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.
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.
Calling it a daily coupon site would probably have been more accurate.
I actually thought that's what the article would have refereed to as well, but as far as I'm aware, Woot! and similar sites are doing just fine. Woot! in particular is owned by Amazon now and has several dozen "daily deals" open at any given time now.
Different thing entirely. Woot just sells stuff itself. Groupon and the ilk recruit businesses, and charge them to offer coupons online, then don't pay the businesses their end for like 5 months. Woot just sells stuff. Sadly, though, since Woot went to Amazon, it's just Amazon for refurbished stuff at $5 below Amazon prices.
Woot is a liquidator, not really related to Groupon, LivingSocial, et al. Liquidators have existed for eons, Woot simply brought it to the general public - instead of dollar stores and cheapo stores.
Maybe Woot is the post-Groupon. After you Groupon'ed your business to death by slashing your revenues 75% at a time, folks like Woot get to sell off the skeleton. As long as businesses keep failing and inventory management keeps sucking, Woot will have plenty of business.
That's actually a thought though: a lot of liquidation inventory comes not from outright failing businesses but just really poor demand forecasting and logistics. With improvements in these fields Woot may find it harder and harder to source compelling products.
With improvements in these fields Woot may find it harder and harder to source compelling products.
Or it could go the other way! Woot seems to have no shortage of goods to liquidate (notice the proliferation of "sub-woots", like "woot tshirts") so perhaps as demand is better forecast, quantity of surplus of any one good will decrease, increasing the variety and decreasing the amount of time any one item features on their front page... which could be very good for them.
Woot! doesn't actually liquidate so much. A lot of their sales are on products that are not available in the market yet. Plus their own products such as their t-shirts.
Yes although Groupon was a local/coupon twist on existing Daily Deal sites such as Woot! it seams with all the groupon hype that has been forgotten. Very surprising to me but looks like it's time for me to change my messaging.
Edit:
"The deal-of-the-day concept gained popularity with the launching of Woot.com in July 2004, although Woot itself was a modified version of earlier dot-com bubble sites such as uBid. By late 2006, the deal-of-the-day industry had greatly expanded to over 100 deal-a-day sites. In November 2008, Groupon entered the market and became the second fastest online company to reach a billion-dollar valuation.[2]"
As the manager of an apparel manufacturer's e-Commerce arm, flash sale sites are just useful. We have essentially unlimited goods to move, any additional channel that can actually move volume is awesome. NoMoreRack is never in tech circles, but shit they move product.
I can agree with this, but I think that most flash sale sites have diverged from Groupon and the like (or the other way around). Physical goods based limited deals offer more value than purchasing a voucher (discount, massage, restaurant, vacation, etc...).
Also, flash sales sites tend to be more focused and give the appearance that you are dealing directly with the site owner; not a third party aggregating deals.
So, to me, there are two types of daily deal sites.
1) Flash Sales (Steep and Cheap, NoMoreRack)
2) Voucher Sales (Groupon, Living Social)
I feel like the physical goods space will always do better than a voucher-based deal site.
Yes the physical goods deal sites did well before groupon and have continued to do so since. I run a mobile aggregation app that I launched before groupon. When local coupon deal sites came along I included them for completeness but the physical goods, online, flash sites have always done better for me. It's interesting to see groupon, etc move into the physical online flash deals.
Actions speak louder than words. Sales folks keep score by how much commission they make. If there weren't money to be had at Groupon, their sales folks would be leaving in droves.
Sales turnover is always high in any position that involves a lot of cold calling. It's nothing to do with Groupon per se and everything to do with the inherent nature of the position. Relative to other high-frequency, transactional sales organizations, Groupon's turnover is likely below average.
For people like my SO who is always looking for a deal, this was a goldmine, but I knew the bottom had to drop out at some point as we used these at places we already went to. I'm still expecting Restaurant.com to do the same thing.
From two years ago, submitted here to Hacker News, an article "Why Groupon Is Poised for Collapse"[1][2] identified problems for Groupon's customers in Groupon's business model. My comment back then noticed something interesting in the article:
I think this is the most interesting paragraph in the submitted article: "As critical as I am of Groupon, the slam dunk case is to sign up with Groupon if you’re going bankrupt. I strongly encourage every business that is about to go under to call Groupon. (Don’t tell them Rocky sent you.) It makes total financial sense--as a Hail Mary play. If you’re lucky, the upfront cash will be enough to help you stay afloat. If not, well, you were already going out of business. It may be your best option. In the short term, you’re actually helping Groupon because they’re being valued on revenue and no one is taking into account risk."
If word of this gets around, the incentives set up by the typical Groupon agreement with a merchant will be responded to by merchants for whom those incentives are the most perverse. Groupon may discover that it is inexorably moving into the business of last-ditch financing for failing businesses.
This is actually optimistic. There's an assumption of hope, a possible light at the end of the tunnel.
I purchased a voucher for a Sushi restaurant in NYC on LivingSocial. Two days after purchase, I went to the place for dinner. I was surprised to find the place closed and a big sticker from the State of New York on the door stating that the property has been confiscated due to failure to pay their taxes.
Somehow, I think the proprietors knew what was going to happen and when ... and scheduled things appropriately. I got a refund, but I'm not sure LivingSocial did.
Knowingly entering into an agreement before declaring bankruptcy is fraud. Debt incurred through fraudulent acts is likely to not be discharged through bankruptcy.
You could collect a lot of money through Groupon, declare bankruptcy, Groupon could object to the discharge of the money you owe them, the judge could refuse to discharge the fraudulent debt and then you would find yourself having gone through bankruptcy but still be in debt.
http://TheCentsAbleShoppin.com is growing since 2009, over a million pageviews/month and it's steady traffic. Disclosure: One of my clients and she really puts in the hours. It's definitely a full-time job, not a "get rich quick" scenario.
Rocky erroneously thought Groupon was going to zero and has been incessant in his criticism. I guess I don't expect him to ever admit he was wrong about Groupon. If he's still short the stock, he's losing.
I think the author failed to recognize the advertising effect of running daily deals. Yes you are likely losing money for the deal itself as a merchant, but how do you quantify the advertising effect of having your restaurants featured on a nationally known website. Advertising on Groupon.com should not be free, should it? I agree that daily deals does not magically make a business more successful. I think business should focus on quality and innovation of product and service for long term success.
This demonstrates something we all ought to remember: whenever a new business idea pops up in the consumer web arena, some people are optimistic and hail it as the future of that business, while some dismiss it as a fad saying "that'll never work". The last group is often considered conservative and old fashioned by the first, as people who just don't get it. Then the idea takes off, generates a lot of buzz and a lot of investment. But those initial signs and that meteoric growth don't mean much. In the end, it turns out that sometimes the optimists are right and sometimes the naysayers are, and it's really hard to tell who's right and who's wrong for quite some time.
>In the end, it turns out that sometimes the optimists are right and sometimes the naysayers are, and it's really hard to tell who's right and who's wrong for quite some time.
Or: Both parties are right for their own reasons and are simply talking past each other.
47 comments
[ 3.6 ms ] story [ 132 ms ] threadThe 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.
(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 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.
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.
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.
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!
> 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.
I actually thought that's what the article would have refereed to as well, but as far as I'm aware, Woot! and similar sites are doing just fine. Woot! in particular is owned by Amazon now and has several dozen "daily deals" open at any given time now.
Maybe Woot is the post-Groupon. After you Groupon'ed your business to death by slashing your revenues 75% at a time, folks like Woot get to sell off the skeleton. As long as businesses keep failing and inventory management keeps sucking, Woot will have plenty of business.
That's actually a thought though: a lot of liquidation inventory comes not from outright failing businesses but just really poor demand forecasting and logistics. With improvements in these fields Woot may find it harder and harder to source compelling products.
Or it could go the other way! Woot seems to have no shortage of goods to liquidate (notice the proliferation of "sub-woots", like "woot tshirts") so perhaps as demand is better forecast, quantity of surplus of any one good will decrease, increasing the variety and decreasing the amount of time any one item features on their front page... which could be very good for them.
Edit: "The deal-of-the-day concept gained popularity with the launching of Woot.com in July 2004, although Woot itself was a modified version of earlier dot-com bubble sites such as uBid. By late 2006, the deal-of-the-day industry had greatly expanded to over 100 deal-a-day sites. In November 2008, Groupon entered the market and became the second fastest online company to reach a billion-dollar valuation.[2]"
http://en.wikipedia.org/wiki/One_deal_a_day
Also, flash sales sites tend to be more focused and give the appearance that you are dealing directly with the site owner; not a third party aggregating deals.
So, to me, there are two types of daily deal sites.
1) Flash Sales (Steep and Cheap, NoMoreRack)
2) Voucher Sales (Groupon, Living Social)
I feel like the physical goods space will always do better than a voucher-based deal site.
Talk to any Groupon sales associate and they'll tell you the company is doing just fine.
The company is already transitioning (successfully) beyond a daily deals site; the deals now represent about 20% of their total revenue.
Sales turnover is always high in any position that involves a lot of cold calling. It's nothing to do with Groupon per se and everything to do with the inherent nature of the position. Relative to other high-frequency, transactional sales organizations, Groupon's turnover is likely below average.
* http://rapgenius.com/Andrew-mason-look-no-further-lyrics
I think this is the most interesting paragraph in the submitted article: "As critical as I am of Groupon, the slam dunk case is to sign up with Groupon if you’re going bankrupt. I strongly encourage every business that is about to go under to call Groupon. (Don’t tell them Rocky sent you.) It makes total financial sense--as a Hail Mary play. If you’re lucky, the upfront cash will be enough to help you stay afloat. If not, well, you were already going out of business. It may be your best option. In the short term, you’re actually helping Groupon because they’re being valued on revenue and no one is taking into account risk."
If word of this gets around, the incentives set up by the typical Groupon agreement with a merchant will be responded to by merchants for whom those incentives are the most perverse. Groupon may discover that it is inexorably moving into the business of last-ditch financing for failing businesses.
[1] 13 June 2011 TechCrunch story by Rocky Agrawal: http://techcrunch.com/2011/06/13/why-groupon-is-poised-for-c...
[2] Hacker News discussion of story: https://news.ycombinator.com/item?id=2649739
I purchased a voucher for a Sushi restaurant in NYC on LivingSocial. Two days after purchase, I went to the place for dinner. I was surprised to find the place closed and a big sticker from the State of New York on the door stating that the property has been confiscated due to failure to pay their taxes.
Somehow, I think the proprietors knew what was going to happen and when ... and scheduled things appropriately. I got a refund, but I'm not sure LivingSocial did.
http://www.bankruptcylawnetwork.com/bankruptcy-discharge-and...
You could collect a lot of money through Groupon, declare bankruptcy, Groupon could object to the discharge of the money you owe them, the judge could refuse to discharge the fraudulent debt and then you would find yourself having gone through bankruptcy but still be in debt.
What's failed to materialize is any ROI on the Groupon "advertising" channel. The ads aren't working. Therefore the merchants are no longer buying.
I never visited Groupon, that's not the type of deals I'm looking for.
Sites I look at are woot.com, dealnews.com, bitsdujour.com slickdeals.net, etc...
Groupon is for the masses.
Happens with cryptocurrencies too.
Or: Both parties are right for their own reasons and are simply talking past each other.