5 ms·

I worked at Groupon from 2010-2012. I realized that a lot of the problem with the daily deal industry was that a) there was only going to be one winner, because

I worked at Groupon from 2010-2012. I realized that a lot of the problem with the daily deal industry was that a) there was only going to be one winner, because of network effects, and b) no one knew how big the prize would be for being the winner, so it was not clear how much $$ to raise or spend to make it worth it. It doesn't matter how much you spend on a war if you lose.

JonFish85 10y ago
In regards to the first point, who won? Groupon the company got a ton of cash but man they're in rough shape these days. They're not even really in the same business space either.
- eric_h 10y ago
  I don't even know what they do these days. I had an ex who was into buying daily deals, and literally every single small business where we redeemed one did not like the deal they got from groupon one bit.
fullshark 10y ago
I think the big problem is that it was a bad deal for most vendors except for very high margin ones. When places like restaurants realized that it wasn't getting them repeat business and the deals were dominated by stuff like Day spas it kind of collapsed.
- noodle 10y ago
  Yeah, I've run high margin deals before and even those aren't really worthwhile. For it to be successful you have to be fairly sophisticated with your methodology, and most small business owners (the people who tend to use Groupon the most) just aren't that sophisticated in their setup.
  - roel_v 10y ago
    "(the people who tend to use Groupon the most)" Maybe it's more accurate to say 'the people who easily fell for Groupon's sales people'. In my area the various daily deal sites have very aggressive sales fleets, who literally go door to door in shopping streets convincing owners to put up a deal. Many of them lose money or barely break even; but then again some of them owe it to themselves (I bought a deal once and went back afterwards; she then said 'I'll give you the same price you paid for the groupon, because other customers have complained that they didn't think it was fair they had to pay more when they came back' Wtf?) Anyway, I don't have exact data of course, but I've been interested in the business model for years, so I tried to get as much information from business owners as I could every time I bought a deal. The overall picture I got even after a few years (so since 2010-2011 maybe?) was that the typical groupon customer had distilled to the cheapskate vendor-hopping type (before that, when groupon was the hot new thing, it was mostly early adopters who weren't really price sensitive, but for whom getting a 'deal' was more about the social validation aspect of looking like a savvy consumer).
    - reverend_gonzo 10y ago
      I think it's also important to keep in mind when Groupon was founded and started getting big: 2008. Everybody was suffering and cutting costs. I don't think it was so much as wanting to be price savvy, but rather, wanting to go out and not being able to afford it. Groupon actually stemmed from a different startup that was supposed to be about something like community building. (The name alludes me, but I used to work for the "parent" company of Groupon and in the same offices as it was getting big. That startup never materialized, but the one they did was got a campaign that if they got x number of people, Motel Bar (which is bar in the same building) would give a deep discount. Andrew Mason, Eric Lefkowsky, Etsy al, quickly realized that that was a real business model, pivoted, and exploded. Had it been in a different when people were not so price conscious and businesses were not on the edge of going bankrupt, I'm not so sure it would have done as well. The businesses in that space that seem to still be going strong (see Gilt for example) tend to focus on more luxury items/markets, where they're either selling factory seconds (in the case of retail) or experiences that will likely target a higher class of consumer and will bring them back.
- jamestnz 10y ago
  I agree, it's probably a terrible deal for almost every retailer, especially small businesses. As I recall, the standard deal with Groupon etc is 50% off retail price, then Groupon (or whoever) takes 50% of what's left. So consider a product or service you usually sell for $100, which costs you $40 to deliver. When doing one of these deals, you're now selling it for $50. You get $25 of that, and the platform operator keeps the other $25. So your cost of sales was $40 and your revenues were $25. Fine if you're happy to operate a loss-leader to attract quality clients who will return to you at full price later. Unfortunately it seems that these daily-deal services often attract low-quality leads to your business. The kind of customer who exhibits no loyalty, and simply surfs from company to company taking advantage of these loss-leader deals, then never returning.
  - CPLX 10y ago
    You've just described the main dynamics involved, with one key part left out. The vendor would realize the revenue up front, when all the "coupons" would be sold. Then they would fulfill the orders over a period of weeks or months, with some sort of breakage rate involved. Needless to say that put the incentives of the buyers and sellers in tension. But overall the main model was not really just a simple loss-leader approach, it had a lot in common with loan sharking.
    - jamestnz 10y ago
      Good point, thanks for the clarification.
    - davemel37 10y ago
      I'm not sure this is true. "Groupon keeps itself in cash by collecting money immediately when it sells its daily coupons to consumers while extending payments to the merchants over 60 days." -http://www.wsj.com/articles/SB10001424052970204358004577027992169046500 http://www.wsj.com/articles/SB100014240529702043580045770279...
      - pbhjpbhj 10y ago
        That article is paywalled. Certainly in the past we were "offered" the opportunity to do a 75% off deal. Then IIRC it was 60-40 in their favour. They got all the breakage (payees that didn't turn up) and we had ty wait until the end of the deal period to apply for the money. It was as close to a con as you could get. Like selling pensioners ludicrously expensive fascia boards and guttering when what they needed was their gutters cleaning. Groupon knew the business it was good for but seemingly marketed to those with little financial nous. They promised winning repeat custom on the one side and cheap one-off deals to the end-customer on the other. IMO some version of this could have been good for businesses in my sector but it would require the company not to be greedy. Investors don't go for those companies.
- prawn 10y ago
  Did any restaurants try offering pre-payment for 5 meals (for example) within a timeframe, and banking on many people not using all 5?

JonFish85 10y ago

In regards to the first point, who won? Groupon the company got a ton of cash but man they're in rough shape these days. They're not even really in the same business space either.

eric_h 10y ago
I don't even know what they do these days. I had an ex who was into buying daily deals, and literally every single small business where we redeemed one did not like the deal they got from groupon one bit.

fullshark 10y ago

I think the big problem is that it was a bad deal for most vendors except for very high margin ones. When places like restaurants realized that it wasn't getting them repeat business and the deals were dominated by stuff like Day spas it kind of collapsed.

noodle 10y ago
Yeah, I've run high margin deals before and even those aren't really worthwhile. For it to be successful you have to be fairly sophisticated with your methodology, and most small business owners (the people who tend to use Groupon the most) just aren't that sophisticated in their setup.
- roel_v 10y ago
  "(the people who tend to use Groupon the most)" Maybe it's more accurate to say 'the people who easily fell for Groupon's sales people'. In my area the various daily deal sites have very aggressive sales fleets, who literally go door to door in shopping streets convincing owners to put up a deal. Many of them lose money or barely break even; but then again some of them owe it to themselves (I bought a deal once and went back afterwards; she then said 'I'll give you the same price you paid for the groupon, because other customers have complained that they didn't think it was fair they had to pay more when they came back' Wtf?) Anyway, I don't have exact data of course, but I've been interested in the business model for years, so I tried to get as much information from business owners as I could every time I bought a deal. The overall picture I got even after a few years (so since 2010-2011 maybe?) was that the typical groupon customer had distilled to the cheapskate vendor-hopping type (before that, when groupon was the hot new thing, it was mostly early adopters who weren't really price sensitive, but for whom getting a 'deal' was more about the social validation aspect of looking like a savvy consumer).
  - reverend_gonzo 10y ago
    I think it's also important to keep in mind when Groupon was founded and started getting big: 2008. Everybody was suffering and cutting costs. I don't think it was so much as wanting to be price savvy, but rather, wanting to go out and not being able to afford it. Groupon actually stemmed from a different startup that was supposed to be about something like community building. (The name alludes me, but I used to work for the "parent" company of Groupon and in the same offices as it was getting big. That startup never materialized, but the one they did was got a campaign that if they got x number of people, Motel Bar (which is bar in the same building) would give a deep discount. Andrew Mason, Eric Lefkowsky, Etsy al, quickly realized that that was a real business model, pivoted, and exploded. Had it been in a different when people were not so price conscious and businesses were not on the edge of going bankrupt, I'm not so sure it would have done as well. The businesses in that space that seem to still be going strong (see Gilt for example) tend to focus on more luxury items/markets, where they're either selling factory seconds (in the case of retail) or experiences that will likely target a higher class of consumer and will bring them back.
jamestnz 10y ago
I agree, it's probably a terrible deal for almost every retailer, especially small businesses. As I recall, the standard deal with Groupon etc is 50% off retail price, then Groupon (or whoever) takes 50% of what's left. So consider a product or service you usually sell for $100, which costs you $40 to deliver. When doing one of these deals, you're now selling it for $50. You get $25 of that, and the platform operator keeps the other $25. So your cost of sales was $40 and your revenues were $25. Fine if you're happy to operate a loss-leader to attract quality clients who will return to you at full price later. Unfortunately it seems that these daily-deal services often attract low-quality leads to your business. The kind of customer who exhibits no loyalty, and simply surfs from company to company taking advantage of these loss-leader deals, then never returning.
- CPLX 10y ago
  You've just described the main dynamics involved, with one key part left out. The vendor would realize the revenue up front, when all the "coupons" would be sold. Then they would fulfill the orders over a period of weeks or months, with some sort of breakage rate involved. Needless to say that put the incentives of the buyers and sellers in tension. But overall the main model was not really just a simple loss-leader approach, it had a lot in common with loan sharking.
  - jamestnz 10y ago
    Good point, thanks for the clarification.
  - davemel37 10y ago
    I'm not sure this is true. "Groupon keeps itself in cash by collecting money immediately when it sells its daily coupons to consumers while extending payments to the merchants over 60 days." -http://www.wsj.com/articles/SB10001424052970204358004577027992169046500 http://www.wsj.com/articles/SB100014240529702043580045770279...
    - pbhjpbhj 10y ago
      That article is paywalled. Certainly in the past we were "offered" the opportunity to do a 75% off deal. Then IIRC it was 60-40 in their favour. They got all the breakage (payees that didn't turn up) and we had ty wait until the end of the deal period to apply for the money. It was as close to a con as you could get. Like selling pensioners ludicrously expensive fascia boards and guttering when what they needed was their gutters cleaning. Groupon knew the business it was good for but seemingly marketed to those with little financial nous. They promised winning repeat custom on the one side and cheap one-off deals to the end-customer on the other. IMO some version of this could have been good for businesses in my sector but it would require the company not to be greedy. Investors don't go for those companies.
prawn 10y ago
Did any restaurants try offering pre-payment for 5 meals (for example) within a timeframe, and banking on many people not using all 5?