Groupon is a fundamentally bad business and I wouldn't touch it with a 10 foot cattle prod.
Some say that we know they're not profitable but that's really not the point. By counting customer acquisition as an extraordinary expense they are implying that:
1. The value of that customer is AT LEAST as much the cost of acquisition; and
2. That cost also accounts for the natural loss of customers.
This is shady because (IMHO) daily deals customers have very little loyalty to the providers of those services, there is no natural barrier to prevent customers moving to LivingSocial or whomever and the high margin on deal split is transitory because increased competition will reduce what is really nothing more than the artificial scarcity introduced by Groupon's one deal a day (per market).
But none of that is why Groupon is a bad business (IMHO). Consider: Groupon offers a deal, people buy it and Groupon and the provider split those proceeds in some fashion. I believe--but don't know--that the provider has to wait for some large part of those proceeds too. Basically that delay is Groupon's cash flow.
So what's the best outcome for Groupon and the provider? One of two things:
1. The customer doesn't use that coupon. Groupon and the provider pocket the free money; or
2. The customer spends above the coupon or is a repeat customer such that the "marketing cost" (to the provider) of the Groupon offer is amortized over multiple visits and/or higher spend such that they make a profit.
In the case of (1), many providers really don't want customers to use coupons. There are plenty of anecdotes from people getting bad reactions when they tell a proprietor or a waiter or whatever that they're using a coupon, particularly in restaurants.
Worse, coupon users may be people who are prepared to pay full price anyway or the influx of coupon users may prevent full-paying customers from being able to use your service. The propaganda is that you can sell unused capacity. While true for some businesses I think you'll find that many people try to use Groupons in, say, restuarants at otherwise peak or busy times.
There are some success stories of (2) but plenty of failures too.
What isn't built into Groupon's financial statements is account risk. There is a strong argument that a failing business can make one last roll of the dice with a Groupon offer. If they fail, they were going under anyway.
I actually don't know if Google (disclaimer: I work for Google) tried to buy Groupon or not and if we did, at what price. The press reports Groupon turned down a $6 billion offer.
My personal opinion is that Google dodged a huge bullet if this is true.
Not only is their accounting on customer acquisition bogus, but how do they possibly value these customers? FTA:
Groupon's subscriber count -- the one Mason says it is spending aggressively to beef up -- now stands at 116 million, up from 83 million at the end of last quarter. Among those subscribers, 23 million have purchased a Groupon at least once.
So they have 116 million "customers," but less than 1 in 5 of those have ever actually purchased a deal?
Plus aren't Groupon's customers really the businesses paying for the Groupons, not the millions of subscribers to their e-mail list that apparently don't even purchase anything from Groupon? Seems to me that the "customers" they're referring to is really the product they're selling, and at a huge loss apparently.
No. The email subscribers are Groupon's customers - if you define "customer" as "where the money comes from".
Every day Groupon sends out a daily deal to their email subscribers. Some percent of those subscribers opt to purchase the deal and go to Groupon's website and pay with a credit card. That's where the money comes from. Groupon then distributes some of that money at a later date to the merchant offering the deal.
So their success is very much dependent on the size of their email list, because that is the maximum number of potential customers (payers). Zero subscribers means zero money. If all the merchants dropped out that subscriber list could still make money via affiliate or other partner revenue.
There are many of us who have always known groupon was a bad idea. My information comes from all my friends in SF who own businesses that Groupon attempted to solicit.
My friends cupcake shop in union square was asked to sell their cupcakes for 25% of retail and at a loss in a very pushy way by groupon.
I have been on groupon for pretty much since they launched. I have bought in total (1) groupon. And I forgot about it and it expired.
I am not interested in the things they have, which are typically things I would never frequently buy anyway (skydiving, spas etc). Thus, I have never seen it being a place I would spend much money. I haven't logged into it for nearly a year. I stopped all emails way back as well.
I completely agree, I have been a "subscriber" for months and I am borderline considering it just another piece of spam. But the real point here is how bad it is for so many businesses. I am not saying it is not great for some as well, I just have heard too many stories of groupon trying to hard sell small companies that don't fully realize the impact these "deals" can have. That is just a business model that scares me!
You might want to look into any class actions against groupon for expiring. California has very favorable gift card laws and I think the court would agree this is a gift card.
I think state law pre-empts groupon's policy (Ca's law states it cannot expire unless the card is to multiple retailers and then it must clearly list the expiration date on it).
> There are many of us who have always known groupon was a bad idea.
Weasel words.
> My friends cupcake shop in union square was asked to sell their cupcakes for 25% of retail and at a loss in a very pushy way by groupon.
While pushy sales people are annoying, they are hardly unique to GroupOn. I'm sure your friend turned them down. No harm done.
> I have bought in total (1) groupon. And I forgot about it and it expired. (...) things I would never frequently buy anyway (...) I haven't logged into it for nearly a year.
Good for you. But you communicate your argument that GroupOn is a bad idea in an incredibly weak fashion.
Its called a personal anecdote. There is plenty of mounting empirical evidence of how bad groupon is, thus I dont feel I need to make a strong case on my personal opinion.
While I appreciate articles and analysis of their filings, revenue etc... I did not require it to make a gut feel for what was really going on.
Groupon has done an amazing job at what they do - even though history will tell how far they really go, I am free to express my opinion in whatever form that may take, however, and I have never felt they were seriously viable in the same way other tech giants of this era are. They are simply a coupon site which, based on direct information from business owners I know, requires said businesses to sell at a loss in the name of brand recognition/volume that groupon claims to bring - but has thus far fallen short of delivering the marketed value of their service.
You're spot on. Groupon and the hundreds of other daily deal copycats out there are going to implode. It's not sustainable. It's an incredible deal for the customer (no doubt about that), but the business loses money.
We're in the process of creating a solution. If you're a business owner and are interested in being in the beta test group or would like to know more please visit the following link:
This thread from last year makes for an interesting read in the light of the numerous accounting revisions. Of course, we doubters might to turn out to have egg on our faces yet.
Some say that we know they're not profitable but that's really not the point. By counting customer acquisition as an extraordinary expense they are implying that:
1. The value of that customer is AT LEAST as much the cost of acquisition; and
2. That cost also accounts for the natural loss of customers.
This is shady because (IMHO) daily deals customers have very little loyalty to the providers of those services, there is no natural barrier to prevent customers moving to LivingSocial or whomever and the high margin on deal split is transitory because increased competition will reduce what is really nothing more than the artificial scarcity introduced by Groupon's one deal a day (per market).
But none of that is why Groupon is a bad business (IMHO). Consider: Groupon offers a deal, people buy it and Groupon and the provider split those proceeds in some fashion. I believe--but don't know--that the provider has to wait for some large part of those proceeds too. Basically that delay is Groupon's cash flow.
So what's the best outcome for Groupon and the provider? One of two things:
1. The customer doesn't use that coupon. Groupon and the provider pocket the free money; or
2. The customer spends above the coupon or is a repeat customer such that the "marketing cost" (to the provider) of the Groupon offer is amortized over multiple visits and/or higher spend such that they make a profit.
In the case of (1), many providers really don't want customers to use coupons. There are plenty of anecdotes from people getting bad reactions when they tell a proprietor or a waiter or whatever that they're using a coupon, particularly in restaurants.
Worse, coupon users may be people who are prepared to pay full price anyway or the influx of coupon users may prevent full-paying customers from being able to use your service. The propaganda is that you can sell unused capacity. While true for some businesses I think you'll find that many people try to use Groupons in, say, restuarants at otherwise peak or busy times.
There are some success stories of (2) but plenty of failures too.
What isn't built into Groupon's financial statements is account risk. There is a strong argument that a failing business can make one last roll of the dice with a Groupon offer. If they fail, they were going under anyway.
I actually don't know if Google (disclaimer: I work for Google) tried to buy Groupon or not and if we did, at what price. The press reports Groupon turned down a $6 billion offer.
My personal opinion is that Google dodged a huge bullet if this is true.