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Comment by smoyer | Hacker News Reader

If you want to see what business models will survive the for the long-term, analyze them in terms of neutral value. If there was a hypothetical Groupon where the consumer saw $10 of value, Groupon saw $10 of value and the merchants saw $10 of value, it would still be growing.

The actual Groupon business model was a loss for merchants from day one, but they were sold on potential benefits (new customers or regular customers increasing their spend). It doesn't take long for a business owner to notice they're losing money on a deal, and so it should be no surprise that Groupon's reality quickly overcame Groupon's sales hype.

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That's an oversimplification I think. Groupon was a method of advertising that merchants paid for with their goods. This article argues that it turned out to be a bad method of advertising because of disappointing conversion rates. That said, if it was so terrible I don't know why the founders didn't know that in the first few months.

It wasn't for founders to realize because as far as they were concerned things were going great. It were the merchants who had to realize that they were being used to fuel the engines of Groupon. Another big loser in this game would have been the investors who wanted to ride the engine. Whether they knew it or not, but founders and customers had a party at someone else's expense. I kind of feel sorry for the merchants.

So true ... I don't want to paint the wrong picture of the Groupon founders, but it wasn't in their short-term interest to notice either.

(Please note that I have no knowledge of what was or was not known inside Groupon and there are certainly psychological studies that show you won't necessarily identify with a reality that contradicts your perception).

I guess the psychological elements were somehow forgotten too --

I can assure you that my wife, bless her heart, will see a deal somewhere, utilize that deal, and then write off that business until another deal comes along.

Not sustainable as a marketing strategy as it definitely attracts the wrong type of customer.

I've heard the exact anecdote from business owners who have tried groupon to bring people in through the door. Typically referred to as the groupon crowd, jumping from one deal to the next.

While it makes the place look busy, the conversion rate is just not there for it to be sustainable. Not to mention some of the things I've heard about groupon itself which just seems shady.

There were mainstream articles published about how bad for businesses Groupons were wayyyyy early on in their existence. I'm sure it can work for businesses with a low marginal cost and a product that's designed to be a recurring purchase (e.g. yoga studios that aren't already fully booked), but businesses apparently didn't take the time to do these estimates. For a long, long time, Groupon has just been burning businesses (who tend not to come back) and counting on hype to keep signing up new ones. I can't see how this wasn't clear to Groupon years ago. That is to say, I'm sure the founders _did_ know in the first few months, and either were fine with fooling investors/businesses or were desperately hoping that they'd find some way to "pivot".

It does seem like the Groupon model has promise for businesses that have low marginal cost of goods like an under utilized yoga studio. What other kinds of businesses have this quality? Sellers of digital goods for sure, in wich case the Groupon model becomes a form of price segmentation.

Advertising methods can take a long time to learn, especially for small bricks and mortar businesses that Groupon served. A negative can be quick: your 1000 poster and leaflet campaign didn't get any people to you two for one Tuesday promo.

Groupon generally passed the first test: get customers through the door at a reasonable cost. The problem is that people bought groupons specifically for things they wouldn't buy normally. So, it turned out to be advertising to a bad market.

"people bought groupons specifically for things they wouldn't buy normally"

My daughter was seriously considering a two-for-the-price-of-one tethered parachuting deal. Her mom and I weren't terribly thrilled by the idea of her jumping out of an airplane even once!

>> The actual Groupon business model was a loss for merchants from day one, but they were sold on potential benefits (new customers or regular customers increasing their spend).

> That's an oversimplification I think. Groupon was a method of advertising that merchants paid for with their goods.

Is there really a difference or did you just word it differently ? Or maybe do you think merchants paid with their goods to be advertised on groupon websites ? Because that seems far-fetched to me (and quite an expensive ad) but it makes sense.

There is an important category of near-zero-marginal-cost businesses that rarely or never lose money on deals. Think lawn care, Lasik, massage, leg waxing, haircuts, and so on - businesses with airline-esque cost structures. They are also the most profitable for the deals companies.

From the freelance world, it was an implementation of, "it'll be good for your portfolio," for retail.

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