What’s the Secret Success of Groupon? | Hacker News Reader

What’s the Secret Success of Groupon?

primitus.com

17 pointsvincentchan11 comments

"Negative working capital: They first charge users upfront, take a cut and pay merchants back later. These businesses basically are financed by their customers."

This way they basically can't lose money. If they sell something , they make a profit. If not, they don't make a loss. Ignoring fixed costs, this looks like a good idea to follow for a business, if feasible.

I'd be interested to hear how the deals actually end up working out for the businesses in the long term. Sure, they get people in the door, but at a 50% discount plus the significant cut Groupon takes, they're not left with much. Plus it seems like most purchases are one off visits, as there are plenty of random acupuncture/restaurant/massage/etc deals to never have to repeat a place.

Also, the collective buying power part doesn't really exist as far as I can tell -- I can't say I've seen any deals not get the minimum amount of buyers in the past year or so.

It is basically another form of advertising for the business. This is an alternative to putting a blah coupon in some magazine and hoping.

Success? Being first to execute the idea in a strong fashion first. However, there are now a considerable number of competitors, and I don't see many potential barriers to entry.

His analysis is valid, altho as you say they are no doubt riding the wave of FMA. However, conceptually simple as it is, there are barriers to entry: 1) reaching out to and signing up sufficient numbers of retailers to make the service worthwhile. 2) Capturing mindshare away from Groupons lead 3) the infrastructure required to run a service like this. Ok basically it just comes down to cash, but I reckon you would need a lot to take on Groupon, and then well - suddenly it's something of a risk.

Here's the problem with saying that a.) retailers as barrier to entry - I don't buy retailers alone as a barrier, given retailers are likely to only do one or two promotions at great cost to themselves, other articles have talked about this issue.

b.) Mindshare as barrier to entry -- I don't buy the mindshare argument when the a strength, as noted in the article is the urgency, the deal (the store is the brand that matters -- probably as much as the conduit if not more). Beyond that, mindshare is primiarly money invested into viral loop on facebook/myspace and brand ads.

c.) Infrastructure? Um, it's just lead generation -- I see the larger infrastructure as outward bound direct sales to merchants. (sites like leapfish.com have sustainable conversion rates on outward bound telephone sales to merchants -- online are they important ? well...)

There are already huge investors knocking off the idea, and as for the cash issue, the article talks about the "negative working capital" needed.

I agree that the barrier to entry is lower now.

However, I think one of the reasons for their success is due to their roots - The Point, the startup using collective power to help people deal with local issues. Groupon's founder once said, "None of us would work here if it were only about selling stuff at a discount—ultimately, we're trying to give people an excuse to get out of the house and enjoy life."

I think a successful company needs to have a corporate mission that is bigger than making a profit. I believe their roots help them build a strong brand and user base, which is a very strong barrier to entry.

upvoted for the quote

possibly, but I think wanting to "win" and "make money," while providing a decent service is often a decent enough goal. After all, we are talking about group coupons, deals and lead generation -- not a cure for cancer.

Apparently, Groupon is not the first to execute the idea. Mercata is the failed Groupon of the late ’90s. Paul Allen has invested around $90 million in it. Why it failed? One of the analyst said this in the interview below. "But like many ideas that have been tried, execution turned out to be a problem. I don't think the category is necessarily dead, but may resurface in different clothing."

http://news.cnet.com/2100-1017-250529.html

The #1 reason as he states is their crystal clear value proposition. Expanding on that - because it's so clear you can see how effective their advertising campaigns are.

They built a huge following just sticking "Get 50% off Sushi in [your city]" ads all over facebook, and have continued with that level of simplicity.

When an advertising campaign delivers that message on the banner ad, it's shooting fish in a barrel to convert those users through the lead form, backend process.

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