
Source: Groupon Doesn’t Have The Cash to Build Its New Data Center - mariojoze
http://www.betabeat.com/2011/12/19/source-groupon-doesnt-have-the-cash-to-build-its-new-data-center/
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untog
I'm genuinely surprised by this. I always figured that Groupon was an
expensive business- but that it was because of their army of sales associates,
not because of hosting.

What are they doing that <insert name of successful web company here> isn't?

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tryitnow
Actually,I think your initial impression is right. They are are an expensive
business because of their army of sales associates. It is precisely because of
this expense that they can't afford the technology they would prefer.

I've always wondered why Groupon didn't just provide a platform for well-
connected local people to act as completely independent sales reps who work
purely on commission. Why bother with actual outright hires? They're most
likely going to have to lay a bunch of them off anyways.

~~~
cma
What would be their barrier to entry story under this? Why would they need to
raise so much capital? How would they scam together an IPO without those two
justifications?

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pbreit
This assertion is poorly sourced and sounds like bull. As many have noted,
Groupon's processing and bandwidth requirements are relatively low. And are we
really to believe "a source familiar with [Groupon's] business"?

ADD: OK, they do send out a lot of emails but even that seems manageable cost-
wise with various options short of building your own data center.

~~~
chernevik
Absolutely. It's headlined as if the situation is some kind of financial
failure, but there are no numbers on the premium they're currently paying or
the cost of a new center. 1/4 of the piece quotes prospectus boilerplate. No
named attributions, nothing from analyst types following the industry.

Not even clear cash is the key here anyway, I would think they could finance a
data center with some kind of construction mortgage, and maybe some leasing
deal.

Now, pulling things out of my hat, I understand that companies can fully
deduct their IT investments made in 2011, that's a huge tax advantage. I don't
even know if Groupon can make use of that (are they paying taxes yet?). But if
Groupon is missing that window because they _cannot_ get financing in place,
_that_ would be a story, one with implications for Groupon, their model, the
banks, and bank valuation of corporate IT capital assets.

This, on the other hand, is not a story of any sort.

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rubyrescue
this just doesn't make sense to me - why would they need such infrastructure?
they can't even have that many daily pageviews; backend deal management and
CRM wouldn't require huge scale or datacenters...

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Tossrock
You might be surprised; I know Alexa isn't exactly an infallible oracle, but
they list groupon.com as averaging between the 200th and 400th most visited
site globally, and 53rd in the US. "ranking.com", whoever they are, says
between 150 and 75. I'd feel confident saying they're at least in the top 500,
and that requires a fair bit of horsepower. Now, they could probably solve a
lot of their problems with smarter engineering before building a data center,
but they certainly have traffic.

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felipemnoa
Stackoverflow.com has an Alexa ranking of 108 for the world and 165 for the
US. Last I heard they were not using that many servers for their site.

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richardburton
They should run a Groupon on data-centers.

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bobds
Joking aside, I think this might be a good idea.

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jjoe
You don't need to build a whole data center to get wholesale pricing on power
and bandwidth. To me this reads like Groupon has thrown the towel and has
deemed it OK to throw more hardware at the problem. Perhaps they've come to
the conclusion that buying their way out of the suboptimal backend system is
much more cost effective than hiring very capable people.

Regards

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bbhacker
Could somebody who has knowledge about data centers make a quick estimation
how much such a data center might cost?

I am asking since I am not a data center/architecture expert but the Groupon
site should not be that complex from my perspective? Also the content should
mostly be static, so caching should solve many problems.

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ChuckMcM
Depends on the data center of course.

There are four components to a 'data center':

1) The structure. These can be pretty simple, a concrete slab, then 'tilt up'
walls tied together by steel joists. Internal structure is 'UPS area' / 'power
ingress/conditioning' / 'data area' / 'office area' / 'fire systems area'. If
its mostly data operations the bulk will be the 'data area'. The cost of land
figures into it as well but you probably try to build it where land is cheap,
connectivity is high, and power is cheap.

2) Power and Cooling infrastructure. This stuff is dictated by both the
climate around the data center and the municipality. Santa Clara California
used to have a bunch of semiconductor fabrication plants (fabs) which have all
since closed. That left them with excess power capacity, so lots of folks are
building data centers there to get access to the cheaper power. (land is still
expensive). Cooling can be one of a number of forms, evaporative works well in
the Bay Area generally.

3) Staff - Generally an electrician, a network guy, a security lead (+ some
number of contract security personnel)

4) General 'stuff' associated with building a data center (raised floor tiles,
sprinkler systems, power conditioners, big switches, UPSes and their
batteries, chillers, more big power switches and transformers, generators
(back up power), lights, etc.

I would be surprised if it cost less than $5M to build or more than $15M.

I actually put together a plan for a 'pocket' data center (one that could be
put into an urban area easily, 1 - 3MW of power) but not surprisingly cannot
find a bank to fund it. (its around $10M all up depending on initial land and
fiber costs).

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sunchild
I was talking to a guy who owns a warehouse in Brooklyn a few weeks back. He
said he was turning a relatively small part of it (a few thousand square feet,
if I recall) into a residence, and leasing the rest. He started complaining
about his prospective tenants, so I, sort of jokingly, suggested he build a
small data center, since the lease revenue would be much better, even if the
costs rise as well. Too bad you weren't there to close the deal!

~~~
ChuckMcM
Heh, timing is everything I guess.

So one 'take' on the cloud meme is public utility compute. I have never been a
big fan, but have found the success of EC2 and its equivalents to be reason to
doubt my doubt :-)

Back in the way back times the high school I went to shared a mainframe (a
Univac) with all the other schools. They used it teach programming and to run
various bits of accounting and grading and such. That installation could be an
EC2 cluster now. (it isn't but the same reasoning for a shared mainframe would
apply to sharing the districts computing tasks into a web2 style cluster.)
Every time all the machines get stolen out of a school I think "Gee if they
were just terminals and useless without the cluster, they would not be as
tasty a target."

Still, not a fan, but like I said the ability to drop in a data center near
the center of things in an friendly way, seems like a Useful Thing.

~~~
sunchild
I think the target market in Brooklyn is leasing backup/DR cages for big
banks.

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AznHisoka
Rather than handling website load, which should be trivial for a site like
Groupon.. Perhaps they outsource sending of emails to someplace like SendGrid
or Constant Contact, and want to build infrastructure to do it all themselves?

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adaml_623
If this is true does it imply that upper management took too much money out
after the last round of funding?

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newman314
Not trying to be snarky but maybe the founders shouldn't have taken so much
off the table in the last funding round.

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brianbreslin
They should make a deal like twitter did early on with NTT or another telecom
company for equity in exchange for data centers.

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andrewmccall
Are they allowed to do this as a public company? Would their growth be
attractive enough for someone to take them up on the offer?

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brianbreslin
Secondary issuance of shares? Or trade options?

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tomjen3
That is as it should be. When you are making a new start up the way Groupon is
you should be looking at a much higher ROI than the price of borrowing money,
so you should throw as much money on growing fast as possible.

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tocomment
Why don't they use EC2 instead of building a data center? That way there's no
big up-front cost.

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untog
Don't they already use EC2?

It isn't the answer to everything. In fact, it's the answer to far fewer
things than people think. EC2 is great because, as you say, it has no big up-
front cost. But when you start scaling it isn't actually very affordable.

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benpopper
Yes, this was the impression I got from my source.

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tibbon
Maybe they could release some more stock as a 50% off Groupon deal :)

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togasystems
Who do they host with now?

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kerryfalk
A recent blog post by Engine Yard claims that they host Groupon's site right
now.

[http://www.engineyard.com/blog/2011/groupon-makes-history-
in...](http://www.engineyard.com/blog/2011/groupon-makes-history-in-more-ways-
than-
one/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+engineyard+%28Engine+Yard%29)

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jsiarto
Completely off-topic here, but the coffee house mentioned in this Engine Yard
article (Intelligentsia) is really the best coffee in Chicago--if not the US.

Also, there is no way that Groupon needs a data center--how can they be
spending millions on hosting each month? Something doesn't add up...

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webnzi
Coffee comment seconded.

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tibbon
About to pull a few shots of Black Cat right now...

