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Why Groupon Not As Rosy As It Appears
Rambo Tribble writes "CNN is running an article detailing the dubious history of Eric Lefkofsky, Groupon's chairman and largest shareholder. It would seem Mr. Lefkofsky has an extensive history of taking investors' money for himself, then bankrupting the businesses invested in."
Another article posted today at TechCrunch explores one businesswoman's story of how working with Groupon was
the single worst business decision she ever made.
... as I read this article with a "groupon" ad on the side...
Onda Technology Institute
hey, that's the world we live in. Suck it up.
Damn I was hoping this was going to be about how coupon sites attract women to install toolbars and download viruses.
I already assumed large consumer-whore businesses had crooked chairmen...
The 2011 tech bubble could very well help Groupon raise money.
But remember the last tech bubble? During the dotcom days nobody would have bothered saving $10 at a restaurant. If this current bubble has any staying power, it could put Groupon out of business.
There's no -1 for "I don't get it."
Tracking and infrastructure was a really difficult problem. At the time, she didn’t have a computer, so she was reliant on a binder with 900 names in it. It was an inefficient way to track the deal. This also resulted in a lot of fraud as people redeemed coupons multiple times.
It seems that the point of this story is you shouldn't get into marketing plans if you don't know what you're doing. She didn't have a computer, she doesn't understand how statistics works, she didn't know what to do with expired coupons (nicely say "no" and offer some other type of discount to make them feel like they are still getting,) she admittedly didn't do anything to convert Groupon customers to regular customers.
The world is full of companies have failed because they didn't understand the market. It's not the fault of Groupon that she allowed herself to be talked into something that she clearly didn't understand. We're all adults here.
Take a look at how Groupon works. It cannot possibly be truly beneficial to any business. For every "groupon" purchased for a business, the business takes a loss and the people looking for a deal rarely come back. So you're paying a lot for "advertising" that you'll never possibly see a return on investment from because you're never going to get new, repeat, life-long customers from it.
It's a shame and a scam. I pity the businesses that use Groupon, LivingSocial, and the ilk, they'll never survive the long haul.
Exactly what value does Groupon add to the economy (assuming here marketing !=economic value)
Just yesterday I read a great article in the German Zeit about the 3 Samwer brothers who helpes Groupon take of in other places of the world and the shady ways their doing business. 500 Million debt, facebook and google chasing, then their founder said they'll be "wildly profitable", which is not allowed, they might have to reaply for an IPO.
Miss the point of my comment entirely, why don't you.
There's no -1 for "I don't get it."
He would have taken the $6,000,000,000 that Google offered him for Groupon.
Came to post exactly this. You don't turn down a multi-billion dollar offer if your goal is to get rich quick. I think some people in the media just want Groupon to turn out to be a big scam, because that's a more exciting story than "tech company makes money".
>> It would seem Mr. Lefkofsky has an extensive history of taking investors' money for himself, then bankrupting the businesses invested in."
History repeats itself - but now he's found a good way to take money from other businesses while bankrupting them instead.
I looked into Groupon to see what offers are available and most of the time the daily deal ads are run on business that are very inconvenient to get to, are ordinary plain restaurants or coffee shops, or some type of weird massage parlor, sky-diving/scuba lessons, etc. After a few weeks of looking into the Groupon ads I found one or two interesting places but it also turned out that I've already been there and am a regular customer or an occasional customer.
I think that for regular people and customers Groupon is not very useful and I scratch my head thinking how does this obviously inflated dot-comesque online business valuate so much? It just makes no sense, unless of course we're now climbing out of the housing bubble and heading into the Dot-Com Bubble 2.0.
Now, if you're one of those insane deal hunting individuals that will eat a box of chocolate covered cockroaches just because you got a 70% discount on them online along with free-shipping then by all means go right ahead to Groupon, drive across town to the next hot start-up local business, take your groupon coupons, buy only what is in the discount, argue with the people, do not pay any tip, and never return again! Enjoy, Business Stalking 2.0.
The only winning scenario for retail on Groupon is when you have excess inventory which will end up spoiled or heavily discounted anyways. In this case Groupon is awesome because not only do you make a few dollars on lousy stuff, you also take a shot at hooking a repeat customer or two. Just look at the Dell deals or at the bargain table outside your local bookstore... they've done it for years!
Using Groupon to give away your good stuff does not make sense.
lucm, indeed.
I highly recommend reading an article titled Groupon is Effectively Insolvent in which the author draws a compelling parallel between Groupon and a Ponzi scheme.
The whole Groupon thing reminds me of all the sites giving away stuff in the fall of '99.
Like $25 off a purchase of $25 or more with free shipping.
Not very many of those sites survived that Christmas.
Check this other article out...
"In January, Groupon raised $950 million. By the end of March, it had $209 million in cash. What happened to all that money?"
http://allthingsd.com/20110602/where-did-groupons-billion-dollars-go/
Holy crap, I thought it was 8 mins long so I watched, then it ends and I find out it's 5 x 8 min long segments. This cannot be that interesting.
Reported somewhere around here.
you had me at #!
"Groupon is insolvent (and you can be, too!)"
you had me at #!
Here is where I think Groupon works:
Yoga/Dance classes:
- I have friends who teach yoga and dance classes. They pay a fixed amount to rent a studio space to teach a class ($15 per hour). Class is normally $15 per student. As long as 1 non-groupon person comes they break even on the space. They normally have 10 people in class, but with groupons it's up to 15 or 17. It's found money if ANYONE comes from Groupon. Once the person comes they try to get them to buy a 5 or 10 class card (@ $10 per class= $50) They are using Square to charge credit cards... people take 4 classes and not the 5th sometimes... this is how you do it.
Pizza Places:
I have a relative who owns 3 pizza places. It's costs him about $1.80 to make a regular size pizza. Slices are $2 each. If he sells a pizza normally at $10 groupon = $5..... he gets paid $2.50. He makes his 50 cents. And people always buy soda (where restaurants make their money anyway).
Buffets:
Unless wildly successful, 10 to 20% more people at a buffet won't make a big difference... again the money is made on drinks to go with it.
I think the coffee shop requires too much individual attention per person.
Eric Lefkofsky may have a 'dubious history', but how is this any different from what's been going on for the past 15 years? From Pixelon to Webvan it's been one fraud after another.
Business owner didn't understand her business and made several mistakes.
Every groupon I have used I have asked the owner or manager how they liked it, all of them where very happy.
OTOH, they all new it was a customer grab, so they took steps to bring them back.
I would imagine if they didn't asked fo he deal the was appropriate for the business it would have been a mistake.
You're a business owner; may people make a living selling business owners services/goods. If you can't bother to understand those goods/services and just take them oat face value without analyzing them and using them in accordance with your needs you will be eaten alive.
If you want something, and the person providing it won't gve you exactly what you want, you walk away. it's business.
The Kruger Dunning explains most post on
I am amazed at how few people see what's really going on here.
Groupon is a con job.
It won't last, and lots of people will get burned.
Just wait and see.
When a buyout offer happens one company to another, having the offer made and accepted is only the initial stages. It is kinda like buying a house. Google's people would then meet with Groupon's people, NDAs would be signed, and Google would start looking over the books, technology, and so on before committing to a final purchase.
They could have very well realized that things wouldn't stand up to Google's scrutiny and Google would have backed out. Now that would really screw them because then if they try to go public everyone would ask "But why did Google back out?"
I figured that Groupon would want what was best for the business, but when I heard that a groupon deal went south for one of my favorite local cheesesteak shops I vowed to never allow anyone talk me into a Groupon deal. The thought that they wouldn't do everything possible to ensure the business was successful was evident in it bringing down a local business. They could likely been smarter about the whole thing, but evidence is clearly trending to this being at Groupons feet.
This story does not surprise me, I'm just wondering when Groupon is going to be forced to take action for their grimy business practices. I'm hoping that we'll see their shit hit the fan soon...I just hope their not in anyone elses restaurant when that happens.
In Poland one of well-known barbers, Jaroslaw Budny, opened a new barber shop and wanted a bit of promotion. He talked with Groupon, and based on their advice he issued haircut coupons at 29 PLN (instead of usual 70PLN). He only got 10 PLN out of each sale (33%) . Barber was however convinced by Groupon salesperson to not put any limit on number (they earn by number of coupons sold) who said things like "you will be lucky to sell 300 coupons, 100 is more realistic number, no need for limit". Sales were limited to 48 hours though.
Guess what? People bought over 1600 coupons.
Mr Budny is now working 7-22, not making any money, getting angry calls from thousands of "groupon customers". His name is now shattered and smeared all over internet for not keeping promises instead of being promoted. Waiting time to get a haircut done by him is now about a year.
Did he make a bad decision? Yes, he did not limit his offer, but he did so on explicit advice by Groupon. It is scary that Groupon doesn't have any internal audits to make sure they don't do that to businesses - they should have if they have some ethics.
Only after country-wide media ran the story he was contacted by Groupon who offered him some help (hire him a secretary to take calls, run another promotion without taking money, send email to coupon buyers explaining why waiting time is so long, offer money back and "sorry" gifts). Condition was that he no longer talks with any media about Groupon.
*) disclaimer: above information based is based on articles widely available in Polish press.
I expect Judaism.
Groupon has a simple mechanism it tries to sell: Get people in your store at any cost, then make a profit when they return.
Normal advertising with discounts works differently, take for instance the special deals from your local super-market: We buy a larger amount then normal, at a discount, then pass this discount on to you, making less on the individual sale but more real sales.
3 for the price of 2 is a typical format.
Any side affect of attracting more customers is welcome BUT the supermarket owner will NOT think that customers who come in specially for that deal will convert to regular customers at any significant rate.
Some other forms of discount are: We have to much stock and keeping it costs more then selling it with a smaller profit or even at cost. We want to shift a lot in a small time frame so we "pretend" to give you a discount but really we are not. And We need the sales so we give a massive discount to be able to close the books of a period with mass amount of revenue (In holland large chains holding "no sales tax" days.)
Most of these discounts are aimed purely at selling an item, the discount is a way to make a sale that delivers a profit then and there. NOT some mythical future increase in your customer base.
Groupon therefor is based on a rarely successful attempt of advertising, getting the cheap who look for deals and convert them into full paying customers. Contradiction in terms? What can possibly convert a bargain hunter into a loyal customer? Amazing service? Sure, if your amazing service is worth a 50% increase in price. Lets not forget that groupon discounts are also often insanely high. And on top of the discount, you also got to pay groupon a premium rate well above any other form of advertising.
And then it is aimed not at large companies that can make long term investments but mom&pop shops that struggle to reach the end of the month in the black.
It is a scam and Groupon will fail soon enough because it has decided to go world wide where the laws are a bit more protective of people and small businesses. In the meantime, if you own a small business and get contacted by Groupon. Don't.
The pizza place mentioned in the story? A success because they did it twice? I wouldn't assume that. Lots of small business owner have no real way to track costs and benefits. They just know there is X in the register at the end of the day and that is a LOT more then normal. The real costs of making the X amount of revenue comes later.
Simple example, from personal experience. Had a guy very happy who was selling power tools over the internet he had made a small fortune in revenue in the first week. And the cost of ordering the powertools was even LESS then the revenue, even with shipping costs substracted... pure profit!!! He forgot about returns, and warranties and etc etc etc. Do you know just how much a single customer complaining and needing to be talked to for an hour costs? Why do you think companies want as little customer support time as possible? Because it costs are high and it all comes out of the tiny amount of profit you thought you made on the sale.
In business, you can make a ton of cash and still go bankrupt. Groupon is the perfect way to do this. Stay well clear.
MMO Quests are like orgasms:
You may solo them, I prefer them in a group.
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What a great example. That's exactly the kind of business where someone is likely to be thinking in terms of "I'll try it out, if it's cheap" and there's virtually nothing you can say, or people can read, ahead of time that'll convince them they're going to like it. Trying it is the only way.
Then maybe you hook 'em, maybe you don't. And virtually no marginal cost even if you don't.
Groupon itself may be a bad business, but here's a case where the basic idea really does make sense.
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White "Ashkenazim" Jews. Yup the type that believe they are the chosen one according to the Talmud.
Twitter: @dainsanefh
I usually don't mind finding additions on the Internet, but I'd rather block advertisements from getting through.
If you're going to grammar-troll or spell-troll, at least attack a legitimate target. There are plenty to go around.
I won't join Slashcott. OTOH, If Beta goes live, I just won't be back until it's fixed. Sorry Dice.
Alternate hypothesis: Today's ads better represent the industries that have bought into a heavy advertising philosophy than they do the industries that would most benefit. (or the ad methodologies) That, and ads are always more effective than the public gives them credit for (and usually less effective than the marketing staff thinks they are).
I won't join Slashcott. OTOH, If Beta goes live, I just won't be back until it's fixed. Sorry Dice.
In many states in the US, if someone pays you $X, you are required to provide $X of service, and you can't have an expiration on it.
So, you can advertise a coupon where someone pays you $X for $2X of services, and you can put an expiration date on it, but you're still legally required to redeem the $2X coupon for the $X paid for it even after expiration.
paintball
I don't like your jerkoff name. I don't like your jerkoff logo. And I don't like you, jerkoff.
Considering the profit margins needed , i can only think of only one business that can survive the backhoe into the ledgers that Groupon appears to gouge out.. and that business is the illegal drug trade.. any guesses on the probability of seeing Groupons for, say, Pot? ..And, isn't Groupon the digital equivalent of the old coupon booklets that used to often cause headaches for retailers the minute they bought into them? A lot of retailers apparently didn't understand, then, either, that these are only useful if they increase the customer base, and/or traffic..
I think that retailers can't ignore Groupon. There are several ways to analyze how successful Groupon can be for your business. It may not help to increase revenue immediately but may help to acquire customers. This article has an in-depth Groupon case study http://www.ecommerceanalyticsblog.com/2011/03/17/customer-acquisition-analytics-a-groupon-case-study/