Comment by aresant | Hacker News Reader

Comment by aresant | Hacker News Reader

"The local merchants will have to stop using Groupon en masse not long after they first start experimenting with it. "

- "66% of Groupon deals are profitable for the seller, and 40% of businesses would not use Groupon again, according to a Rice University study." http://blogs.pitch.com/fatcity/2010/10/do_restaurants_get_a_...

"optically, Groupon revenues look high — which they use to raise a financing round at a high valuation."

- Let's assume every investor that put money in just missed this obvious cost or doesn't care, article still leaves out one of the most compelling parts of their financial model - the minimum 10%+ breakage that Groupon splits that is PURE gravy.

"most Groupon local merchants . . . have no margin to spare or wiggle room in their operating costs."

- The author misses the entire point of Groupon. Restaurants, spas, etc have fixed costs on food, rent, staff etc - filling in gaps to cover dead zone times w/groupon manages and mitigates those costs.

Their opportunity to improve on the above point is spelled out by their VP “If we can eliminate 10 percent of perishability, we can change the dynamics for small business owners,” he says. Small businesses would become more like airlines, matching supply against demand to maximize revenues."

ref breakage - http://www.quora.com/Groupon-IPO-S-1-Filing-June-2011/What-i...

ref perishability - http://moneyland.time.com/2011/03/18/impulse-shopping-2-0-gr...

I want to thank you for your insights regarding breakage and perishability - I had never considered this aspect of the Groupon model (having simply concluded that the reasons so many spas and restaurants were represented was due to their relatively higher margins compared to retail stores), but, particularly for restaurants, this would seem a great boon.

One concern the article seemed to overlook is the fact that Groupon's business model has a near zero barrier to entry - as demonstrated by the entry of so many Groupon clones into the picture of late. Given this and the fact that for many businesses (with exception of spas and restaurants) the 75% cut in revenue may in fact be unsustainable, won't this turn into a race to the bottom as to who offers the most advantageous cut back to the local merchant?

"Try Grup-on! Like Groupon, only we split 40-60!"

".........................................30-70!"

".........................................20-80!"

etc.

I suspect there is a reasonable barrier to entry - in that the large number of engaged mailing list subscribers required has a big first mover advantage. Nobody is going to want to be signed up to dozens of different daily deal mailing lists, so with Groupon already having a ton of subscribers they get a much better pitch to the advertisers.

I think a possible competitive strategy is much more highly targeted mailings - instead of approaching advertisers saying "we have 170,000 subscribers in your city", go with "we have 15,000 females in the 30-45 year old age bracket who earn over $85k" or "we've got 22,000 working mothers of 3-7 year old children", or perhaps "we've got 8,000 people who dine out 3 or more times a week in your zipcode". (I have no idea if Groupon are collecting and/or using detailed demographic data about their subscribers...)

It's unclear whether there will be any breakage. Most states have escheat laws that apply to gift certificates. Basically merchants are required to remit to the state any unused gift certificates after a certain period of time.

While the coupon part of the Groupon might be allowed to expire, the merchants will have to eventually pay the states for all unused groupons.

WebVan, pets.com, etc.. are totally reasonable business plans at their cores (Deliver Groceries, ship pet supplies). Eliminating 10% of perishability is also a reasonable business plan. But it is unreasaoble to think that you can charge a 40$ markup on groceries or make 30% off a 10% revenue increase. 'Social Netowrk Coupons' will continue for a long time, groupon will not

the 10%+ breakage is not "pure gravy" given that the coupons are governed by the credit card act of 2009. They are valid for up to five years. Unlikely to be redeemed, but they are a liability on the books.

Reply on news.ycombinator.com