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Comment by djb_hackernews | Hacker News Reader

I did some math a while ago. They have 50 cities, so 50 deals a day. It looks like the average deal is $20 and the average participation is 1000 signups per deal. So that’s 1Mil in cash flow per day. They keep half (sourced from a friend who did a groupon for her store) so 500K per day revenue. Or about 175M/yr. Which, accounting for my crappy math, accounts for the 1.x billion valuations I see.

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Half?! That is huge, I don't understand how that could be a good deal for the people using Groupon, and a very good opportunity for a competitor.

It's not a good deal in the short term. I imagine the sales pitch to frequently mention repeat customers, brand awareness, and attention. Then I bet they tell them to take whatever it would cost to break even, and double it, that will be the groupon price.

As the article mentions, Groupon has plenty of competitors, with probably room for more.

The problem with the sales pitch is I don't know how much insight Groupon has into the long-term lift they'll give customers (i.e. how much historical data do they have?). Groupon's pricing seems like it would have to be a stab in the dark--they can't possibly know the nuances of all the businesses they deal with (massage purchasing behavior will differ from helicopter ride purchases). I feel bad for Mom and Pop operations because a massive increase in sales without proper planning could materially hurt their business.

Groupon is a form of advertising.

You could advertise in print, on Yelp or elsewhere and pay money out without knowing whether a customer will actually use your business. Even with PPC you rarely have the ability to track to the sale for businesses like this (restaurants, salons, action sports, entertainment etc).

With Groupon, you don't pay a cent. Instead, you just price your goods/services at break even and get hundreds of new customers in the door. If even a small percentage become repeat business, that still seems like a pretty good idea.

Underpricing a free (for consumers) service, on the other hand, seems like a terrible idea for a business.

Yeah, it's incredible. Had I had this idea, and had been considering my cut, I'd probably have plumped for 5% or 10% or 15%. After all this is what most online retailers charge. I would have imagined that at 50% everyone would have laughed at them.

Mind you, that's why I'm poor and those guys now have a billion dollar company.

In some cases, they take ALL of it (just because the mailing list exposure is that powerful).

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