Groupon Readies for An I.P.O.
dealbook.nytimes.com
dealbook.nytimes.com
The coupon business is an initial (albeit profitable) component of their long(er) term strategy. They will use a massive part of their recents rounds of financing + the organic revenue they get from their day-day business to create an increasingly larger direct sales force, that lets them step in and become the Online version of the Yellow Pages.
For whatever reason, Google never really became the "Trusted Local Directory" of businesses - Don't get me wrong, I use them 10-15 times a week to look up businesses - but lots of local companies have figured out how to game Google's local Business lookup - and, when I'm looking for a reliable Locksmith, Plumber, Flower Delivery, Etc... Google doesn't deliver like the yellow pages always did.
Part of that is inherent to the mechanism - Google does algorithmic analysis, which isn't completely effective when trying to determine whether you are dealing with a up-and-up storefront.
But most of that is feet on the ground.
The yellow pages had a Massive Direct Salesforce + a filter - Typically only "real" companies would bother to invest in a Yellow Pages Ad, because they were the only ones who could justify the cost. A company in the Yellow pages was a real organization, that had been visited by a local salesperson. You couldn't SEO a placement into the Yellow Pages.
Groupon is going to become the new Yellow Pages. For a while, I thought it was going to be Yelp, but (A) their business model, publishing criticisms of businesses, was always at odds with their customers interests (and they took a lot of heat when people got sensitive to that conflict of interest) and (B) they didn't raise enough money, or hire enough people, quickly enough.
Groupon is aligned with the businesses (their customers), and is growing quickly enough to win the market. They will have a direct sales force that will reach into every major metropolitan area - and, within six months, there will be a Groupon index of local businesses.
That's why Groupon is worth $15B.
(I don't know how social Groupon is. I stayed away so far because I have no interest in deals of the day.)
Reliable local service anecdote: I'm looking to rent a house, and after finding the first page of Google results for "rent house" to be spam, have restricted my search to Craigslist.
What about angieslist.com?
http://www.slideshare.net/dahlenc/groupon-business-model
Slide 9
Negatives: Lack of network effect No technology barriers to entry No switching costs for merchants and customers Scaling is expensive(sales people on the ground) High cost of customer acquisition
Pluses: Brand Economies of scale (winner takes most)
As those companies have huge exits, there's going to be a lot of young, early employees that are able to cash out and become angels or work on their next huge startup.
Some people say it's a bubble. I'm thinking/hoping it's more on the lines of a Renaissance.
At least some of those companies have actually turned a profit and stand a chance of maintaining one. I have my doubts about Groupon's and Zynga's medium-to-long-term chances, but I've been wrong before.
there's going to be a lot of young, early employees that are able to cash out
Early employees will probably not be able to cash out for at least six months; that's the standard waiting period after an IPO. Ironically, people who get friends-and-family deals pre-IPO are the most likely to get rich quickly (if they sell on an early uptick).
Tamagotchis were highly addictive and demanding of attention in their heyday.
They've taken one aspect of WoW, the one everyone talks about and the single most addictive quality -- I agree. But people stay with WoW for more reasons than that. People who get addicted to leveling up get over that addiction sooner or later, and usually sooner.
Zynga is a one-trick pony, so far. That's why I have doubts about its long-term viability. Unless it comes up with something based on another paradigm or makes the games more interesting, they will lose the momentum they've got and crumble. You can't fool all the people all the time.
This process actually started happening a few (2) years ago, and has been picking up the pace increasingly in the last six months. Much of the recent rounds of financing has been going to early stage employees who are selling off as much as 30% of their holdings in these "Pre-IPO" rounds.
If the IPO windows doesn't open up again, fairly soon, many of these employees will be fully vested and onto their next thing before their company goes public.
It's a massive ponzi scheme where the businesses have been convinced to take massive losses with the hopes of making them up later. Very few actually get the results they are promised by the sales people.
On the buyer side...it's just lame...it's the same type of deals over and over again, and I wouldn't be surprised if their customers only last a few months before they internally label Groupon as spam.
don't get me wrong, Groupon is a massively profitable business, but I think they want to cash out while everyone thinks they are worth 20-30 times more than they actually are.
So about 12 salespeople? ;)
case study: Open Table
http://www.google.ca/finance?q=open+table
It has a P/E of 157!!!!! And it's still going strong. Likely because it's getting pumped by thin trading.
It's the classic pump n dump. Run up the stock, and try to unload it to dumb money like mutual funds, and pension funds aka (your money).
Groupon's P/E can run just as high. It depends on how high they have to push it to entice dumb money, which is likely why they are pushing out a pre-IPO PR blitz to frame the story beforehand.
This was all done in Web 1.0. Same bag of tricks. Let's see if the average American has learned anything.
If the shares are illiquid, I'll wait for the dumb money, and short like the big players, if/when P/E gets above 200.
I predict Groupon will be a 'venture math' win and an epic failure as a sustainable business. (Especially once that anyone who would give a damn has cash)