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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
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."
Yea, it was hard to feel too sorry for the lady in the story. It doesn't even really sound like Groupon tried to confuse her, they just weren't very helpful. If she didn't understand the agreement, she shouldn't have signed it, and if you're a business owner and don't understand that simple concept then it's just a matter of time before you get screwed. However, I do think that Groupon is a shitty investment and a company with a lot of hype and very little future.
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.
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".
This is what doesn't add up.
"At the time, she didnâ(TM)t have a computer"
Her online presence, including a blog, Facebook and Twitter is well above average for a local business.
Who has those presences and can't get a $10 total laughingstock computer to run a text file to search the coupon numbers?
My first Journal Entry ever, in 8 years! http://slashdot.org/journal/365947/aphelion-scifi-fantasy-horror-poetry-webzine
hey, that's the world we live in. Suck it up.
We can do better.
That's our life, the big wheel of shit. - The Fat Man, Blue Tango Salvage
Exactly what value does Groupon add to the economy (assuming here marketing !=economic value)
Well, your core assumption is simply crap. Marketing adds tremendous economic value. Marketing allows companies to get their product before people who otherwise wouldn't know about it. Marketing is a key driver to economic growth. If customers can't find business, business don't survive.
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
That seems like an awful lot of words to use when you could have just said "woman," and we all know there aren't any of those on slashdot!
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.
What they meant was, "at the time, she didn't have a computer[ized cash register]". (Or "computer in the coffee shop," at least.)Lots of small businesses don't have that.
"[Regarding the 'cloud,'] ownership was what made America different than Russia." -- Woz
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/
I've used Groupon (and similar) a few times now, and I've learned to pay close attention to where the places are (and whether they require reservations, have valet parking, etc.)
But isn't that where Groupon is good (for you, the customer)? You do what you'd normally do anyway, but it costs less?
Of course, that's before I saw this article and found out how bad a deal for the business it was... I just bought a Groupon for a restaurant in my neighborhood yesterday, and now I feel bad about it.
"[Regarding the 'cloud,'] ownership was what made America different than Russia." -- Woz
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
But this time it's different. Explain why, in 100 words or less, and you could win an internet[1]!
[1] Subject to purchase of a regular internet at full price. Void where prohibited. Your mileage may vary.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
Somebody who gets someone else do do all that kind of shit for them?
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
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?"
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.
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.
They generate sales that wouldn't otherwise have been made. Higher sales means higher gdp, faster money flow, more growth, etc.
hey, that's the world we live in. Suck it up.
We can do better.
But we don't.
A $250 netbook would have solved that, or just crossing off the names as the coupons were redeemed.
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.
As copyright owner of this comment, I authorize everyone to defeat any technological measure which limits access to it.
It's such a silly assumption, that I don't know why anyone other than a Science Fiction author would bother with the mental exercise of answering your question about that other universe.
Fred wants steel to make his railroad, in order to transport cargo from NY to LA. Joe has a steel mill. Alas, Fred and Joe don't know about each other, so the cargo stays in NY.
As copyright owner of this comment, I authorize everyone to defeat any technological measure which limits access to it.
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.
No, that causes numerous other problems.
This is caused by the separation of investment, ownership, and accountability. A CEO (etc) shouldn't be able to ruin someone else's investment and make out like a bandit.
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
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..