enough in addition to the coupon to make a profit on the one sale).

The moat that Groupon needs isn't scale, it's loyal merchants who will offer coupons on Groupon repeatedly - which will get users to use it. If it can't get that, then it will burn out once it runs out of new merchants.

Re: Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

#56

Post by space-monkey »

melvinram wrote: post #32
mattmanser wrote: post #17

Earlier quoted context omitted.

I think that perhaps you're not grokking Groupon, the customers of Groupon have never been the bargain hunters, they've always been the merchants. The bargain hunters are the product Groupon sells. You can then look at the model and realize Groupon have been screwing their own customers. It's a shame as I think the core concept of the business is pretty sound in my book, but I was astounded when I found out the Group…

That's just semantics. There are three parties involved: Groupon, end customers and merchants. It was pretty clear who marciovm123 and I were referring as the customers in the posts.

"That's just semantics."

Exactly. The semantics is what the words actually mean.

Re: Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

#57

Post by Steko »

sorbus wrote: post #55
Steko wrote: post #51

Earlier quoted context omitted.

Scale allows them to offer better deals -- if Groupon can generate 1,000 takers for a Dreamdu5t Cafe coupon and Google Offers can only come up with 200 then Groupon can drastically undercut whatever margin Google is taking and win your sale. Scale is THE moat in this arena. "Yet they haven't shown any way that scaling will reduce costs much." This is simply Parkinson's Second Law: expenditures rise to match income. H…

> Scale allows them to offer better deals -- if Groupon can generate 1,000 takers for a Dreamdu5t Cafe coupon and Google Offers can only come up with 200 then Groupon can drastically undercut whatever margin Google is taking and win your sale. If customers who arrive at a store through Google Offers are more likely to return to the store in the future without a coupon than customers who arrive at a store through Grou…

Groupon and Living Social and Google and Facebook are all trying to convert Jane Doe to their subscriber. I find it extremely questionable that Jane Doe is going to be much more likely to come back to Sorbus Spa whether she bought her coupon at one service or the other. Ultimately the client is responsible for delivering goods and services that merit repeat business.

Who does the client go with? Much like with any other advertising the one that delivers the best value. Value here is defined as # of new customers divided by the lost revenue. This will ultimately be driven by scale -- if Groupon can sell more tickets they can offer a proportionally lower margin and will be more attractive then competing services.

Re: Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

#58

Post by senthilnayagam »

marciovm123 wrote: post #3

"...when you consider that better than 60 percent of Amazon's sales come from repeat customers--which implies that they're loyal..." That seems to be the key figure missing from the Groupon discussion. If they are buying loyal users and customers, their mad-dash growth strategy would seem rational. If their retention is poor, it would seem more like a Ponzi scheme.

Groupon Economy is Recession Economy, and groupon issues food coupons to it's members, merchants accept food coupon because they believe customers don't have money and selling at discount is better than no sale.

If groupon don't make profit, nor the merchants it is surely bad for the company and it's investors

Re: Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

#59

Post by jrockway »

46Bit wrote: post #20
nzoschke wrote: post #12

Hilarious comparison. I love it. Isn't the whole point of an IPO to allow everyone participate, therefore letting the market decide? If you don't like Groupon's numbers, don't buy the stock. Simple enough. I'm seeing a lot of: "Think of the poor regular investors when it pops!" sentiment. Are not these investors rational people acting on the same information we all have?

No. Of all the things you can describe the stock market as, rational is not one of them - and that's before you consider the amount of computer trading.

The computers are the most rational of all.

Re: Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

#60

Post by psyklic »

jamiequint wrote: post #18
melvinram wrote: post #15

Earlier quoted context omitted.

I think the piece of the puzzle that most people have trouble with is not that they'll have repeat customers. It's that those customers are loyal to Groupon... or more specifically, loyal to the concept of deep discounts. The part most people, including myself, have a hard time grok'ing is that merchants will continue to punish themselves by doing business with Groupon.

Exactly this. I'd be very interested in a stat of how many of Groupon's merchants are operating these deals at a profit. I know one SF merchant personally that does, but I suspect its very few. Even more importantly, I'd be interested in how many of these Groupon customers are returning to the merchant. If that number is high than Groupon has hope, if its low then they aren't actually adding much value and they can o…

More and more I see deals that are likely to be turning a nice profit. For instance, last month there was an acting seminar in LA -- only a single 5-day session was offered which all Groupon buyers would attend. ~300 people signed up at $100 per head, for around $30000 revenue.
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