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Comment by yid | Hacker News Reader

The juice that we're all looking for:

> On that basis, Groupon incurred a $420 million operating loss for 2010 and a $117.1 million loss in the first quarter.

So they had a slightly worse amortized 1st quarter this year than last.

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No worries:

We exclude those costs because, unlike our other marketing expenses, they are an up-front investment to acquire new subscribers that we expect to end when this period of rapid expansion in our subscriber base concludes

See? Once they acquire all of their subscribers, they will never have to acquire subscribers again. Then they can just rake in the dough.

I'm surprised so few people are familiar with the "land grab", it seems to me that's what they are attempting. In the early days Amazon was spending something like $20 on average per customer acquired and was losing money hand over fist. That's not to say I think Groupon will be the next Amazon: This is a risky strategy. But it can pay off massively if you cement yourself as the only big player in an emerging market.

The differences are that 1) Amazon was selling a tangible commodity and 2) they weren't doing it at the expense of the other side of the transaction (i.e. the companies Groupon is selling coupons for).

That isn't to say that they won't find a happy medium where they can balance the need for their customers to get massive discounts without pissing off the businesses, but I'm having trouble seeing it.

A land grab only makes sense if you have constructed or inherited barriers to entry... what are their barriers? They're grabbing land that will be stolen the next day from them by LivingSocial or Google Offers...

Exactly. Amazon's acquired land was defensible, so to speak. Once it acquired a customer, that customer was likely to stick around.

As the numbers show, Groupon can only get 20% of all first time users to buy something. And yet, it counts all prospects as "customers." And even for those who do buy a groupon or two, what reason would they have to stay loyal to Groupon? At best, Groupon is poised to become one of many big commodity providers in this market.

(Speaking of Amazon, btw, what's to stop them from getting into this market eventually?)

Amazon's acquired land was defensible, so to speak. Once it acquired a customer, that customer was likely to stick around

Why?

Because they built up a heap of infrastructure required to consistently offer some of the best prices for goods online. Competitors could only really compete in niches because the startup costs to get to amazons scale would be massive.

With group deals, all someone has to do is setup a basic website and start calling up companies to find better deals than Groupon is offering, the customer doesn't care which deals site is offering a deal as you can signup to a new one in about 5 minutes.

With the deals site I've found aggregators to be more useful than the individual sites as the one which has the deal doesn't matter much. If I was looking for a book I wouldn't worry about an aggregator but head straight to Amazon or Book Depository which is also now Amazon owned.

Former Amazon employee, my comments do not necessarily reflects the views of my (former) employer, yadi yada.

Amazon's fulfillment infrastructure is the best in the world, bar none, full stop. It is so far ahead of every other online retailer that it's pretty sobering to think about.

Amazon can get items to you faster, more reliably, more cheaply than just about anyone else, by a pretty ridiculously wide margin. There is a tremendous amount of extremely non-trivial know-how within Amazon that permits them to operate like this. Even if you had access to all the money in the world you'd still have a hard time cloning Amazon's infrastructure... and at this stage, even if you had the know-how, the amount of money required is not within the realm of a startup's reach.

Compared with Groupon, whose uniqueness is entirely public knowledge, who have no capital infrastructure that is hard to clone. Who have no trade-secret business processes that give them a leg up over the competition. You can do exactly what Groupon does with a trivial amount of cash and know-how (and people do, see the ridiculous number of Groupon clones).

Amazon's acquired land is defensible, Groupon's is... really not.

Amazon is already sending out "deals" emails from LivingSocial.

Well, it's plausible, right? The users they have will stick around, and if they stop spending so much on customer acquisition they might be able to reduce their cut and make a profit, meaning even better deals. It could happen.

Or does this not pass the sniff test for some reason I'm missing?

I'm no longer a customer of Groupon. The plural of "anecdote" isn't "data", but I don't know of any company where customer acquisition isn't a major cost. The traditional business school number touted is that is costs 10 times as much to acquire a new customer as it does to maintain an existing customer.

EDIT: I know I may have counteracted my own argument, but my point was that customers are expensive, and the costs don't go away, even if they lessen.

If you look at many subscription-based businesses (newspapers, cable providers, mobile voice/data companies), you'll often see businesses where the cost of acquisition is pretty low compared to the life-time value of a customer. Newspapers (pre-Web) are a particularly good example of this - most of their costs were in production/distribution. Acquiring a customer was relatively cheap and churn relatively low.

So anecdotally, there are historical business models that feature low acquisition costs & low churn.

There will always be people who scour coupon sites for deals, even taking into account natural customer churn. It's conceivable that Groupon could be the Google on coupon hunting.

However the number of coupons available isn't going to increase forever, and may well already be in decline (for some measure of businesses using Groupon compared with deals offered).

This is because those businesses see Groupon as a way to infrequently attract a large number of people to try their products at a price that they would not be able to sustain for other marketing models such as advertising.

The only way Groupon can "grow" is to continually reach new businesses to ensure that the number of coupons available is high. However, eventually the well will run dry.

MarketWatch puts it succinctly: 'the bigger Groupon gets, the more it loses'. Although it's not the firm's fault, the timing of this filing amendment couldn't be worse - investors are likely to psychologically associate it with the market instability. Not that I'm qualified to dispense investment advice or anything, but my bet is that this offering will either be under-subscribed or the firm will end up under-capitalized and the founders will get ejected within a year of being listed.

http://www.marketwatch.com/story/the-bigger-groupon-gets-the...

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