Groupon May Expire Sooner Than Expected | Hacker News Reader

Groupon May Expire Sooner Than Expected

seekingalpha.com

148 pointsCmccann741 comments

As time goes on, transaction costs are commoditized due to competitive pressures, Most transaction fees in these markets gravitate to nickels and pennies, if not less.

This is one of the best takeaways I've gotten in a while and may be the most damning insight into the Groupon model. Right now it barely[1] works with 50% of the revenues on a Groupon can it still work at 10%?

[1] I say "barely" because Groupon is still losing money but its doing so intentionally in a huge growth phase and land grab once it settles into its actual market a bit this can easily swing into "doesn't" or "successfully".

The biggest chunk of the overhead is all the sales folks, right? Once the selling is done, can't you cut the sales people and cut your margins?

Seems like a good way to re-excite businesses who may be frazzled from their previous Groupon experience: "We'll feature you again, but this time, for 25%". Then a year later, "How about 10%?"

Sounds like a fun business: hire tens of thousands of sales people, and then gradually lay them off.

Most employees tend to take of that themselves over time. I believe the business world calls it "attrition."

Sales people do it faster than most - if they cant get the commissions any more as the market is saturated they will go and sell something else.

It sounds like Groupon are spending a lot of money educating the market. The problem is that the barriers to entry are low and national reach doesn't clearly provide an advantage for services that sell locally.

Wouldn't it be salespeople making that pitch?

Ideally it's a lot more automated the second time around.

Companies that can maintain relatively high margins operate in niche markets. Groupon is anything but. I think what will be Groupon's downfall however will be against someone who can market to as large a group of "local and interested" people at the same cost.

If I am starting to see this http://dl.dropbox.com/u/20773870/IMAG0004.jpg in my local stores, I'm pretty sure Groupon is well past it's fad stage. Since it can only operate based on it's exposure/marketing it'll be interesting to see the crash.

With all these articles, I got large doses of Groupon S-1 wisdom from HN.

I recently had lunch with an ex-colleague who invariably dropped the idea of building a coupon site together. Everyone is doing so well, we could do even a smaller scale operation and do well.

I was surprised that my friend who is quite a bit into affiliate marketing, internet businesses is not even aware of anything wrong with Groupon. He thought they were a slam dunk investment.

Moral: There are lot more people who are not aware of the pitfalls and probably be hungry for the shares once Groupon goes public.

Groupon's model is only broken in the context of billions or trillions. At smaller scale, which sounds like what your friend is thinking, there is still lots of opportunity to innovate and profit.

Groupon model requires scale much bigger than "small" to work.

The cost of acquiring merchant is high even if you do have lots of potential customers.

If you don't have lots of potential customers, a merchant will not take you seriously regardless of how much you spend trying to woo him.

You can't wish away those inherent scaling problems with "opportunity to innovate". There is a reason why the only companies entering this business are well capitalized with lots of existing eyeballs and existing strengths they can leverage (i.e Google, Amazon, Facebook).

Groupon is in the right battle - for small business, yet they are an army of old, low tech, type - sales people cold calling - which is extremely expensive and relatively low efficient. The battlefield of the future belongs to drones. Like these mentioned stock exchanges - quick/real-time response, high volume, low cost, dominated by algorithms. In SMB/deals space it will be something like this - i get up, deciding to skip company cafeteria and go for lunch somewhere nearby, while walking through the hall press couple buttons on iPhone or whatever gadget, in a seconds the automated software of the local merchants (or the bored cashier if business is slow, though software is more plausible case and it would actually be outsourced, hosted Salesforce-style software contracted by the merchant) based on their discount strategies, current load, my status with them (if enabled/exists), etc... would respond with what they have, discounts, specials of the day, length of the line/crowdness, etc,... ie. the response is optimized for and reflects the current condition of the business, click - order if i want and they support pre-ordering, click - map, i'm getting into the car - drive.

Or you could simplify that and just alternate between Chipotle one day and Potbelly the next.

after that much years of it i need something stronger :) and ready to browse for what else is out there.

I hate to say it (since I'm simply not 'turned-on' by their App) but FourSquare is more directly targeting this use-case.

Not to take away anything from the GroupOn Critique (which might be able to stand on it's own) - but I've been unable to vet the following statement made by the author:

"Commerce One's model was to act sort of like a toll booth, charging companies a fee as transactions passed through these exchanges and eventually expected to make billions collecting toll."

That was certainly one of a number of random ideas tossed about, but it wasn't (as far as I can verify from ex-Commerce One employees) the business model.

Any CommerceOne Alumni recall the company changing to this model? Anybody know Gupta from that time?

I wrote the article and can vouch this effectively was the business model of Commerce One. I didn't do into gory detail in the article as that wasn't the point. Basically Commerce One had a suite of products (Marketsite, Net MarketMaker etc) that were essentially business hubs with the goal of charging per business transactions and scaling recurring revenue. Commerce One also had a number of ancillary products but i would characterize them as non-core. If any ex-employee disputes the model then I'd venture a guess they didn't know what they were talking about. Commerce One obviously charged for the products themselves (and licensing/maintenance) but over time their was concern that the number of hubs would consolidate and that revenue stream would slow (after all the cost to stand up a fully blown MarketSite deployment was often in 7 figures) I worked at ForestExpress, Elemica, and Exostar as a Senior Consultant at Commerce One. Amazingly those companies are still going concerns (although none use C1 products anymore)... I imagine 80-90% of the other hubs shut down.

In addition to my "day job", I currently run a few blogs including http://techystocks.com and http://bakkenstocks.com Look for our upcoming article on NetSuite!

"Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours."

The last part is awkwardly worded. It suggests the author may short the stock in 3 days. Not that it's possible on a public market, as Groupon hasn't IPO'd yet.

Is the 72 hour part standard disclosure? Not having a position in companies you write about is expected (unless you're Arrington).

It's pretty standard verbiage on Seeking Alpha. Almost all (if not all?) of the articles on the site have disclosures worded in that form. And a lot of people do have positions in the companies they write about. It's ethical to do so, so long as you disclose accurately and honestly. There is no client-service relationship between readers of SA and its contributors.

You should never expect that the person has no position on what he's writing. It may be expected of journalists, but by explicitly stating it the author has provided a lot of clarity.

I assume the 72 hours is simply to give a boundary to statement

That's true, it makes it easy to find their position (which is a good thing).

http://www.google.com/search?q=%22and+no+plans+to+initiate+a...

A very good article. However, regarding this point:

"Groupon may end up being the biggest train wreck in Tech history."

I think that webvan.com, pets.com and a few others may provide stiff competition when all is said and done and the numbers are adjusted for inflation.

Those 2 weren't quite as bad in dollar terms... although they went to 0. http://www.cnet.com/1990-11136_1-6278387-1.html Webvan was at peak worth $1.2Bn, Pets.com raise $82.5m in IPO

probably not before a few mutual funds invest a few hundred million of their investor money

I was thinking the same. Even with all the bad press, Groupon will still do their IPO, the underwriters and VC's will still unload their shares at a hefty profit. The implosion won't happen until after the smart money is out.

So the IPO would end up functioning as a wealth transfer mechanism?

As do they all.

Then why does anyone buy IPO stock? (selling I can understand)

Just like rounds D-G!

Based on the articles I've read and seen, Groupon does not seem to provide a decent return on investment to participating business. This makes me curious as to how much of their business is repeat business versus new business. I have a feeling, if you look at the participating businesses, a vast majority of them will be new for each new cycle.

Because there can only be a finite number of businesses, I would imagine Groupon is going to eventually run into one of two problems (should they continue and not flame out before this). Either they run out of cannon fodder (new Grouponees) and implode or they run out of cannon fodder and shrink drastically down to serve a small core of loyal business and rebuild with a different model. Either way, they are burning through capital and businesses at a pretty good clip so I would imagine they are going to run into this situation sooner rather than later.

What if groupon just cold fires their entire sales staff or something, then drastically cuts their rates for businesses, sends all previously contacted owners an email saying, "Hey, we're not butt-raping you on deals anymore, why not start a new campaign?"

I mean, that'd probably work.

Anyone know what the reputation of seeking alpha is? I've read a number of their LinkedIn articles and I can't figure out if they are a bunch of well informed day traders or pros or a huffpo style mishmash site.

I read a lot of their articles and my take on it is, it's a huffpo style mismash. Some of the authors are awesome and very high quality and some seem like day traders. I always check the authors leaderboard reputation before reading the article and usually only check the macro-economic section

The best part about SA is the commenters usually call a flamebait article what it is. Most commenters are at least somewhat knowledgeable about trading, you can easily tell cull the wheat from the chaff.

Is the word "commoditized" here being used to imply a reduction in price?

Yeah - commoditized in this case is the economics definition.

Generally speaking, once all the participants in a particular market sector are offering the same set of services (or at least, the subset consumers care about), the only area they have to compete on is price - eventually, the price drops to the absolute lowest the service can be offered for. It can still be a viable industry to be in, but it's really not "darling of Wall St" territory.

Oh right! Cool thanks, I'd never heard that description. I'd heard the term "commodity hardware" referring to off-the-shelf servers and stuff but never really understood what that meant :)

A good read about the last internet bubble and Commerce One.

Reply on news.ycombinator.com