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Comment by mikeryan | Hacker News Reader

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".

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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%?"

Wouldn't it be salespeople making that pitch?

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

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.

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.

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