
Groupon May Expire Sooner Than Expected - Cmccann7
http://seekingalpha.com/article/274523-groupon-may-expire-sooner-than-expected
======
mikeryan
_As time goes on, transaction costs are commoditized due to competitive
pressures, Most transaction fees in these markets gravitate to nickels and
pennies, if not less._

This is one of the best takeaways I've gotten in a while and may be the most
damning insight into the Groupon model. Right now it barely[1] works with 50%
of the revenues on a Groupon can it still work at 10%?

[1] I say "barely" because Groupon is still losing money but its doing so
intentionally in a huge growth phase and land grab once it settles into its
actual market a bit this can easily swing into "doesn't" or "successfully".

~~~
AdamTReineke
The biggest chunk of the overhead is all the sales folks, right? Once the
selling is done, can't you cut the sales people and cut your margins?

Seems like a good way to re-excite businesses who may be frazzled from their
previous Groupon experience: "We'll feature you again, but this time, for
25%". Then a year later, "How about 10%?"

~~~
sunchild
Sounds like a fun business: hire tens of thousands of sales people, and then
gradually lay them off.

~~~
bconway
Most employees tend to take of that themselves over time. I believe the
business world calls it "attrition."

~~~
justincormack
Sales people do it faster than most - if they cant get the commissions any
more as the market is saturated they will go and sell something else.

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mey
If I am starting to see this <http://dl.dropbox.com/u/20773870/IMAG0004.jpg>
in my local stores, I'm pretty sure Groupon is well past it's fad stage. Since
it can only operate based on it's exposure/marketing it'll be interesting to
see the crash.

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truthseeker
With all these articles, I got large doses of Groupon S-1 wisdom from HN.

I recently had lunch with an ex-colleague who invariably dropped the idea of
building a coupon site together. Everyone is doing so well, we could do even a
smaller scale operation and do well.

I was surprised that my friend who is quite a bit into affiliate marketing,
internet businesses is not even aware of anything wrong with Groupon. He
thought they were a slam dunk investment.

Moral: There are lot more people who are not aware of the pitfalls and
probably be hungry for the shares once Groupon goes public.

~~~
sdh
Groupon's model is only broken in the context of billions or trillions. At
smaller scale, which sounds like what your friend is thinking, there is still
lots of opportunity to innovate and profit.

~~~
kkowalczyk
Groupon model requires scale much bigger than "small" to work.

The cost of acquiring merchant is high even if you do have lots of potential
customers.

If you don't have lots of potential customers, a merchant will not take you
seriously regardless of how much you spend trying to woo him.

You can't wish away those inherent scaling problems with "opportunity to
innovate". There is a reason why the only companies entering this business are
well capitalized with lots of existing eyeballs and existing strengths they
can leverage (i.e Google, Amazon, Facebook).

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VladRussian
Groupon is in the right battle - for small business, yet they are an army of
old, low tech, type - sales people cold calling - which is extremely expensive
and relatively low efficient. The battlefield of the future belongs to drones.
Like these mentioned stock exchanges - quick/real-time response, high volume,
low cost, dominated by algorithms. In SMB/deals space it will be something
like this - i get up, deciding to skip company cafeteria and go for lunch
somewhere nearby, while walking through the hall press couple buttons on
iPhone or whatever gadget, in a seconds the automated software of the local
merchants (or the bored cashier if business is slow, though software is more
plausible case and it would actually be outsourced, hosted Salesforce-style
software contracted by the merchant) based on their discount strategies,
current load, my status with them (if enabled/exists), etc... would respond
with what they have, discounts, specials of the day, length of the
line/crowdness, etc,... ie. the response is optimized for and reflects the
current condition of the business, click - order if i want and they support
pre-ordering, click - map, i'm getting into the car - drive.

~~~
va_coder
Or you could simplify that and just alternate between Chipotle one day and
Potbelly the next.

~~~
VladRussian
after that much years of it i need something stronger :) and ready to browse
for what else is out there.

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ghshephard
Not to take away anything from the GroupOn Critique (which might be able to
stand on it's own) - but I've been unable to vet the following statement made
by the author:

"Commerce One's model was to act sort of like a toll booth, charging companies
a fee as transactions passed through these exchanges and eventually expected
to make billions collecting toll."

That was certainly one of a number of random ideas tossed about, but it wasn't
(as far as I can verify from ex-Commerce One employees) the business model.

Any CommerceOne Alumni recall the company changing to this model? Anybody know
Gupta from that time?

~~~
techystocks
I wrote the article and can vouch this effectively was the business model of
Commerce One. I didn't do into gory detail in the article as that wasn't the
point. Basically Commerce One had a suite of products (Marketsite, Net
MarketMaker etc) that were essentially business hubs with the goal of charging
per business transactions and scaling recurring revenue. Commerce One also had
a number of ancillary products but i would characterize them as non-core. If
any ex-employee disputes the model then I'd venture a guess they didn't know
what they were talking about. Commerce One obviously charged for the products
themselves (and licensing/maintenance) but over time their was concern that
the number of hubs would consolidate and that revenue stream would slow (after
all the cost to stand up a fully blown MarketSite deployment was often in 7
figures) I worked at ForestExpress, Elemica, and Exostar as a Senior
Consultant at Commerce One. Amazingly those companies are still going concerns
(although none use C1 products anymore)... I imagine 80-90% of the other hubs
shut down.

In addition to my "day job", I currently run a few blogs including
<http://techystocks.com> and <http://bakkenstocks.com> Look for our upcoming
article on NetSuite!

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rexf
"Disclosure: I have no positions in any stocks mentioned, and no plans to
initiate any positions within the next 72 hours."

The last part is awkwardly worded. It suggests the author may short the stock
in 3 days. Not that it's possible on a public market, as Groupon hasn't IPO'd
yet.

Is the 72 hour part standard disclosure? Not having a position in companies
you write about is expected (unless you're Arrington).

~~~
mey
You should never expect that the person has no position on what he's writing.
It may be expected of journalists, but by explicitly stating it the author has
provided a lot of clarity.

I assume the 72 hours is simply to give a boundary to statement

~~~
rexf
That's true, it makes it easy to find their position (which is a good thing).

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gallerytungsten
A very good article. However, regarding this point:

"Groupon may end up being the biggest train wreck in Tech history."

I think that webvan.com, pets.com and a few others may provide stiff
competition when all is said and done and the numbers are adjusted for
inflation.

~~~
pitdesi
Those 2 weren't quite as bad in dollar terms... although they went to 0.
<http://www.cnet.com/1990-11136_1-6278387-1.html> Webvan was at peak worth
$1.2Bn, Pets.com raise $82.5m in IPO

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vaksel
probably not before a few mutual funds invest a few hundred million of their
investor money

~~~
dstein
I was thinking the same. Even with all the bad press, Groupon will still do
their IPO, the underwriters and VC's will still unload their shares at a hefty
profit. The implosion won't happen until after the smart money is out.

~~~
calebmpeterson
So the IPO would end up functioning as a wealth transfer mechanism?

~~~
jfb
As do they all.

~~~
calebmpeterson
Then why does anyone buy IPO stock? (selling I can understand)

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floppydisk
Based on the articles I've read and seen, Groupon does not seem to provide a
decent return on investment to participating business. This makes me curious
as to how much of their business is repeat business versus new business. I
have a feeling, if you look at the participating businesses, a vast majority
of them will be new for each new cycle.

Because there can only be a finite number of businesses, I would imagine
Groupon is going to eventually run into one of two problems (should they
continue and not flame out before this). Either they run out of cannon fodder
(new Grouponees) and implode or they run out of cannon fodder and shrink
drastically down to serve a small core of loyal business and rebuild with a
different model. Either way, they are burning through capital and businesses
at a pretty good clip so I would imagine they are going to run into this
situation sooner rather than later.

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DannoHung
What if groupon just cold fires their entire sales staff or something, then
drastically cuts their rates for businesses, sends all previously contacted
owners an email saying, "Hey, we're not butt-raping you on deals anymore, why
not start a new campaign?"

I mean, that'd probably work.

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Aloisius
Anyone know what the reputation of seeking alpha is? I've read a number of
their LinkedIn articles and I can't figure out if they are a bunch of well
informed day traders or pros or a huffpo style mishmash site.

~~~
Cmccann7
I read a lot of their articles and my take on it is, it's a huffpo style
mismash. Some of the authors are awesome and very high quality and some seem
like day traders. I always check the authors leaderboard reputation before
reading the article and usually only check the macro-economic section

~~~
r00fus
The best part about SA is the commenters usually call a flamebait article what
it is. Most commenters are at least somewhat knowledgeable about trading, you
can easily tell cull the wheat from the chaff.

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dools
Is the word "commoditized" here being used to imply a reduction in price?

~~~
danielsoneg
Yeah - commoditized in this case is the economics definition.

Generally speaking, once all the participants in a particular market sector
are offering the same set of services (or at least, the subset consumers care
about), the only area they have to compete on is price - eventually, the price
drops to the absolute lowest the service can be offered for. It can still be a
viable industry to be in, but it's really not "darling of Wall St" territory.

~~~
dools
Oh right! Cool thanks, I'd never heard that description. I'd heard the term
"commodity hardware" referring to off-the-shelf servers and stuff but never
really understood what that meant :)

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msort
A good read about the last internet bubble and Commerce One.

