$15 BILLION Market Cap for Groupon?

[DonRocks]

I cannot find one single shred of evidence, including my own perception of The Scene, that leads me to believe Groupon is anything but an awful long-term investment. I'd be delighted if they succeeded, but ...

Really? Really??

[Sundae in the Park]

I cannot find one single shred of evidence, including my own perception of The Scene, that leads me to believe Groupon is anything but an awful long-term investment. I'd be delighted if they succeeded, but ...

Really? Really??

We plan to enjoy the coupon racket while it lasts, and in the meantime figure out a way to short Groupon, cause we're right there with you.

[DonRocks]

We plan to enjoy the coupon racket while it lasts, and in the meantime figure out a way to short Groupon, cause we're right there with you.

On the other hand, once a company is established, how much can it really cost to take a piece of this pie?

Refer to HMOs and the Gambino crime family.

[dcslowman]

You are not alone in your head-scratching. The only thing keeping a lid on the short sale market is the fact that Groupon sold such a small percentage of the company.

The analysts who think highly of Groupon mostly believe that the company will successfully move away from a sales force-intensive model to one that requires less sales manpower (more business driven online, e.g., through offerings like Groupon Goods), and will innovate with new products that don't look much like the current daily coupon.

All that said, even if Groupon does succeed with the kinds of innovation and agility that some smart people are predicting, the current valuation is totally out of whack.

Dave

I cannot find one single shred of evidence, including my own perception of The Scene, that leads me to believe Groupon is anything but an awful long-term investment. I'd be delighted if they succeeded, but ...

Really? Really??

[johnb]

All that said, even if Groupon does succeed with the kinds of innovation and agility that some smart people are predicting, the current valuation is totally out of whack.

The valuation of internet companies is a black art. I didn't believe how Amazon or Google could be worth their starting valuations, but what did I know? Of course, there are many more that went the other way.

That said, Groupon strikes me as a concept that can't succeed. If the coupon works and brings lots of new steady customers to businesses that use it, the businesses will stop being buyers of Groupon's service because it is no longer needed. If the coupon doesn't bring steady new customers, then they will also stop being Groupon users because it didn't work. So either way, Groupon won't have long term repeat business. So far it has grown because there have been enough businesses that try it for the first time to keep things going. But alas, like a ponzi scheme, eventually they will run out of new customers. Doesn't sound like a long-term winner to me.

But what do I know?

[Andelman]

I have to agree. I think these coupon deals will go the way of the dinosaur in the not so distant future. We have done 2 such deals. We did a Groupon last year and Living Social deal this fall. I said after the Groupon that I would never do another, yet decided to do a Living Social mainly to help raise money for a charity event I did in September. The deal we have going on now is a $10 for $20 worth of chocolates. Of that $10 the customer pays, I received $5.50. Of that $5.50, I donated $1 to charity (yes, I know, that was my choice so it doesn't really count, but still). So for every deal sold, I sell $20 worth of merchandise and get $5.50. What we have found is most people are just after the 'deal" and come in the shop looking to just spend EXACTLY $20. Not great for us. Also, it is difficult to quantify how many of these customers become repeat customers. Hard to say. We also found that a lot of our regular customers were use the LS deal, thus sort of defeating the purpose of the whole thing. Yes, I guess it could be good to get some initial exposure for a new business, but I think once a business has done one of the deals, there is really no reason to do another. Just my $.02.

Also, for some strange reason people like to wait right before the thing is about to expire to come in and redeem it. We have been busy as shit all week, but 80% of the customers are LS deals. (our deal expires next week).

[DonRocks]

You are not alone in your head-scratching. The only thing keeping a lid on the short sale market is the fact that Groupon sold such a small percentage of the company.

The analysts who think highly of Groupon mostly believe that the company will successfully move away from a sales force-intensive model to one that requires less sales manpower (more business driven online, e.g., through offerings like Groupon Goods), and will innovate with new products that don't look much like the current daily coupon.

All that said, even if Groupon does succeed with the kinds of innovation and agility that some smart people are predicting, the current valuation is totally out of whack.

Dave

There are a fair number of articles that have come out about the short interest in Groupon (GRPN) just in the past 24 hours (click for an example).

I'm not a financial advisor, but I do note the limited number of shares available which would worry me maintaining a short position (refer to this April 20, 1998 K-TEL article during the dot.com bubble).

But in the long-term? Well, refer to this November 17, 1998 K-TEL article.

Is history going to repeat itself?

[Waitman]

I guess the reason that all of our reviews here are for CityZen, Rogue, Komi in the like is that we're such fucking great stock pickers that we can blow six or eight grand a month on slow dinner and old wines. Shorting stuff, going long, flippin' shit, call options and the occasional commodity future -- we don't just pick restaurants, we pick the future of our economy.

Now that we've shorted Groupon, let's say we find some Facebook insiders with a yen to monetize their last five years....

[DonRocks]

I guess the reason that all of our reviews here are for CityZen, Rogue, Komi in the like is that we're such fucking great stock pickers that we can blow six or eight grand a month on slow dinner and old wines. Shorting stuff, going long, flippin' shit, call options and the occasional commodity future -- we don't just pick restaurants, we pick the future of our economy.

Now that we've shorted Groupon, let's say we find some Facebook insiders with a yen to monetize their last five years....

You'd be surprised how educated our demographic is (look in the mirror, and think "NPR").

And remember my post five years from now.

[DonRocks]

Sixteen days later, the company is now valued at less than $10 billion. From where I sit ...

$10 BILLION for this business model?!

This is about the only case in IPO history where I trust myself more than I trust financial analysts. How can this company be worth ten billion dollars? Unless they have some sort of secret patent-trademark-voodoo thing going on, how can it be worth *one* billion dollars?

Rhyming couplet:

Fuckin' A

Send some my way

A billion dollars?!

You see those Entertainment Books sitting in CVS? That's Groupon. I mean, God love 'em, but ... NO!

The Washington, DC market has got to be 1% of the nation's internet economy. If someone wants to write me a check for $10 million, they can have this website (*), lox, stock, and bagel, and I'll send you a postcard from Barbados. Ashok? Michael?

(*) Not really, but you get the picture. WTF?!

Re-reading this post, I don't want people to get the impression that I'm cheerleading the company's demise - I'm not (if anything, a successful Groupon would spur donrockwell.com to get into the same type of thing, so I'd personally have everything to gain from their success - likewise Yelp). But I feel like I'm watching a train leave the station that's destined for a crash, and I'm taking a morbid fascination in it.

[weezy]

This is about the only case in IPO history where I trust myself more than I trust financial analysts. How can this company be worth ten billion dollars? ,

They had a coupon.

[dcs]

This is about the only case in IPO history where I trust myself more than I trust financial analysts. How can this company be worth ten billion dollars? Unless they have some sort of secret patent-trademark-voodoo thing going on, how can it be worth *one* billion dollars?

The IPO game is more about making money for banks and traders than accurate valuation. I did it on ETrade years ago. Most of the IPOs I got failed long after I flipped the shares for a profit. I actually feel guilty now for participating in the charade.

[B.A.R.]

Here is proof that the general model is already scraping rock bottom.

[Heather]

It might be the equivalent of the Entertainment Coupon book, but it's tapped the smartphone owners which is a huge market. It's mobile, high-tech (well, high tech for the average person) and makes people feel smart. People feel like they are participating in THE INTERNET, & not just being a coupon-clipper.

[B.A.R.]

What used to be an e-mail a day has gotten out of control. As my Inbox has overflowed this holiday season with various deals that no longer interest me (how many Yoga classes can I buy), I have unsubscribed from Groupon, Living Social, et al. At least for me, it has become the electronic version of all of the junk that goes from my mailbox to the recucle bin at home, just in electronic form.

[DonRocks]

On 11/10/2011 at 3:04 PM, DonRocks said:

I cannot find one single shred of evidence, including my own perception of The Scene, that leads me to believe Groupon is anything but an awful long-term investment. I'd be delighted if they succeeded, but ...

Really? Really??

On 11/28/2011 at 9:23 PM, DonRocks said:

Sixteen days later, the company is now valued at less than $10 billion. From where I sit ...

$10 BILLION for this business model?!

This is about the only case in IPO history where I trust myself more than I trust financial analysts. How can this company be worth ten billion dollars? Unless they have some sort of secret patent-trademark-voodoo thing going on, how can it be worth *one* billion dollars?

Rhyming couplet:

Fuckin' A

Send some my way

A billion dollars?!

You see those Entertainment Books sitting in CVS? That's Groupon. I mean, God love 'em, but ... NO!

The Washington, DC market has got to be 1% of the nation's internet economy. If someone wants to write me a check for $10 million, they can have this website (*), lox, stock, and bagel, and I'll send you a postcard from Barbados. Ashok? Michael?

(*) Not really, but you get the picture. WTF?!

Re-reading this post, I don't want people to get the impression that I'm cheerleading the company's demise - I'm not (if anything, a successful Groupon would spur donrockwell.com to get into the same type of thing, so I'd personally have everything to gain from their success - likewise Yelp). But I feel like I'm watching a train leave the station that's destined for a crash, and I'm taking a morbid fascination in it.

Maybe I should become an analyst.

[johnb]

Their current market cap is running around $5 Bil and the trend is decidedly down.

[DonRocks]

Their current market cap is running around $5 Bil and the trend is decidedly down.

Now it's down to $3 billion. Will it hold this level? Will it exist five years from now? At this point, who knows.

The model is not worthless; there will always be discounts, and the internet is here to stay. But here's a New York Times article about deepening dissatisfaction with daily-deal discounts.

(Guys, you could have just asked me - I live in this market, day in, day out, and there was no way this company was worth $15 billion without any barriers to competition. (Speaking of barriers to competition, how ya doin', Yelp?))

[Waitman]

Now it's down to $3 billion. Will it hold this level? Will it exist five years from now? At this point, who knows.

The model is not worthless; there will always be discounts, and the internet is here to stay. But here's a New York Times article about deepening dissatisfaction with daily-deal discounts.

(Guys, you could have just asked me - I live in this market, day in, day out, and there was no way this company was worth $15 billion without any barriers to competition. (Speaking of barriers to competition, how ya doin', Yelp?))

So why didn't you short it and get rich?

[DonRocks]

So why didn't you short it and get rich?

How do you know I didn't?

Answer: Same reason I didn't short real estate: four answers I can think of - I don't even know how; I knew "whether" but not when; I don't like risky investments; there was the possibility that I might have been wrong (whoops, didn't think about China).

[dcs]

How do you know I didn't?

Answer: Same reason I didn't short real estate: four answers I can think of - I don't even know how; I knew "whether" but not when; I don't like risky investments; there was the possibility that I might have been wrong (whoops, didn't think about China).

With this amount of short interest, this appears to be where the smart money is. If you can survive a squeeze, it looks like money to me. (Although usually when dopes like me can see this, it is too late to join the party.)

[johnb]

FWIW, it dropped well below $2 this morning, putting its market cap somewhere south of 10% of what it was at the time of the IPO.

Don't we all wish we'd shorted this turkey!

[DonRocks]

FWIW, it dropped well below $2 this morning, putting its market cap somewhere south of 10% of what it was at the time of the IPO.

Don't we all wish we'd shorted this turkey!

And yet, GRPN has $2 billion in revenue per year. At some point, you have to realize that companies are worth ... something. Therein lies the difference between me, and people who make money at these things.

[JPW]

This one's for you, Don --> FIRED!

[MarkS]

has anyone visited Fab.COM or seen their commercial on Bravo. Way different business mode.

[darkstar965]

This one's for you, Don --> FIRED!

Most inevitable and anticlimactic news of the year. Super that the candor, realism and introspection come forth now but might things have been different had he stepped aside a year or three ago, realizing the same things he seems to realize now. Mason could have resigned a few years ago and really given his company more of a chance. He didn't do that. Now, after being forced out, he almost seems realistic about the problems and willing to share his own pearls like "start with the customer." Fabulous. What prevented him from doing what might have been best a few years back and only 'coming clean' now? Hubris.

[TedE]

Most inevitable and anticlimactic news of the year. Super that the candor, realism and introspection come forth now but might things have been different had he stepped aside a year or three ago, realizing the same things he seems to realize now. Mason could have resigned a few years ago and really given his company more of a chance. He didn't do that. Now, after being forced out, he almost seems realistic about the problems and willing to share his own pearls like "start with the customer." Fabulous. What prevented him from doing what might have been best a few years back and only 'coming clean' now? Hubris.

Does anybody really think the names on the C-suite doors are the problem here?!?! It seem that Groupon's and LivingSocial's shared woes point to a more fundamental flaw in the segment: it's just not a sustainably profitable business model on a large scale.

[darkstar965]

Does anybody really think the names on the C-suite doors are the problem here?!?! It seem that Groupon's and LivingSocial's shared woes point to a more fundamental flaw in the segment: it's just not a sustainably profitable business model on a large scale.

Not sure what you mean by "names on the C-suite doors.." but with you on the business model. On one hand, the big and very-well-covered flaw shared by Groupon and Living Social was and is that it's a business that was great for the startups (before they started flailing), was great for consumers when there were more bigtime discounts than before these companies launched and pretty consistently crappy for most customers (the restaurants especially). Nothing new there.

The thing with both companies and the sector is that there was (and likely still is) opportunity to change and succeed. Rather than deal of the day/couponing, there is clear need for better and cost effective technology in the restaurant business. Groupon, OpenTable and others are slowly realizing this with some of their newer offerings. But, with thin-margin, tenuous businesses like restaurants, it has to be a real win/win for it to be sustainable. Daily deals never were that. OpenTable may or may not be in the future.

[DaveO]

A while back I found this thread from reddit from a laid off LivingSocial worker to be an interesting insight into the problems these two businesses are having. Particularly some of the comments speak to the financial pressures the 2 businesses face. They speak to the volumes of deals, and the pressures to generate "deals" that both generate lots of sales and high $ volumes per sale and in total for either LS or Groupon:

http://www.reddit.com/r/washingtondc/comments/140hoq/laid_off_from_livingsocial_ama/

Internally, its expensive and hard to generate consistently enough revenues to cover all the expenses. Who could have foreseen all that? Who saw all the competition for deals coming from everywhere under the sun? Who saw different methods to generate deals and get them seen widely done by different competitors, all cutting on the "deal value" of any individual groupon or LS? Who knew?

Its tough for everyone to make a profit from restaurants to the businesses that use groupons to the Groupons and LivingSocials of the world. Meanwhile according to one recent statistic I saw, last year more of these deal coupons were used in the US than in any previous year. I didn't see anything on the total value of all those deals, or the take for a Groupon or a LS....but consumers like them.

Consumers like making reservations through a "deal" service, wherein you can accumulate points or rewards and get something back, whether its mileage or other benefits.

The trick and hard part for a Groupon or LS is to do so profitably. The interesting thing on the Reddit thread had to do with the efforts of the teams that generated the Groupons or LS's, the pressures and what had to be the costs. Aggregate salary costs have had to be high. On top of that it appears Groupon and LS have been pushed, or allowed themselves to take on huge levels of expansion...again expensive. Public companies like groupon sort of have to do that to try and achieve growth.

Our various businesses for several markets have been called upon by groupon and LS salespeople in a variety of markets including DC. We've been visited by sales people. That is a lot of sales people making a lot of calls, spending a lot of time, running up a lot of hours for which they are paid. We never bought. We've gotten close, we just haven't bought....yet.

On the business side, we have to discount some services....take a hit on it....and above that see the Groupons and the LS's take their cut, further discounting our revenues. Is it worth it or not? Every buyers makes their own decisions. But its tough all around.

Still people like deals. The groupon type companies that ultimately figure out how to generate deals at least internal cost are the one's that will survive.

Apparently to date, nobody has figured that out. It must be challenging and difficult.

I did enjoy reading the fired CEO's memo/email to staff. Funny, refreshing and clearly he never got to the profit making answers. I just don't think its all that easy.

[darkstar965]

The reddit thread is interesting but I think even the original poster there (who comes across as thoughtful, reasonable and very sympathetic) and any emphasis on out-of-control spending misses the point a bit.

Most of the reddit thread (and even Daveo's post just above) focus on the costs of salaries, downtown real estate, acquisitions and keeping up with the joneses...er, the groupons. Also emphasized to a lesser degree is the frustration with the slide given how much "consumers like a good deal." Those are both true but they are merely symptoms of the core problem.

The core problem was and is that the basic value proposition was a house of cards because it is win/lose for the restaurants that ultimately decide to do a deal and then have to deliver on it. GRPN and LS won (for awhile) and, with a minority of exceptions, the small businesses they pursued lost (i.e., didn't see the follow-on business gains they were promised or lost money and credibility with each deal).

That reality is why GRPN and LS investors threw more and more money at promotion, acquisitions, real estate, technology and, especially, their sales forces. But with a rotten core, none of that could paper over the problem indefinitely and that's what we're seeing now. Cutting and controlling spending won't solve that core problem; it'll just make the futility of it more obvious. If they won customer loyalty and had the better restaurants repeating deals and referring other accounts, cash flow would have kept up much better with necessary investments.

Interestingly, OpenTable (IMHO) is in a very different position. While they are not being effectively managed right now (lots of great evidence of that including this), their basic value proposition for restaurants and for consumers makes sense in a way that daily deals never did. Simply stated, effective and affordable technology that help restaurants run critical processes (reservations) and better know and serve their customers based on quality data restaurants have never had before. That can and will work whether or not OpenTable leads the charge 5 and 10 years from now. If OpenTable can get its act together to better serve its customers (restaurants, as distinct from consumer, we folks who dine) with more of a win/win approach on pricing, better service and better, more reliable products, they can grow and sustain for the long term in a way that I think not possible for daily deal companies.

[DaveO]

DarkStar:

Good point. I don't know the volume of repeat business. That is a good measure for one element of the business, but its not the only one. With or w/out significant repeat business total volume of deals is UP. People do like them.

I do know one smb (not a restaurant) that keeps using and using groupons and LS's. They work for him and his businesses. He has plenty of inventory and these mass emails, do get him business, beyond his ability to spread that word so widely.

The cost thing always grabs me. On the LS thread I could just feel the weight of all those salaries and the pressures to get revenues to cover them and make money. In DC, I used to do commercial real estate. I just think they were dumb, maybe naive. Bad move, expensive...but still probably small relative to salaries, at least IMHO.

Business Churn, as might be the case w/ groupon and LS is always a concern. It doesn't seem to be measured well. I track some others kinds of things in general relative to local businesses (beyond restaurants). There are some marketing businesses that just churn through customers like nothing I've seen...but they are also growing revenues, wall street likes them....and somehow that churn thing isn't killing them

so...who knows.

The operators really know the end result of the Open Table and other reservation systems much better than I do as a consumer. From what little I get in feedback...its like a love/hate thing. Those reservations are simply beautiful...OTOH the costs are not something the operators like.--but I suppose that could also be a price point issue. If the same costs apply to the operator apply to a $40 reservation versus a $300 reservation...well then open table is that much better for pricier restaurants and doesn't take too much of a hit.

We have some businesses that (knock on wood) are running pretty well...so we haven't had to use groupon or LS...and some others in more remote areas where G and LS simply aren't as powerful as they are here.

One other issue that has hit smb's across the board is the "shock" that hits when business volume explodes from a groupon and the business can't service the rush clients well. That ends up with consumer complaints and the exact opposite of what the smb was hoping for. That alone has to account for one piece of the churn element.

The last thing I noticed was how certain smb's/restaurants/you name it gained relatively huge visibility in conjunction with a groupon. Search volume by business name explodes when the groupon hits.

Still deals are an attractive element of groupons and LS's. I've seen them referenced here and in other review sites as they drive customers to restaurants they might not have hit otherwise.

So many issues. Certainly a lot of churn. I got struck by the cost side of the equation. OTOH so many consumers (myself included) love love love deals.

In my book if somebody(s) figure out how to deliver a lot of deals at remarkably low costs they have a winner.

[jayandstacey]

DarkStar:

...

In my book if somebody(s) figure out how to deliver a lot of deals at remarkably low costs they have a winner.

Groupon did figure it out, they had a winner and made lots of money. Now the ship has sailed, for three reasons:

1. Others figured it the model, and Groupon itself offered more deals, and suddenly there's a glur of deals. So they aren't deals anymore - they are spam.

2. They did figure out how to make ir work and there was probably a moment or two where it was profitable. But there was a "too much" point where now they have a ton of unsustainable overhead (as you've pointed out.)

3. The original customers were tecnie types - people willing to try a new social media widget. They in turn used the deals and were the good customers that businesses like to see - they were normal (even advanced) buyers that were willing to try new things and sink money into them. But once word got around, then the customers became the savings type - the ones that would ONLY come for the loss leaders. The kind of people businesses don't want/need.

This is nothing new. I get junk mail everyday. Coupons, flyers, ads, etc. Groupon was just another mechanism to deliver the message - the difference was, they insisted on a low price so their mechanism would stand out. And for a flash of time, it did.

Have you noticed that companies like GE or HP or Target don't fall for the Groupon shill? Precisely because it is unsustainable and doesn't make sense. It ruins the brand while attracting the wrong types. Those companies don't have time for Groupon, they have real business to conduct.

[darkstar965]

This can be boiled down pretty simply.

Any business that has a service or product that people want enough to buy for whatever charged will succeed so long as the provider can profit at least in the medium term. Groupon and Living Social never had that with enough customers (again, different from all consumers like us who love good deals, we're talking about the restaurants here).

Nearly all business-to-consumer businesses market promote in different ways with occasional discounts. Groupon/LivingSocial were concepts with a new and different way to do that but were generally (not always) bad news for customers.

Lots of other things--overhead, financials, metrics, human resources/leadership, acquisitions, new offerings like LS's events--are of course relevant but they're not at the core of the downslide like the fundamentally flawed model described above in this post and in many others above this post.

And, FWIW, Target has done Groupons including at least one currently.

[jayandstacey]

.And, FWIW, Target has done Groupons including at least one currently.

Isn't that a gift card for Groupon? That's entirely different- Target makes money on that.

I took a guess that Target hasn't done a groupon but they may have, for a family portrait sitting. I can't find any evidence of them doing one for their products.

[johnb]

Isn't that a gift card for Groupon? That's entirely different- Target makes money on that.

I took a guess that Target hasn't done a groupon but they may have, for a family portrait sitting. I can't find any evidence of them doing one for their products.

Those photo studios are services not products, more appropriate for a coupon, and if the Target ones are typical they are operated by outside concessionaires, not Target itself. So I think your assertion that Target (itself) has not used Groupon is fairly solid. Basically Groupon is most appropriate for small local service businesses, not the big boys of the world -- they have their own marketing departments.

[darkstar965]

Fair enough on the gift card. I used that as the example just because Target had been specifically mentioned and, of course, there is a relationship between Target and Groupon which made the card possible. That aside, there have been a few high profile deals involving the daily-deal companies and large national retailers including Living Social/Whole Foods and, of course, the well-covered Groupon/Gap. These deals were generally seen as "experiments" which, notably, haven't led to any rush by lots of other large companies to Chicago (Groupon HQ) and DC (LivingSocial HQ) to do more deals. In the case of Gap, while never verified by Gap or Groupon, most analysts believe Gap lost more than $5 million on the deal. Both those links, btw, are major media outlets' analyses of whether the deals "worked" with some mixing of consumer and customer.

Another good example comes courtesy the former #3 daily deal company. Anyone remember Bloomspot from just a few months ago before they were bought...for only $35 million...relative to the bilions Groupon was once worth? Bloomspot, to its credit 'got' the problem of merchant profitability that GRPN and LS weren't solving. Here's a good piece about that. And here's another about the deal which got Bloomspot's founders and employees much less cash than they expected to get.

None of that is so important to make the point, though. The reasons why more big retailers aren't rushing to partner with daily deal startups aren't so different from why, increasingly, small businesses like restaurants are generally shying away (yes, with exceptions!). The economics don't work for the retailers over time in most cases. Costs (mainly financial and reputational) exceed benefits in most cases.

[jayandstacey]

Basically Groupon is most appropriate for small local service businesses, not the big boys of the world -- they have their own marketing departments.

None of that is so important to make the point, though. The reasons why more big retailers aren't rushing to partner with daily deal startups aren't so different from why, increasingly, small businesses like restaurants are generally shying away (yes, with exceptions!). The economics don't work for the retailers over time in most cases. Costs (mainly financial and reputational) exceed benefits in most cases.

Agree and agree - though I don't think Groupon is necessarily appropriate for smaller companies because they don't have marketing departments...rather because they are more likely to make a poor decision. (edit - I've owned a small business, this isn't meant as a slight. Rather to say that not every small business has the resources or knowledge to avoid deals that might be bad.)

Believe it or not, the Federal Government is doing a version of this very thing. They will give contracts that are limited to just a few contractors (vs open contracts where anyone can play) but in doing so, charge a MUCH higher fee - 3x their normal fee, while INSISTING that the company give a substantial discount to be a member of the exclusive club.

The result? Only smaller companies are playing, ones taking a much greater risk. And only bottom-feeding buyers are using the contracts. And the result is a mess that ultimately just wastes taxpayer dollars in many, many different ways - including the cost of counterfeit goods being sold as the only relief to allow the contractors to make money.

It is the same model. And the Government uses many of the same overhead tactics (like hiring sales people and extensive adrvertising) to try to sell the concept. While it isn't a Ponzi scheme per se - it hinges on the notion that money will somehow be made somewhere - like through repeat customers - and it just isn't there.

[DaveO]

Aggregate value of groupon deals SOLD in the US last year was 50% higher than in 2011. I suppose they accomplished this in the midst of increased competition.

http://screenwerk.com/2013/02/27/groupon-q4-disappoints-some-but-take-a-look-at-mobile/

A lot of deals are being sold. Its in the $billions of dollars. Still I think its a struggle to find how to do this profitably in the midst of lots of competition and high costs.

Going back to the opening thread and Don's question.....just doesn't look like a great stock deal to me...and certainly not off the original IPO. of course if it plunges and rebounds as a stock that is a different story.

[DaveO]

I saw an ad on google adwords related to the business of our school below. It was for a groupon for an online bartending course. http://www.groupon.com/deals/bartending-college-online-44?utm_source=Google&utm_medium=cpc&utm_campaign=US_DT_SEA_GGL_TXT_TTT_SR_CBP_CH1_NBR_k*bartending%20college%20online_m*b_d*US-RTC-Washington-Dc_g*bartending-college-online-44_c*18550058776_ap*1s1_sa*20130121_ea*20130127_xa*20140123

The code above designates that the ad was related to Washington Dc. I've got to set my computer location for google in different cities to see if the ad is running elsewhere.

They are running ads to get attention. "bartending school" is a tiny niche search phrase. clicking on the ad probably costs them a $1 or so.

going to the ad also opens the door to a lot of other groupons though. One might hit the ad for the online course but they are introduced to a lot of other deals. I suppose it ends up making groupon money.

I saw the ad several days ago and have been tracking it. Not tons of sales. If they are just running the ad in this area,....actually not bad activity. If they are running the ads nationally....miserable sales volume .

Meanwhile for the provider.....probably a nice deal. At maximum it costs him a couple of bucks to send out the "online course" so he is getting widespread groupon salesiesness and advertising....and the groupon cut really doesn't matter. but aside from the google adwords clicks it doesn't really cost groupon more to run ads this way.

The accompanying groupons had different levels of activity...from active to no sales. Felt bad for the Inn at Deep Creek Lake--> nothing...no groupon action. They don't all work.

At the least they are exploring endless ways to get the business working. and ultimately turn a profit.

[DaveO]

Some Musings on Groupons

The following are some thoughts, commentary and observations on Groupons (and LS's). The other week a competitor to one of our businesses ran a groupon. As a business we advertise in google using adwords. For those who know Adwords, we use both exact phrase and Broad Phrase advertising. Broad phrase enables us to capture most of the marketing phrases that everyone searches on over the course of time.

As we haven't used groupons to date it was the 2nd time I was struck by the incredible visibility the Groupon creates. I see that in a reflection of Impressions of searches by google users related to the business. We caught the huge explosion of searches for this Groupon.

In this case it was relatively GIGANTIC. In one week there were an extraordinary volume of searches for the particular groupon relative to our busines. It was 4 times the volume of the normal #1 search phrase and 7 times the volume of the #2 phrase and extraordinarily more voluminous than so many other relevant search phrases. Similarly there were an unusually high volume of google searches for the name of the business that ran the Groupon.

The last time I witnessed this there was a similar explosion of visibility for the little known business that used a groupon.

What I find astounding is the explosion of visibility Groupons and LS's provide, pretty much unlike any other marketing mechanism I've encountered. They are truly huge.

I'm very aware they also create problems for the businesses, while they are often great for the consumers. In most cases, (but not all) the discounts are real!!!. Good for the consumers. OTOH, the margins to the businesses are severely cut. They can be cut so severely the businesses LOSE money on the groupons. Another problem for high volume groupon sellers, is that they can be so overwhelmed by the sudden surge in business they can't adequately service the new customers....and ultimately don't retain them.

One analysis suggests that for restaurants Groupons have done nothing to increase total dining...but simply shifted the money around and cut $$ considerably. Again--> good for consumers, not good for the restaurants. OTOH, the total volume of groupons and LS's increased dramatically in 2012 over 2011. They are popular.

Meanwhile going back to Don's original observation...Groupon is worth dramatically less than the original IPO. It will have a hard time matching that value in the foreseeable future. Its still generating losses.

Still groupons are amazing marketing phenomena.

[darkstar965]

...Still groupons are amazing marketing phenomena.

OK. I'll bite. The purpose of marketing, whether old world or new, is to boost demand which then leads to sales. How much did your competitor's groupon depress your business' sales? And, can you even hazard a semi-informed guess as to how much, if at all, the groupon drove a gain in your competitor's profit?

Social media is a very important and valuable new phenomenon that is only beginning to show the impact it will ultimately have. Google's Adwords is at the forefront of new media advertising. All said, to date, much of it is play money where clicks, page views and search results can temporarily distract businesses from what has and will always matter most for survival: cash flow and profits. This reality didn't change when Groupon and LS launched. This reality is why the sector is collapsing.

[DaveO]

darkstar: I've been fishing around the internet for response to the phenomena. What I saw is evidently fairly common. hot groupons/ LS's generate a lot of awareness. Evidently there are businesses that then use the web and other sources to counter market against those hot groupons.

To answer your question...did it take from our sales??? I can never know that one for sure. We track that stuff all the time. We are also pretty aware when we win customers that could have gone to competitors. I suspect we lost a bit. As to the competitors income...frankly I didn't follow the actual "so called bought" so I don't know that answer.

We do follow all those social media metrics very closely. then we tie those w/ the real numbers...leads, orders, sales, costs. For one type of business those metrics from the web track activity REAL $$ activity very closely. That is true in several markets. For another type of business, slightly less closely. I don't know how they apply against the restaurant business.

I have not seen an explosion of activity that replicates the Groupon/LS phenomena in its combination of speed and size. I do understand the consequences: among them loss of margins and being slammed for service in a way that can negate the hoped for value in bringing new customers to your business. One analysis suggests that existing customers often take advantage of groupons. Ugh....that does nothing for increasing awareness.

I still think these things are powerful, but getting back to Don's original observation it appears the original IPO was crazy overstated and the two big companies that produce these things....groupon and LS have a long way to go to achieve profitability.

I'm pretty geeky on this stuff trying to use it to increase revenues. If I were in the food business I'd probably end up looking at all these groupons, see which one's were most closely related to my menu, see which one's worked....and then see if I could replicate something like that w/ out giving away the $$ house to groupon or LS. lol

[DonRocks]

Ha! Ha! Ha! RJ Cooper just posted this on Facebook (boldface type is mine):

---------

Wholly Shit:

This just made my morning: A groupon rep:

Gypsy Soul:

Good Morning!

I am the local rep here in the DC area and would like to see if you had a few minutes to talk regarding partnering with us on a feature. We'd love to work with your great restaurant. The place is great and the food is always spot on. So I know our subscribers wouldn't be disappointed.

If you are local, I'd be happy to meet face to face, however, if you are not, we can talk via phone. Please let me know if a time works next week that we could talk briefly regarding this opportunity.

We can cap the feature as you want as well and I can give you a really great margin due to the type of business, reviews, etc.

Thanks for your time and consideration!

Response:

...

Please read your email. Then ask yourself, "Why am I in this business?" Then proceed to your sales manager and ask him, "Why did I just email a James Beard winning chef and owner of restaurant with these words: "The place is great and the food is always spot on. So I know our subscribers wouldn't be disappointed."

I understand that this company takes young people breaking out of college into a professional arena that their naivety of proper business research really doesn't matter.

You have been to Gypsy Soul? The food is spot on? Why that is incredible I appreciate it immensely, however your lack of research and information is however, not to sound mean, "unreliable and unbelieavablely off". I don't blame you. You sit in front of a computer screen playing with social media and figuring out where your going for happy hour, however, taking one minute on your key pad crack with a moment on google you would understand that Gypsy Soul does not open for business until July of 2014.

So again as much as I love the emails from robotic un passionate cubical socially inept sales reps from groupon, respect my craft and do your research. If your local quit that pathetic occupation you are in and work at GypsySoul and learn what passion, dedication, determination and focus is.

Have a great summer.

We do not discount our product.

Thank you.

Chef RJ Cooper
Chef/Owner

[DonRocks]

We do not discount our product.

Thank you.

Oops.

(I'm sorry, I couldn't resist.)

[bettyjoan]

I promise, I'm not trying to be a grouch, but...

Is being nasty to this sales rep really necessary?  It is posted here (and on FB) like it is hilarious, but I fail to see the humor in shaming and name-calling an individual whose worst offense was that she made a mistake.  You may not like Groupon, but the fact remains that Anna is a human being.  There are ways to correct mistakes without getting personal.

[DonRocks]

I promise, I'm not trying to be a grouch, but...

Is being nasty to this sales rep really necessary?  It is posted here (and on FB) like it is hilarious, but I fail to see the humor in shaming and name-calling an individual whose worst offense was that she made a mistake.  You may not like Groupon, but the fact remains that she is a human being.  There are ways to correct mistakes without getting personal.

Oh, I wasn't even thinking about the individual; I was thinking about the methodology of Groupon, the company, and perhaps the whole, generalized business of untrained sales reps making cold calls. I'll remove her name now.

[deangold]

I promise, I'm not trying to be a grouch, but...

Is being nasty to this sales rep really necessary?  It is posted here (and on FB) like it is hilarious, but I fail to see the humor in shaming and name-calling an individual whose worst offense was that she made a mistake.  You may not like Groupon, but the fact remains that Anna is a human being.  There are ways to correct mistakes without getting personal.

Betty

I receive calls, e-mails and other forms of harassment from Groupon and I always tell them to stop calling.  The answer given is htat my number just "came up on a list"  and that it can't be helped.  A company that tracks millions of coupons in real time, hundreds of thousands of members etc etc etc can't keep track of someone who doesn't want to be called? Absolutely impossible.  Can't keep track of weather a restaurant is open or not?  Absolutely impossible.  And I for one am sick and tired of the "its only my job" excuse.  I get messages and emails saying "I am following up on our conversation last week" What conversation.... "Fuck off and Die?"

Don't take a job whose goal is to harass the many so the few of the few sign up.  I pay for my phone and yet I am recieving 10+ calls a typical day selling me stuff.  On a phone I pay hundreds of dollars a month to operate.  Wasting my time, the time of my employees etc.

I know it's legal because we have cheap whores in Congress who sniff up the butts of the folk who throw money around like male after female dogs in heat, Check out how much money the Telemarketers of America Association shell out to the Congressional whores.  Ohhhh you can't because of Citizens United.

One time Bev Egleston said to me, "Just because something is accepted doesn't make it acceptable.  I don't see how taking a job at Groupon cold calling is unlike the person who threw the cigarette butt, trash, medical waste, fracking water, cow manure from CAFOS that is poisoning our water or the person demeaning a $.99 happy meal that is rendering our antibiotics defenseless {e coli is implicated in 23,000 deaths a year now}.

The person was not named by name so no hard no foul.  But the whole model of Groupon is to harm businesses that lack access to the capital market that is skewed to the very wealthy.

WOW!  How did I wind up here on the soapbox?

[bettyjoan]

Don't take a job whose goal is to harass the manu so the few of hte few sing up.

I don't see how taking a job at Groupon cold calling is unlike the person who threw the cigarette but, trash, medical waste, fracking water, cow manure from CAFOS that is poising our water or the person demeaning a $.99 happy meal that is rendering our antibiotics defenseless {e coli is implicated in 23,000 deaths a year now}.

I know this is not news to anyone, but I would posit that there are many people who cannot pick and choose what jobs they take - they have to make a living, feed their families, put a roof over their heads, etc etc.  Many people work for companies that people don't like/support.  It doesn't make what those companies do any more right, but I guess all I'm hoping is that we don't automatically attribute the traits of a large organization to its individual members.  I work for the Department of Veterans Affairs - does that mean that I am a soulless beaurocrat who manipulates data and puts Veterans in harms way just to get a bonus at the end of the year?

And it wasn't really the underlying content of the message that struck a nerve with me - it was the way the correction was delivered.  I have never used Groupon, and I don't doubt that there are all kinds of shady sales tactics used by all kinds of companies who target restaurant owners, chefs, small businesses, etc., but I don't think we have so much of an excess of kindness and courtesy that there's no room for it in this context.

[DaveO]

Man:   Those rants cracked me up.  Hey I was a sales person.  I made cold calls.  People brushed me off.  They were sick of the calls.  I got cursed at, etc.  I made these calls while in commercial Real Estate.  My first manager used to tell us we were "consultants" and the person who was the #2 in command in our office used to tell us to "sell, sell, sell".  We learned sales before we learned Real Estate.  Ooof did we have to sell.   It s*cks and its hard and you have to let all that rejection roll off your back.  Occasionally you would run to a person who would whup you upside the head with Dean's type of commentary.   He/she was sick of the calls.  Day after day.  Eating up your time.

Now I'm on the other side.  I hate those calls.  I like to brush them off quickly.  On a lot of them, I'll emphatically tell the caller something like..."absolutely not.  Save your time.  Don't allow me the time to insult you for wasting my time.  Bother somebody else!!"   Often I'm far more rude.  Sometimes I'll get vulgar.

But sometimes when I was selling a few of the deals I made were so danged great values for clients/customers.  They were lucky they ended up taking my calls and using me.  Sometimes.

BTW:  H Ross Perot, made his fortune first by being a hugely successful computer sales person.   Hugely successful.  He was selling that "stuff" when everybody was buying and needed it.  I guess they liked taking his calls.

Then he built his own company(s).  Then he became a billionaire.  Then he ran for President and gathered a lot of following ...at first.  And everyone listened to him and at least initially paid attention to him.  He started out as an IBM cold calling sales person.

Meanwhile, every sales person should "do their research" unlike the dingbat that contacted RJ Cooper.  It was a dingbat move.  They deserve to be called out.  It won't stop others from repeating that dumb move.

Of coincidence, earlier today I interviewed an employer that has regularly hired from our little bar school.  What is his first question to every person wanting to be a BOH, or FOH employee?   Tell me something about ..........xxxxyyy (name of restaurant)    Most of them can't.  They don't do their research.  We tell our grads to ALWAYS do their research before interviewing.  Possibly most of them don't.

They should be called out.   Otherwise they'll always do the same stupid stuff.

Meanwhile customers love Groupons.  This forum has plenty of posts with references to a Groupon or an unused Groupon or LivingSocial.  Customers love them.  They covet them.  That along with the multi million # of emails is why they work.  Its why they end up working.  Its why they can hire salespeople to harass business operators.  They work.

But boy those rants are funny.   And there is truth to them.  So many truths.

[Rovers2000]

I don't see how taking a job at Groupon cold calling is unlike the person who threw the cigarette butt, trash, medical waste, fracking water, cow manure from CAFOS that is poisoning our water or the person demeaning a $.99 happy meal that is rendering our antibiotics defenseless {e coli is implicated in 23,000 deaths a year now}.

While RJ's response could be construed as humorous, the above quote literally made me laugh out loud.  Really?  You're going to compare a ground floor level sales job, taken by a kid probably right out of college - more than likely to simply get some experience on their resume since the job market is pretty competitive, to fracking?  Are you truly serious?

I speak as someone who spend my first year post college cold calling on behalf of a consulting firm to drum business up. Thinking back on it, some of the responses that I received from the Chief Financial Officers I called would make RJ's look pretty tame. That said, it was a great experience b/c it showed me the importance of preparation - after my first experience messing up an email merge or miss-speaking, I sure as hell did my due diligence before picking up the phone.

So why don't we get off our collective high horses here - if you want to attack Groupon go ahead, but to attack a junior employee (or their job) who is just working to collect a paycheck sending out mail merges and cold calling is pretty sad and juvenile.