Comment by knowsnothing613 | Hacker News Reader

Comment by knowsnothing613 | Hacker News Reader

knowsnothing613

groupon is a pseudo ponzi scheme. For any market X there exists a high variability for profitable, volume adjusted, daily deals (resource {R}), which people want. After time t, the most desired deals r in resource R are exhausted, leaving behind lesser deals (deals which make substantially less revenue-share). So as t >> T, only less desired deals remain for market X, hugely eroding profits margins, given the high fixed cost to set the deal. So the only way to maintain margins is to enter a new market Y, where r (very profitable daily deals) is in high supply. But eventually this market will be exhausted of r, and margins will again collapse. Therefore Groupon must continually enter new markets to maintain margins, which it has been doing. But there are only a finite number of markets. So eventually Groupon will collapse. This is an intrinsic problem of the daily deals market. Google may overcome it, if it can implement it's near field communication strategy, or automate the bidding process. But other daily deals site, like Living Social, with high employee counts, are bound to fail.

You make a good point. But this is only true if all sellers are putting their items in Groupon. In a sane market, there will be only few sellers which want to make daily deals, and also few buyers which want to take them. I don't know the market, though, but this model can work.

Well said. I call it Grouponzi.

There are literally thousands of vendors in the city of chicago. It would be years even if someone wants to do a second groupon. I dont get your logic behind market getting exhuasted.

Is there a reason why deals are finite?

Surely a restaurant (for instance) can run a Groupon deal once every few months?

But I thought the main premise of Groupon is that the deal brings people in and the <fill-in-the-blank> from the business brings people back. I guess a deal could be run again to capture new customers but it's hard to imagine the need if the initial brought in customers and more importantly, brought back customers.

This feels a little like saying "Once you've run an advertisement then why would you ever need to run another one?"

Any stats out there on a company that has done more than one daily deal an their resulting numbers? I would suspect diminishing returns, lots of people that took the first deal and weren't converted into customers coming back for another big discount.

I would argue that the only infinite supply of deals are deals where the profit margin is so high that it supports profit at 50% off plus Groupons cut.

A restaurant does not have 300% profit margins, so long term a restaurant cannot support this model. Only service businesses, or businesses with fixed costs with low variable costs per additional customer, can be on there.

Restaurants have very high fixed costs and 60-70% margins (basically, the food) so even with a 50% cut to Groupon, they can usually make it work. With a 20-40% cut to Groupon, they can make it work without much deal overage or return customers.

Since Groupon keeps 10-50 cents of every deal dollar, how is it remotely like a ponzi scheme?

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