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Comment by jellicle | Hacker News Reader

The long-term problem is simply this: Groupon isn't adding value to anyone.

For customers, Groupon adds almost no value. A great marketing deal will get publicized anyway - there are hundreds of websites devoted to coupon/code sharing. So if a business wants to offer 50% off, they could spend five minutes mailing a couple of these sites, and there would be plenty of publicity for their deal.

For almost all businesses, Groupon adds negative value. It costs money to fulfill these deals. "Losing money on every sale" is not a way to build a real business. The customers are the worst possible: solely money motivated, never going to do repeat business, and all coming in a giant surge which your business is not likely prepared to cope with... that's absolutely the opposite of the kind of customers you want.

Groupon has been able to paper over these problems with creative accounting and venture capital. This will not last forever.

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It is simply not true that a "great deal" will get publicized by itself, or that any pre-2009 channel for publicizing great deals was effective for most businesses. I find this comment facile. Small businesses die all the time because nobody discovers them.

I don't know about Groupon, but it's flat out wrong to say that small businesses don't have the problem Groupon claims be addressing. They clearly do have the problem.

> It is simply not true that a "great deal" will get publicized by itself

I said spend five minutes emailing. If I'm selling widgets for $25 when the usual, accepted price in commerce is $100 (which is the standard Groupon deal, right?) and I spend five minutes emailing the widget fanatics mailing list, I guarantee that a LOT of people will discover my offer to sell widgets for $25. The deal will spread all by itself given a very minimal amount of priming by the business owner.

It won't spread if I'm offering to sell widgets for $99 instead of $100. But $25? Yes.

> I don't know about Groupon, but it's flat out wrong to say that small businesses don't have the problem Groupon claims be addressing. They clearly do have the problem.

No, no businesses have a problem of not being able to find customers to buy things at prices well below the store's cost. If I buy wine at $10 per bottle and instead of selling it at $20/bottle, I decide to sell it at $5/bottle, I assure you I will find plenty of customers. And that's what Groupon is offering - the "opportunity" to find customers who are willing to buy your products for below what it cost you to put them on your store shelves.

A useful service would be to find customers who are willing to pay full retail price for your products. That's a service that retailers would and should pay money for. That isn't what Groupon is offering.

>A useful service would be to find customers who are willing to pay full retail price for your products.

The intent is that once you try and if the businesses treats the customer well, they would pay full price the next time. It is the businesses who don't understand this, that don't end up reaping the benefits.

Repeating the same wrong statement doesn't make it more true. You can make the absolute best cupcake in Chicago, but if you don't promote your business, it won't matter how far you discount them. Nobody's going to know you exist.

People persist in these weird economic analyses of "daily deals" sites as if they have anything to do with the economics of breakage or marginal cost. That's not the point of daily deals. The point of daily deals sites is that they're promotional channels, and that they're more effective than local advertising, which is a notorious black hole.

Nobody discovers them because they offer dud deals like "Buy 1 get 1 Free" when you buy 2 drinks at full price etc.

Groupon ensures that the deals are good

"It costs money to fulfill these deals. 'Losing money on every sale' is not a way to build a real business."

I've been looking over the Groupon/etc. deals in my area. There's a reason why almost all of the deals are either low marginal cost - gym memberships, classes of various sorts, cruises, and theater and movie tickets - or they are small businesses where the major business cost is rent and employee time, time which is presumably not being currently filled with work - massages, acupuncture, spa trips and other beauty services.

> Groupon isn't adding value to anyone.

I don't think this is true. The fact that so many people are using it is proof to me that it provides value. I can safely say that Groupon provides value to me.

I can't say that it provides value to any business',as I'm not a business owner, but that's not what you said above.

What portion of Groupon clients use it once and then never again?

I might have missed something, so apologies if this is readily available. Where are you getting the information that "For almost all businesses, Groupon adds negative value?" Is there any actual data on how businesses who use Groupon, in general, feel about it?

Sure, there's some:

http://blogs.wsj.com/digits/2010/09/30/rice-university-study...

Thanks! This study looks very small, but still came back with a healthy majority claiming that not only did it not harm them, but that they wanted to sign up again. It also says groupon's internal statistics (maybe they're lying, I guess) conflict with that data, and that 97% of respondents want to do another deal.

This article is also a bit older, so maybe things have changed. But I don't think it's fair to say that this article buttresses your claim that most business owners feel as if they are being hurt by these deals.

> For customers, Groupon adds almost no value

And yet my girlfriend and her friends spend a shit-load of money on items they find on it, because "it's such good value".

I think they meant customers as in business paying groupon for the deals.

Parent's point stands. We have actively spent some money at places my wife found a groupon for that we otherwise would have spent no money at.

Groupon's modus operandi is that the business is (usually) making a loss or zero/negligible profit from the deal for the opportunity to generate future (post-groupon) business from those customers (or their friends).

Spending no money at all might either be worse (they've lost more than they earned) or no better (zero sum) than buying the coupon depending on your future intentions.

Or do you mean that you've returned and purchased again from those places?

In our case, we haven't returned. Whenever she gets her hair cut now, she finds somewhere that's on offer, which is a specialization of the bigger point, that she nows uses GroupOn with the expectation that there will be a deal on something she wants...

I have said this before and I will say it again. Groupon were idiots to leave money on the table and walk away when they were working with Google. They will never be able to get that much free cash ever again.

First, they did take quite a bit of money off the table. Second, they are on target to do a $25+ billion IPO (ie, 4x the Google price). Doesn't sound idiotic to me.

I can say that my site is IPOing for 50 billion...until I actually raise the amount, it's just a dream. Same with groupon...yes they want to raise that much...but it's just a pipe dream at this point

What are you talking about? Groupon's IPO could occur in a matter of weeks. Bankers have been selected. Road show planning is under way. Barring a global economic meltdown, Groupon is likely to IPO for $20-30 billion. Unless your site is Facebook, Twitter or Zynga, I don't think your comment has merit.

it wont be hard for them to IPO on a small float at 20-30B valuation... what will be hard is for VC's and employees to sell at that valuation once the lockup expires.

Some will get paid out in the IPO, some will get paid out in a secondary and I doubt the stock will collapse on lockup expiration (it rarely does).

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