Groupon Buys LivingSocial, a Rival Once Valued at $6B • Hacker News Board

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

#61

Post by estefan » Thu, Oct 27, 2016, 9:59 AM UTC

princetontiger wrote: post #10

JonFish85 wrote: post #8

Earlier quoted context omitted.

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.

People forget that companies like Groupon and Zynga are still real businesses. Both are still $1B+ market caps. As someone who went to both IPO lunches, it was a wild time. Throw Renren, and several other companies from that time period into the mix. 2012 was almost 5 years ago. Unbelievable. Well, at least tech companies actually did go public.

Pretty sure I read a while ago that Zynga's corporate HQ which they bought was now worth more than their business. Or maybe it was some other company with no long-term competitive advantage.

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

#62

Post by annnnd » Thu, Oct 27, 2016, 10:54 AM UTC

monochr wrote: post #55

ThrustVectoring wrote: post #40

Earlier quoted context omitted.

>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. 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…

The problem is that small businesses are salmon.

If only there existed a way to catch those... /s

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

#63

Post by pbhjpbhj » Thu, Oct 27, 2016, 11:06 AM UTC

davemel37 wrote: post #45

CPLX wrote: post #23

Earlier quoted context omitted.

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…

I'm not sure this is true. "Groupon keeps itself in cash by collecting money immediately when it sells its daily coupons to consumers while extending payments to the merchants over 60 days." - http://www.wsj.com/articles/SB100014240529702043580045770279...

That article is paywalled.

Certainly in the past we were "offered" the opportunity to do a 75% off deal. Then IIRC it was 60-40 in their favour. They got all the breakage (payees that didn't turn up) and we had ty wait until the end of the deal period to apply for the money.

It was as close to a con as you could get. Like selling pensioners ludicrously expensive fascia boards and guttering when what they needed was their gutters cleaning.

Groupon knew the business it was good for but seemingly marketed to those with little financial nous. They promised winning repeat custom on the one side and cheap one-off deals to the end-customer on the other.

IMO some version of this could have been good for businesses in my sector but it would require the company not to be greedy. Investors don't go for those companies.

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

#64

Post by pbhjpbhj » Thu, Oct 27, 2016, 11:13 AM UTC

icebraining wrote: post #26

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…

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

One problem early on was Groupon wouldn't allow the limitation of numbers of "deals" sold. That put some people out of business. The people running Groupon were acting well beyond the bounds of morality. IIRC they did correct that after some bad press.

The money lag also killed some small businesses who had assumed they'd get money at the pos to cover their costs and hadn't accounted for increased custom needing greater spending on inputs when money was locked up for 3 months. Cashflow interrupts easily kill a small (micro) business.

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

#65

Post by mountaineer22 » Thu, Oct 27, 2016, 12:03 PM UTC

DrStalker wrote: post #46

ajmurmann wrote: post #36

Earlier quoted context omitted.

Everything about their engine and viewer was still do bad last time I checked that I would be shocked if they could possibly pull proper VR off. I never understood why the controls completely reinvented the wheel instead of being more like what we are used to from video games.

The nature of Second Life makes optimization a challenge. The geometry is fully dynamic so you can't pre-compute line of sight or use a lot of other performance saving tricks. The people making things are not skilled with efficient 3D design, so even if there was a way to do things like remove hidden triangles from models most people would not use it. Textures get uploaded in ridiculous sizes for things that should b…

So, Second Life is MySpace, and we are waiting on the Facebook version of SL?

Interesting.

I kind of see how Snapchat is positioning itself against Facebook in this arena.

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

#66

Post by be_erik » Thu, Oct 27, 2016, 12:50 PM UTC

reverend_gonzo wrote: post #39

roel_v wrote: post #33

Earlier quoted context omitted.

"(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…

I think it's also important to keep in mind when Groupon was founded and started getting big: 2008. 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…

I think you're thinking of The Point: https://web.archive.org/web/20110204114416/http://www.thepoi...

Their concept of the "campaign" became the cornerstone modeling concept for the Groupon platform.

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

#67

Post by sharemywin » Thu, Oct 27, 2016, 1:16 PM UTC

jonathankoren wrote: post #27

TuringNYC wrote: post #24

Earlier quoted context omitted.

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

it's a great product for a bowling ally. Fixed space/costs So, each extra person you bring in has value. Horrible for food service where marginal costs are ~65%, so you lose 40% every time someone comes in.

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

#68

Post by danvoell » Thu, Oct 27, 2016, 1:39 PM UTC

Very interesting. The fact that Groupon buys a rival for pennies on the dollar sends the value of Groupon down 14%. Assuming people see this low purchase price as some sort of validation that the model doesn't work? Typically you would see this type of transaction as Groupon gaining more pricing power in the industry. Groupon might have been better off just letting Living Social ride off into the sunset.

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

#69

Post by CPLX » Thu, Oct 27, 2016, 1:45 PM UTC

pbhjpbhj wrote: post #63

davemel37 wrote: post #45

Earlier quoted context omitted.

I'm not sure this is true. "Groupon keeps itself in cash by collecting money immediately when it sells its daily coupons to consumers while extending payments to the merchants over 60 days." - http://www.wsj.com/articles/SB100014240529702043580045770279...

That article is paywalled. Certainly in the past we were "offered" the opportunity to do a 75% off deal. Then IIRC it was 60-40 in their favour. They got all the breakage (payees that didn't turn up) and we had ty wait until the end of the deal period to apply for the money. It was as close to a con as you could get. Like selling pensioners ludicrously expensive fascia boards and guttering when what they needed was t…

Interesting. My memory of the subject is pretty out of date by now, as I don't follow Groupon much, but I'm certain that's how it worked during its hypergrowth period.

Indeed, it appears that we're both correct, assuming you're not in the US. Interesting article from 2012 sheds some light:

Some context about how the company operates: Groupon has had two very different payment structures. In what I call the American model, merchants receive cash upfront for a deal. Once the deal is closed, Groupon tallies up how much it owes the merchant and sends them the money in installments, with the vast majority of the money delivered within 60 days. If a Groupon isn’t redeemed, the merchant gets to keep the money. (Known in the industry as “breakage.”)

Outside the U.S. and Canada, Groupon has used a different scheme. For simplicity, I will call that the European model. In this scheme, Groupon only pays merchants when a Groupon is redeemed; merchants do not get cash up front. If a Groupon isn’t redeemed, Groupon gets to keep the money. Breakage is considered to be 20-25% of Groupon purchases, so this amount is significant.

There are exceptions to the above. I know of one popular merchant in Europe that negotiated to get the American model. But this is largely how it works.

http://venturebeat.com/2012/08/15/the-giant-red-flag-that-an...

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

#70

Post by hoopism » Thu, Oct 27, 2016, 1:58 PM UTC

unclebucknasty wrote: post #49

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…

> I'm curious how you could possibly lose money in a business like this This implies that an unlimited number of people could have started profitable Groupon-like businesses.

Somewhere a VC is nodding enthusiastically.