Interesting news on Groupon

jmcc

Seems the Wall Street Journal has a report on Groupon's less than impressive results:
online.wsj.com/article_email/SB10001424127887323478304578330592474736364-lMyQjAxMTAzMDIwNzEyNDcyWj.html#

The share price is down 26% and it seems that there are more losses on the way. Does this mean that the voucher model is in trouble and what does it mean for the Irish voucher sites?

BBC has more and it appears that the founder and CEO has been ousted:
http://www.bbc.co.uk/news/business-21625280

Hope this doesn't turn into a trigger like Lastminute.com's flotation did with the DotCom bubble.

Regards...jmcc

Graham

I can't say this came as a big surprise, their business model is fundamentally flawed in my opinion.

Although I can see the value to the consumers and the value to Groupon, I couldn't help think 'why' whenever I spotted a new retailer jump on the bandwagon.

Businesses were lining up to sell their product/service for 50% of its normal value AND paying Groupon for the privilege?? I'm sorry but if I wanted/needed to give away products/services for almost nothing, I don't think I'd need to pay an international coupon website to help with that.

It's no surprise that 'Selling Costs' for Groupon were going up while their margin was dropping. They were(are) running out of gullible merchants.

Most of the Groupon clones have already left the market or moved into the high margin tat business, either that or their remaining merchants have moved to an American model. Double the price but give the customer a 50% off coupon.

*I do accept that for a small minority of (mostly service) businesses with fixed costs the Groupon model may have worked.

jmcc

The maths really didn't add up and it seemed that many of the businesses were in dire straits. There were a few blog posts that worked out that some businesses would actually lose money with a Groupon style offer. I think there was a Groupon style business pitched on the last Irish Dragons Den series and both Groupon and Livingsocial are active in the Irish market. There's also a few smaller home-grown players. INM has its Grabone venture. But Ireland is nowhere near the market size of the US where there's a continual stream of candidates for Groupon,

Regards...jmcc

Graham

Perhaps they should run a 'Groupon' for Groupon shares. 26% off this week only, a $x.xx dollar saving.

BigGrayKettle

The whole thing about social deals from a business owners perspective is repeat business. However I think, most of the time, that consumers who actively purchase social deals, aren't the kind to pay full whack for the same service the next time, regardless of how impressed or happy they were with it. This may not always be the case but in some industries I think it is. I think small business owners have realised this so the pool is drying up for the likes of Groupon.

Pacing Mule

We ran a group on deal and to be honest it worked out very well for us. The business in question is a party business so for the majority of deals sold (there was some cannibilsation of an existing customer base) we had a group of 10-15 new kids at the venue who we are seeeing coming back for their own parties. That said I think our particular scenario works well for the exposure given to new clients through the newsletters etc as well.

I don't understand myself though how it could be making such huge losses. They are for the most part selling an intangible product (I know they have moved onto some direct buying and selling themselves) which they take a commission of between 25% -50% Last quarter revenue was over $500 million so that's at least $125 million income to spend on advertising and admin. For our particular deal Groupon made close on €2,000 commission and only direct expense was payment processing fees. After that it was all admin but I can't see it costing any more than 10% for labour costs associated with the admin. What am I missing

Graham

Some big flaws in their masterplan I think.

They assumed the enormous margins would last forever, they didn't as there's fairly low barriers to entry to their market.

They assumed business would keep coming and knocking on their door, it didn't. They have to go out and work for it which takes a substantial sales team.

They assumed they would continue to get away with spreading acquisition costs over a long period for accounting purposes.

In their position I would have sold out to Google as quickly as possible and cashed the cheque as quickly as possible before they realised the whole thing was build on sand.

super_furry

I think the other issue is lack of customer faith. So many people tried them or their competitors and got burnt. There are entire sites devoted to complaining about Group on delivery times, being unable to book hotels and restaraunts you paid for and general poor quality products.

Graham

I think their race to the bottom in terms of customer support and the items/services being discounted is indicative of their flailing business model.

DubTony

Pageant Messiah wrote: »

We ran a group on deal and to be honest it worked out very well for us. The business in question is a party business so for the majority of deals sold (there was some cannibilsation of an existing customer base) we had a group of 10-15 new kids at the venue who we are seeeing coming back for their own parties. That said I think our particular scenario works well for the exposure given to new clients through the newsletters etc as well.

I don't understand myself though how it could be making such huge losses. They are for the most part selling an intangible product (I know they have moved onto some direct buying and selling themselves) which they take a commission of between 25% -50% Last quarter revenue was over $500 million so that's at least $125 million income to spend on advertising and admin. For our particular deal Groupon made close on €2,000 commission and only direct expense was payment processing fees. After that it was all admin but I can't see it costing any more than 10% for labour costs associated with the admin. What am I missing

Yours is the perfect business for these type of deals as the people who purchase the deal aren't the only ones benefitting from it, and as long as you do a good job, repeat business is as good as guaranteed. Nice one.

As for Groupon's losses. This might go some way to explaining it
http://techcrunch.com/2011/06/01/groupon-8000-employees-salesmen/

riveratom

Pageant Messiah wrote: »

We ran a group on deal and to be honest it worked out very well for us. The business in question is a party business so for the majority of deals sold (there was some cannibilsation of an existing customer base) we had a group of 10-15 new kids at the venue who we are seeeing coming back for their own parties. That said I think our particular scenario works well for the exposure given to new clients through the newsletters etc as well.

I don't understand myself though how it could be making such huge losses. They are for the most part selling an intangible product (I know they have moved onto some direct buying and selling themselves) which they take a commission of between 25% -50% Last quarter revenue was over $500 million so that's at least $125 million income to spend on advertising and admin. For our particular deal Groupon made close on €2,000 commission and only direct expense was payment processing fees. After that it was all admin but I can't see it costing any more than 10% for labour costs associated with the admin. What am I missing

Try 12,000 employees and offices to maintain all over the world

skinny90

Personally I think their concept was good.its the fact there was little or no barrier to entry for competitors to jump on the bang wagon and start getting decent share of the market

Graham

If the concept is easy to replicate you need to make sure you have some other stand out feature to keep the competition at bay. Groupon didn't/don't.

Idbatterim

Personally I think their concept was good.its the fact there was little or no barrier to entry for competitors to jump on the bang wagon and start getting decent share of the market

yeah they were first to market and milked it while the going was good, they should have sold to google and got out! Easy to say in hindsight, but what was coming down the tracks was pretty predictable. We once ran a promotion with groupon, we couldnt even claim back the vat on the service they were providing as we were vat exempt, this is back in the infancy of it and needless to say we never ran one again...

Gloomtastic!

Idbatterim wrote: »

yeah they were first to market and milked it while the going was good, they should have sold to google and got out! Easy to say in hindsight, but what was coming down the tracks was pretty predictable. We once ran a promotion with groupon, we couldnt even claim back the vat on the service they were providing as we were vat exempt, this is back in the infancy of it and needless to say we never ran one again...

So as well as offering your product/service to the public at 50% of it's normal price, you then had to pay 50% + 21% of the discounted price to Groupon? Ouch!