5 ms·

Looks like businesses have collectively realised that groupon is a miserable deal and it's finally caught up with them, after having been running on fumes [1] f

by kardos 11y ago

Looks like businesses have collectively realised that groupon is a miserable deal and it's finally caught up with them, after having been running on fumes [1] for a couple years now. [1] http://blog.bodellconsulting.com/2013/03/01/groupon-a-bad-deal-for-restaurants-and-everyone-else-including-groupon/ http://blog.bodellconsulting.com/2013/03/01/groupon-a-bad-de...

antidaily 11y ago
Is it running on fumes? They still have significant revenues and loyal customers and a million sales people.
- adventured 11y ago
  It's not running on fumes. It would have been more accurate to say that it is growing more slowly (and as of the last few quarters, has seen its growth flat-line). 2012: $2.33b in sales 2013: $2.57b in sales 2014: $3.19b in sales Their biggest problem is the inability to achieve profitability on $3 billion in sales after so many years in business. They still have $1.1 billion in cash however, and have reduced their bleed rate to a benign level.
  - fredkbloggs 11y ago
    > Their biggest problem is the inability to achieve profitability on $3 billion in sales after so many years in business. They still have $1.1 billion in cash however Doesn't this just mean the investors would be better off winding it down and investing the $1.1b in something that is profitable, or at the very least has a higher ceiling? It doesn't seem all that likely that the latest round of cutbacks is going to turn this into a profitable company and even if it does, the scope for profits is very limited. As you say, they've been going for a long time and nothing is really getting better. Even the 2.5% you get from the S&P 500 would be a better use for that billion in cash.
    - astrodust 11y ago
      Sadly, a lot of tech companies would perform better if they threw their cash into index-driven mutual funds.
      - smeyer 11y ago
        By virtue of the way indices work, a lot of public companies in general would have been better off throwing their cash in index-driven mutual funds. That being said, if it were easy to tell ahead of time which these companies are, it would be easy as an investor to beat index-driven mutual funds.
      - bduerst 11y ago
        And they would risk losing investors. Why would someone put money into a company that invests in index-funds, when you can just invest in index-funds?
        fredkbloggs 11y ago
        Right. That's why I suggested Groupon be wound down, not that they continue operating at a loss but invest their cash differently. This does raise an interesting question, though. There seem to be a lot of corporations out there that have no obvious reason for existing: minimal to negative profitability on a sustained basis, uninspiring business with little potential, and a long track record that doesn't suggest a turnaround is likely. Groupon is just one of many. Presumably in many cases, equity in these corporations is held primarily or even entirely by index funds. Why should such a company remain in business? By definition, if all your shareholders are indexers, there is not a single person alive who considers you an above-average investment. In a rational market, such a company would be wound down or the price of its shares would fall so low that it would be taken over by someone who believes he can do better. But the index funds create a sort of circular reasoning, or perhaps an isolated reality separated from outside feedback, allowing these zombies to keep living. A variant of this was covered by http://www.bloombergview.com/articles/2015-07-22/index-funds-may-work-a-little-too-well http://www.bloombergview.com/articles/2015-07-22/index-funds..., but this seems like a more extreme case. Of course, Groupon's "institutional ownership", which includes various active and passive funds, pensions, endowments, etc. is only 65% per Google Finance. There are corporations with 100% and even >100% institutional ownership (i.e., there are a lot of non-institutional shorts). Why do they continue to exist, and what can be done to kill them off?
- kardos 11y ago
  They don't have a million sales people -_-, 11.8k employees total is a better estimate [1], dropping to 10.7k soon. Maybe fumes was not the right word. The things they offer as "deals" are fumes. I just loaded the Toronto section, and saw "$179 for $2392 worth of laser hair removal" with >200 sold. I don't believe that the $2392 figure is not grossly inflated. Also "$430 for a $899 iPhone", but then you notice "condition: refurbished". These things don't come across as credible promotions, but rather the result of someone packaging something up to appear to be a promotion, but it's just a normal price disguised in some way. Perhaps there are some actual promotions on there, but these pseudo-promotions reduce the credibility as a whole. So what's special about groupon again? I can get normal price things anytime/anywhere, and not have to go through the hassle of buying the coupon in a specific time frame, and only be able to use it in a different specific time frame and another dozen restrictions. [1] http://www.bloomberg.com/research/stocks/snapshot/snapshot.asp?ticker=GRPN http://www.bloomberg.com/research/stocks/snapshot/snapshot.a...
  - deleted 11y ago
    [deleted]
mooreds 11y ago
My brother in law runs a restaurant back east, and he said that Groupon has been a great channel for driving business. Anecdata, I know. I think there's a business opportunity to help people running groupons capture the most value out of the leads (at the least, sign them up for an email newsletter).
- bpicolo 11y ago
  I think it depends on the business. Someone up top mentioned it was a great way for them to try scuba, sky diving, etc. That's not the sort of thing you necessarily see a lot of repeat traffic for. Not sure.
  - mooreds 11y ago
    Right. Seems like a restaurant (or hotel, nails place, anything that you could use more often, etc) is a better use case.
  - PeterisP 11y ago
    Scuba and skydiving are the exact type of hobbies where if you make people interested, then you can get a lot of very expensive follow-up business. You won't get most of them hooked up; and if you make the first experience a lousy one because of Groupon pricing issues, then you won't get any of them hooked up, but in general if your business current weak point is excess capacity and a need to bring in new people to the hobby (since your current customers are doing it as much as they can and won't do more), then a deeply discounted first trial is pretty much the main way to do that.
- saalweachter 11y ago
  It could also vary widely based on whether or not advertising was a business's greatest problem. If your biggest problem was that not enough people know about or had tried your restaurant, Groupons probably did a lot of good. If your biggest problem was that your food wasn't really that great or your prices were too high or you were in a terribly inconvenient location or your staff was unbearable, then getting more people in the door doesn't really help anything in the long run.
devit 11y ago
Isn't this kind of thing beneficial if run with more reasonable margins and a subscription model for customers? Basically, the customer subscribes to the service and gets discounted meals at the cost of not being able to choose the restaurant himself. Restaurants can use the service whenever they expect to have empty tables, allowing to still profit for them, but with a reduced profit margin. I'm not sure if it works for restaurants in particular, but it should work for businesses that cannot easily change supply levels, aren't selling something that is completely a commodity and ideally where varying suppliers is enjoyable for customers.
- kardos 11y ago
  > Restaurants can use the service whenever they expect to have empty tables, allowing to still profit for them, but with a reduced profit margin. Businesses receive 20-25% of retail price when they take a groupon deal, so you'd need a profit margin >75% to even entertain that idea. Also it cannibalises some of your existing customers, converting your 75%+ profit margin customers into near zero or loss customers. I'd leave the tables empty.
  - Someone1234 11y ago
    Playing devil's advocate here... You do have to consider the advertising in the calculation. If they spend $2K/year on advertising now, and a GroupOn sale might be viewed by 10K/people and purchased by 100-150, then still might come out ahead even with $0 or -$10/head ($1500 in loss for the GroupOn). If a place is doing a GroupOn it is unlikely a zero revenue person will displace a paying person, since the place would have to be almost at capacity for that to make sense (and if they're that popular, why are they doing a GroupOn?). But then the real question is: "How effective of an advertising platform is GroupOn?" And that I do not know. PS - Anecdotally I have read that the "type" of customer GroupOn attracts might hurt it further (people claim they're very demanding, hard to please, and unlikely to return). But anecdotes and anecdotes, have to take them with a pinch of salt. PPS - I myself wouldn't do a GroupOn because I would feel like it was de-valuing the establishment. It sets the new "normal" to the discounted price.
whistlerbrk 11y ago
Business owners really ought to know what their margins are. I feel bad for the ones who got pressured into bad deals, but they have to know what their literal bottom line is.
- dragonwriter 11y ago
  The value proposition with Groupon is largely that you are selling a limited deal at promotional prices (i.e., ones which you would not be profitable sustaining) to build business. It was essentially, when it was novel, a new acquisition channel. Even business owners that new their margins wouldn't know its value to their business without testing it in their actual circumstances.
  - CPLX 11y ago
    > It was essentially, when it was novel, a new acquisition channel. It also had a touch of loan-sharking from what I understand. I could be wrong about the exact details but I believe one of the main attractions was that a business could do a Groupon, and get all the money from the Groupons sold as soon as the promo was completed, but still have weeks or months for the customers to actually trickle in and claim the offer. Which may have led to a lot of the frustrations people had actually redeeming them, getting on the schedule for massages or reservations, etc.
    - dragonwriter 11y ago
      How is that "loan-sharking"? Seems to be pretty much just run of sale of redeemable credits. Loan-sharking means that someone is making money by charging high interest rates on loans -- here, the "loan", insofar as there is one, is effectively from the customer to the business, and there is no interest being charged on it.
      - CPLX 11y ago
        It was intended as a euphemism, not a literal example of loan sharking. But the analogy holds. Selling something for 20% of its value with the expectation of having to fulfill the order in a few months is effectively the same as paying an extreme rate of interest on short term business financing.

by kardos 11y ago

antidaily 11y ago

Is it running on fumes? They still have significant revenues and loyal customers and a million sales people.

adventured 11y ago
It's not running on fumes. It would have been more accurate to say that it is growing more slowly (and as of the last few quarters, has seen its growth flat-line). 2012: $2.33b in sales 2013: $2.57b in sales 2014: $3.19b in sales Their biggest problem is the inability to achieve profitability on $3 billion in sales after so many years in business. They still have $1.1 billion in cash however, and have reduced their bleed rate to a benign level.
- fredkbloggs 11y ago
  > Their biggest problem is the inability to achieve profitability on $3 billion in sales after so many years in business. They still have $1.1 billion in cash however Doesn't this just mean the investors would be better off winding it down and investing the $1.1b in something that is profitable, or at the very least has a higher ceiling? It doesn't seem all that likely that the latest round of cutbacks is going to turn this into a profitable company and even if it does, the scope for profits is very limited. As you say, they've been going for a long time and nothing is really getting better. Even the 2.5% you get from the S&P 500 would be a better use for that billion in cash.
  - astrodust 11y ago
    Sadly, a lot of tech companies would perform better if they threw their cash into index-driven mutual funds.
    - smeyer 11y ago
      By virtue of the way indices work, a lot of public companies in general would have been better off throwing their cash in index-driven mutual funds. That being said, if it were easy to tell ahead of time which these companies are, it would be easy as an investor to beat index-driven mutual funds.
    - bduerst 11y ago
      And they would risk losing investors. Why would someone put money into a company that invests in index-funds, when you can just invest in index-funds?
      - fredkbloggs 11y ago
        Right. That's why I suggested Groupon be wound down, not that they continue operating at a loss but invest their cash differently. This does raise an interesting question, though. There seem to be a lot of corporations out there that have no obvious reason for existing: minimal to negative profitability on a sustained basis, uninspiring business with little potential, and a long track record that doesn't suggest a turnaround is likely. Groupon is just one of many. Presumably in many cases, equity in these corporations is held primarily or even entirely by index funds. Why should such a company remain in business? By definition, if all your shareholders are indexers, there is not a single person alive who considers you an above-average investment. In a rational market, such a company would be wound down or the price of its shares would fall so low that it would be taken over by someone who believes he can do better. But the index funds create a sort of circular reasoning, or perhaps an isolated reality separated from outside feedback, allowing these zombies to keep living. A variant of this was covered by http://www.bloombergview.com/articles/2015-07-22/index-funds-may-work-a-little-too-well http://www.bloombergview.com/articles/2015-07-22/index-funds..., but this seems like a more extreme case. Of course, Groupon's "institutional ownership", which includes various active and passive funds, pensions, endowments, etc. is only 65% per Google Finance. There are corporations with 100% and even >100% institutional ownership (i.e., there are a lot of non-institutional shorts). Why do they continue to exist, and what can be done to kill them off?
kardos 11y ago
They don't have a million sales people -_-, 11.8k employees total is a better estimate [1], dropping to 10.7k soon. Maybe fumes was not the right word. The things they offer as "deals" are fumes. I just loaded the Toronto section, and saw "$179 for $2392 worth of laser hair removal" with >200 sold. I don't believe that the $2392 figure is not grossly inflated. Also "$430 for a $899 iPhone", but then you notice "condition: refurbished". These things don't come across as credible promotions, but rather the result of someone packaging something up to appear to be a promotion, but it's just a normal price disguised in some way. Perhaps there are some actual promotions on there, but these pseudo-promotions reduce the credibility as a whole. So what's special about groupon again? I can get normal price things anytime/anywhere, and not have to go through the hassle of buying the coupon in a specific time frame, and only be able to use it in a different specific time frame and another dozen restrictions. [1] http://www.bloomberg.com/research/stocks/snapshot/snapshot.asp?ticker=GRPN http://www.bloomberg.com/research/stocks/snapshot/snapshot.a...
- deleted 11y ago
  [deleted]

mooreds 11y ago

My brother in law runs a restaurant back east, and he said that Groupon has been a great channel for driving business. Anecdata, I know. I think there's a business opportunity to help people running groupons capture the most value out of the leads (at the least, sign them up for an email newsletter).

bpicolo 11y ago
I think it depends on the business. Someone up top mentioned it was a great way for them to try scuba, sky diving, etc. That's not the sort of thing you necessarily see a lot of repeat traffic for. Not sure.
- mooreds 11y ago
  Right. Seems like a restaurant (or hotel, nails place, anything that you could use more often, etc) is a better use case.
- PeterisP 11y ago
  Scuba and skydiving are the exact type of hobbies where if you make people interested, then you can get a lot of very expensive follow-up business. You won't get most of them hooked up; and if you make the first experience a lousy one because of Groupon pricing issues, then you won't get any of them hooked up, but in general if your business current weak point is excess capacity and a need to bring in new people to the hobby (since your current customers are doing it as much as they can and won't do more), then a deeply discounted first trial is pretty much the main way to do that.
saalweachter 11y ago
It could also vary widely based on whether or not advertising was a business's greatest problem. If your biggest problem was that not enough people know about or had tried your restaurant, Groupons probably did a lot of good. If your biggest problem was that your food wasn't really that great or your prices were too high or you were in a terribly inconvenient location or your staff was unbearable, then getting more people in the door doesn't really help anything in the long run.

devit 11y ago

Isn't this kind of thing beneficial if run with more reasonable margins and a subscription model for customers? Basically, the customer subscribes to the service and gets discounted meals at the cost of not being able to choose the restaurant himself. Restaurants can use the service whenever they expect to have empty tables, allowing to still profit for them, but with a reduced profit margin. I'm not sure if it works for restaurants in particular, but it should work for businesses that cannot easily change supply levels, aren't selling something that is completely a commodity and ideally where varying suppliers is enjoyable for customers.

kardos 11y ago
> Restaurants can use the service whenever they expect to have empty tables, allowing to still profit for them, but with a reduced profit margin. Businesses receive 20-25% of retail price when they take a groupon deal, so you'd need a profit margin >75% to even entertain that idea. Also it cannibalises some of your existing customers, converting your 75%+ profit margin customers into near zero or loss customers. I'd leave the tables empty.
- Someone1234 11y ago
  Playing devil's advocate here... You do have to consider the advertising in the calculation. If they spend $2K/year on advertising now, and a GroupOn sale might be viewed by 10K/people and purchased by 100-150, then still might come out ahead even with $0 or -$10/head ($1500 in loss for the GroupOn). If a place is doing a GroupOn it is unlikely a zero revenue person will displace a paying person, since the place would have to be almost at capacity for that to make sense (and if they're that popular, why are they doing a GroupOn?). But then the real question is: "How effective of an advertising platform is GroupOn?" And that I do not know. PS - Anecdotally I have read that the "type" of customer GroupOn attracts might hurt it further (people claim they're very demanding, hard to please, and unlikely to return). But anecdotes and anecdotes, have to take them with a pinch of salt. PPS - I myself wouldn't do a GroupOn because I would feel like it was de-valuing the establishment. It sets the new "normal" to the discounted price.

whistlerbrk 11y ago

Business owners really ought to know what their margins are. I feel bad for the ones who got pressured into bad deals, but they have to know what their literal bottom line is.

dragonwriter 11y ago
The value proposition with Groupon is largely that you are selling a limited deal at promotional prices (i.e., ones which you would not be profitable sustaining) to build business. It was essentially, when it was novel, a new acquisition channel. Even business owners that new their margins wouldn't know its value to their business without testing it in their actual circumstances.
- CPLX 11y ago
  > It was essentially, when it was novel, a new acquisition channel. It also had a touch of loan-sharking from what I understand. I could be wrong about the exact details but I believe one of the main attractions was that a business could do a Groupon, and get all the money from the Groupons sold as soon as the promo was completed, but still have weeks or months for the customers to actually trickle in and claim the offer. Which may have led to a lot of the frustrations people had actually redeeming them, getting on the schedule for massages or reservations, etc.
  - dragonwriter 11y ago
    How is that "loan-sharking"? Seems to be pretty much just run of sale of redeemable credits. Loan-sharking means that someone is making money by charging high interest rates on loans -- here, the "loan", insofar as there is one, is effectively from the customer to the business, and there is no interest being charged on it.
    - CPLX 11y ago
      It was intended as a euphemism, not a literal example of loan sharking. But the analogy holds. Selling something for 20% of its value with the expectation of having to fulfill the order in a few months is effectively the same as paying an extreme rate of interest on short term business financing.