7 ms·

Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

225 points by kyleslattery 15y ago

lotusleaf1987 15y ago
The difference is... Groupon can never scale well and have great profitability-- they need 8000 employees to do what? They have a list of merchants and a database of emails and what else? As pointed out on another HN thread, Amazon built a moat what has Groupon done?
dreamdu5t 15y ago
The big difference is Amazon has always sold tangible goods to actual consumers. Even though they operated at a loss while taking investment, they weren't using the investment to pay out older investors. They had a solid plan for generating profit, which Groupon doesn't seem to have.
- mortenjorck 15y ago
  Well... Groupon has always sold tangible goods and services to actual customers, too. Customers that are every bit as fickle as the ones Amazon had to win over a decade ago. They may succeed or fail at this, but it's not like they're still looking for a business model.
  - burgerbrain 15y ago
    The people who get the coupons are not the real customers in Groupons case, but rather the local shop owners. Supposedly, they've been having a good deal of trouble getting repeat customers, they need to find new shopkeepers each round to make up for the last time. Hence why people are calling it a Ponzi scheme.
  - dreamdu5t 15y ago
    Not a business model, a strategy to generate profit from their current model. Groupon's current strategy is to take a customer base that doesn't generate profit, and make it larger. Yet they haven't shown any way that scaling will reduce costs much. How does capturing more merchants drive their costs down, when they have to pay significantly more for each one? Amazon had the answer of vertically integrating as much of the supply, warehousing, and shipment to drive costs down. Groupon doesn't have any way of driving costs down. That's the problem in my mind.
    - imjustatechguy 15y ago
      The founders have already found a business model that has generated them in excess of $500M. Thus Groupon for them has already been successful.
      - dablya 15y ago
        First few people in a Ponzi scheme make money as well...
    - Steko 15y ago
      Scale allows them to offer better deals -- if Groupon can generate 1,000 takers for a Dreamdu5t Cafe coupon and Google Offers can only come up with 200 then Groupon can drastically undercut whatever margin Google is taking and win your sale. Scale is THE moat in this arena. "Yet they haven't shown any way that scaling will reduce costs much." This is simply Parkinson's Second Law: expenditures rise to match income. Hence the IPO. They need as much cash now as possible in order to scale as fast as possible to build that moat as big as possible to fend off the barbarians. As the cost of getting more quality customers goes up you'd expect their costs in that area to proportionally decrease. And at that point, if they've defended their dominance in the deal-of-the-day market then they'll become massively profitable else if they're in a decent 2nd place then maybe Microsoft will buy them out for $5 bln more then they're worth, else they'll end up going the circuit city route.
      - sorbus 15y ago
        > Scale allows them to offer better deals -- if Groupon can generate 1,000 takers for a Dreamdu5t Cafe coupon and Google Offers can only come up with 200 then Groupon can drastically undercut whatever margin Google is taking and win your sale. If customers who arrive at a store through Google Offers are more likely to return to the store in the future without a coupon than customers who arrive at a store through Groupon, then stores will prefer Google Offers as a way to obtain loyal customers. And if stores prefer Google Offers to Groupon, then Groupon collapses. From the point of view of the merchants, this is all about getting repeat customers who will make up for the loss that they are taking on the coupons (or, in some cases, betting on customers spending enough in addition to the coupon to make a profit on the one sale). The moat that Groupon needs isn't scale, it's loyal merchants who will offer coupons on Groupon repeatedly - which will get users to use it. If it can't get that, then it will burn out once it runs out of new merchants.
marciovm123 15y ago
"...when you consider that better than 60 percent of Amazon's sales come from repeat customers--which implies that they're loyal..." That seems to be the key figure missing from the Groupon discussion. If they are buying loyal users and customers, their mad-dash growth strategy would seem rational. If their retention is poor, it would seem more like a Ponzi scheme.
- ankrgyl 15y ago
  Additionally, an article on HN earlier today pointed out that Amazon had to spend a lot of money investing in infrastructure, whereas the only similar thing Groupon has done is assemble a "phone book" of interested businesses and consumers.
- melvinram 15y ago
  I think the piece of the puzzle that most people have trouble with is not that they'll have repeat customers. It's that those customers are loyal to Groupon... or more specifically, loyal to the concept of deep discounts. The part most people, including myself, have a hard time grok'ing is that merchants will continue to punish themselves by doing business with Groupon.
  - mattmanser 15y ago
    I think that perhaps you're not grokking Groupon, the customers of Groupon have never been the bargain hunters, they've always been the merchants. The bargain hunters are the product Groupon sells. You can then look at the model and realize Groupon have been screwing their own customers. It's a shame as I think the core concept of the business is pretty sound in my book, but I was astounded when I found out the Groupon were taking 50-100% of deals. Just seemed like short term gain for long term loss. I thought that at least they'd be making crazy profits, but it turns out they're making a loss! That was what truly astonished me. They don't even have any physical good, they're selling other people's products for free and they're making a loss. Jeezus, what a royal screwup. The discussion of the model here this last day has explained how/why they dug themselves into this terrible hole. If, and tbh it's still an if, groupon unravels, it'll be quite a few years before this model will surface again. Which is a shame as done in moderation it seems a sound one to me and a win for all involved.
deleted 15y ago
[deleted]
stevenj 15y ago
Does Groupon have a durable competitive advantage? Does it have a moat? I'm not sure.
- mryall 15y ago
  This earlier article has some discussion of Groupon's moat, or lack thereof. http://news.ycombinator.com/item?id=2616412 http://news.ycombinator.com/item?id=2616412
dlevine 15y ago
I actually though about Amazon when I saw people starting to rag on Groupon and its bottom line. Another important thing to remember is that Amazon actually figured out its business model later. For a while, it was pretty much just a dot-com that was hemorrhaging cash. I remember reading articles for years predicting that Amazon would go belly up any day. It wasn't until they cut costs and really dialed in their operations that they became a "real" business, and this didn't happen until years after they went public. Although I guess that they did always focus on making customers happy - they just eventually figured out how to do that without going bust.
- podperson 15y ago
  Even today, Amazon's position is surprisingly precarious. It relies on loopholes in tax laws for competitive advantage which, if they are closed, are predicted halve its income. And there are some analysts who argue that Amazon's "profits" are fictional, with all kinds of losses disguised as investments and hidden in other financial vehicles. Recall that even today, Barnes & Noble is simply unable to sell you a book as cheaply as Amazon does, either in store or online, even before sales tax.
  - lurker19 15y ago
    Amazon hasn't taken on notable investment or debt in a long time, and vendors and employees still get paid every month. Amazon maybe be making some small fraction of what they claim, but it is certainly a positive fraction, which is the most important consideration for solvency.
  - amac 15y ago
    Maybe excluding Apple, is anyone better positioned in the digital goods market than Amazon?
- jamiequint 15y ago
  The fundamentals of Amazon's business are much better than Groupon's though. Its still unclear whether or not Groupon is sustainable for merchants. There are two questions that merchants should be asking when they are trying to decide whether or not to run a Groupon: 1. "Will I make money on this offer even after the discount and after Groupon takes their cut?" The answer here is NO for a large majority of merchants, which should lead to question... 2. "Will I attract enough new customers from this deal to account for the lost revenue of operating the deal at a loss?" The answer here for most merchants is "I have no frickin' clue". Since almost no small business operates at 60-80% margins - the deal discount for most deals plus Groupon's cut is somewhere around this amount - its highly unlikely that the answer to the first question is "yes" for a significant portion of Groupon's merchants. As a result, its my opinion that the eventual success or failure of Groupon is highly depending on whether or not they can do two things: 1. Prove that the answer to the second question is "yes" 2. Prove that the answer to the second question is "yes" more often for them than for their competitors (otherwise they will experience decreasing margins as the space is flooded with competitors)
dr_ 15y ago
The biggest issue with Groupon is the fact that while it may offer a great deal for consumers, and may make tremendous revenue on each deal, it doesn't appear to be a great deal for the merchants involved. Oftentimes it seems like a losing proposition in order to have customers come thru the door - people who may never return until there's another Groupon. That may work while the economy is bad, but don't expect merchants to give in so easily once the economy improves. Groupon will have to either take less of a cut from the deal or offer a worse "deal" to the consumer.
nzoschke 15y ago
Hilarious comparison. I love it. Isn't the whole point of an IPO to allow everyone participate, therefore letting the market decide? If you don't like Groupon's numbers, don't buy the stock. Simple enough. I'm seeing a lot of: "Think of the poor regular investors when it pops!" sentiment. Are not these investors rational people acting on the same information we all have?
- 46Bit 15y ago
  No. Of all the things you can describe the stock market as, rational is not one of them - and that's before you consider the amount of computer trading.
  - jrockway 15y ago
    The computers are the most rational of all.
    - 46Bit 15y ago
      Not when they're programmed by people.
- scrollbar 15y ago
  This is a big moment that could potentially affect a lot of people. Some HNers may be considering investing- discussion of this opportunity will probably help with this decision making. Further there are many parties incented to pump hot stocks so they can profit from the fees and possibly from pump-and-dump: investment banks, current investors, soon-to-be investors, etc. I enjoy hearing both sides of the discussion here, and I do feel bad about people being misinformed and taken advantage of, even if it's ultimately their choice whether they buy in to the bullshit. The major question: is it bullshit, or not? Sounds like HN is undecided
  - nzoschke 15y ago
    The discussion is great, don't get me wrong. Company IPOs, people buy or don't buy for tons of reasons, the company executes on their plan, and the market adjusts. Trying to label a company a ponzi scheme seems like little more than sensationalism to me. That said, I would never invest in Groupon, simply because I don't use the product ever.
gcb 15y ago
<quote> The essence of that critique is that Amazon is just buying customers, and that once it runs out of the money to do so the Ponzi scheme will collapse. Of course, Amazon is buying customers, just as all companies do. Some companies do it by dumping money into advertising, some by offering discounts. Amazon does both. The only important question is whether Amazon is spending too much on those customers, and the answer seems pretty clearly to be no. In its latest quarter, Amazon added 3.8 million new customers, and spent an average of $19 to acquire them. When you consider that better than 60 percent of Amazon's sales come from repeat customers--which implies that they're loyal--and that the average customer spent $116 in 1999 (10 percent more than in 1998), $19 seems like something of a bargain.
scottkduncan 15y ago
Amazon had to deal with customer acquisition and customer retention, while Groupon has the added challenges of merchant retention and margins being squeezed by competitors in a sector with relatively low barriers to entry. To me, it's a steeper uphill climb for Groupon.
- 9999 15y ago
  The way that Groupon has defined the sector actually does present fairly high barriers to entry in that you need a dedicated sales force to 1) discover potential merchants and 2) arrange a deal that will work for the Groupon purchaser and the merchant. If someone redefines the sector by successfully removing the need for that sales force while maintaining the satisfaction of merchants and consumers, they will crush Groupon. BTW, I think that's exactly what Groupon's competitors will do and are doing. Heck, all they have to do is steal Groupon's previous merchants now that the trail has been blazed.
nhebb 15y ago
Timely, since Groupon competitor LivingSocial is heavily backed by Amazon. Amazon invested in their infrastructure, whereas Groupon lined their pockets. Theres is no real comparison between the two, other than the article's title. A few weeks ago LivingSocial publicly predicted that they'd surpass Groupon by January 2012. They're currently in ~40% of the markets that Groupon reaches and have ~40% of the revenue, so that's an aggressive goal. But (non-Ponzi) Amazon's backing lends it a lot of gravitas.
- syllogism 15y ago
  That interview with the LivingSocial CEO[1] was excellent. I think their idea of the local restaurant marketplace will do very well. That idea really makes sense to me, in a way that groupon doesn't. [1] http://www.businessinsider.com/livingsocial-tim-oshaughnessy-interview-2011-4 http://www.businessinsider.com/livingsocial-tim-oshaughnessy...
dreamux 15y ago
Back in 2000 online purchasing and e-commerce were still in their infancy. It was difficult to predict back then whether traditional models of commerce applied to these businesses, and to what degree consumers would adopt online buying. We know much more now about online business, growth (long and short-term), scaling, value of users (and their cost of acquisition), logistics, all sorts of relevant business benchmarks/analytics, etc. Enough at least that many are concerned about Groupon in a more justifiable context than Amazon circa 2000.
acslater00 15y ago
Lesson: as early as 2000, people were throwing around the phrase "Ponzi Scheme" to mean "a business whose long-term prospects I'm slightly suspicious of".
mikecane 15y ago
Maybe I'm just out of the loop these days or I need to get into Manhattan more, but I can recall seeing actual Amazon ads in places like bus shelters and subway platforms and also hearing radio ads back in 2000. All I've heard of Groupon is from the Internet. Have I missed any big ad campaigns they've done or has their growth all been Net-based word-of-mouth?
- phxrsng 15y ago
  I don't know of any, but on the other side of the coin lets consider that the net penetration 11 years later is much higher, and maybe the ROI of print advertising for their demographic is not as high.
- kevinbluer 15y ago
  They did a Super Bowl ad (at obviously significant expense): http://www.groupon.com/blog/cities/groupon-super-bowl-ads/ http://www.groupon.com/blog/cities/groupon-super-bowl-ads/ Wasn't regarded as a big success though: http://allthingsd.com/20110207/groupon-back-peddles-after-viewers-fail-to-see-the-humor-and-the-compassion-in-their-super-bowl-ads/ http://allthingsd.com/20110207/groupon-back-peddles-after-vi...
  - mikecane 15y ago
    OMG. I'd forgotten all about those offensive and tasteless Super Bowl ads. Thanks (I think) for the reminder.
sushrutbidwai 15y ago
In Amazon's case, it was amazon which was taking up the losses and not the producers of goods. In group on's case it is group on as well as merchants are taking up losses and both believe repeat customers will eventually get them significant ROI. Now you may question whether offering of group on is good enough to make that happen or not. But growth like this needs investment. Another question is - Can group on defend itself against competitor, given that entry barrier is not big. I mean does group on sign any exclusive agreement with merchants? I dont think so. So there only entry barrier seems to be the large sales force which may not be enough to sustain this kind of growth. And last think - Group on's acquisitions in emerging markets like India. How much growth can group on expect from it? eg group on has acquired a very small player, sosasta and now trying to turn that around and into the biggest deal site. If groupon can pull this off, they will be bigger much bigger than their current valuations.
michaelpinto 15y ago
Yes Amazon turned out to be real, but Pets.com, Kozmo.com, Webvan, Flooz, eToys, Boo.com and the theGlobe.com weren't real. My guess is that there will be some winners from the graduating class of Web 2.0 — but there will be bodies. By the way if you ant to see a great film on that era check out Startup.com: http://www.imdb.com/title/tt0256408/ http://www.imdb.com/title/tt0256408/
swaits 15y ago
OMFG HN fail at understanding what a Ponzi scheme is. Enough.
cosminlehene 15y ago
Off topic: Here's how amazon.com looked like in Feb 2000 http://web.archive.org/web/20000229082606/http://www.amazon.com/exec/obidos/subst/home/home.html http://web.archive.org/web/20000229082606/http://www.amazon....
bobds 15y ago
Why are we comparing everything to a ponzi-scheme lately? "The essence of that critique is that Amazon is just buying customers, and that once it runs out of the money to do so the Ponzi scheme will collapse." That makes no sense if you ask me.
creativeone 15y ago
Comparing groupon to amazon is like comparing a candy shop to an entire shopping center.
alexandros 15y ago
The thing with Groupon is that it can't afford to keep it's implicit promise to merchants. It's a conflict over customer loyalty. If the customers become loyal to a couple of local restaurants, Groupon loses them and must 'purchase' new ones. If they remain loyal to Groupon's offers, then they will not be worth the merchants' expense to put out the offer. Based on this, Groupon must either keep spending to acquire new customers, or new merchants. Either way, the large marketing costs are here to stay (until they saturate the one market or the other and burn out). I don't think Amazon had any such fundamental conflicts to deal with.
krishna2 15y ago
For every one amazon.com, there is a list of webvan.com, pets.com...etc.
nmueller 15y ago
To be fair, Amazon's stock tanked over 90% in the next 18 months: http://www.wolframalpha.com/input/?i=amazon+market+cap+from+2000+to+2002 http://www.wolframalpha.com/input/?i=amazon+market+cap+from+... Amazon is a great company now but anyone who invested when that article was written wasn't made whole until 2007.
rockarage 15y ago
Back in 2000, Amazon did not face the same type of competition Groupon faces today. There was no Facebook or Living Social, Google did not have 30 billion in the bank. Groupon is now competing against Facebook, Google and Amazon(Living Social). If you're merchant, you have more options to choose from and less reasons to go with Groupon. 1.)Merchants can be certain that Amazon and Google will have the money to pay them. Groupon on the other hand does not have any profits and is burning through all their revenue to grow. 2.)Google, Facebook and Amazon has a larger user base. 3.)Merchants can get a better deal from Groupon's competitors as they try to lure/woo them from Groupon. Groupon is on very shaky ground the other players are not. The fact is, in 2000 Amazon did not have a number of very profitable businesses copying them. Amazon could grow, figuratively build a moat without being attacked, Groupon has no such luxury.

225 points by kyleslattery 15y ago

lotusleaf1987 15y ago

The difference is... Groupon can never scale well and have great profitability-- they need 8000 employees to do what? They have a list of merchants and a database of emails and what else? As pointed out on another HN thread, Amazon built a moat what has Groupon done?

dreamdu5t 15y ago

The big difference is Amazon has always sold tangible goods to actual consumers. Even though they operated at a loss while taking investment, they weren't using the investment to pay out older investors. They had a solid plan for generating profit, which Groupon doesn't seem to have.

mortenjorck 15y ago
Well... Groupon has always sold tangible goods and services to actual customers, too. Customers that are every bit as fickle as the ones Amazon had to win over a decade ago. They may succeed or fail at this, but it's not like they're still looking for a business model.
- burgerbrain 15y ago
  The people who get the coupons are not the real customers in Groupons case, but rather the local shop owners. Supposedly, they've been having a good deal of trouble getting repeat customers, they need to find new shopkeepers each round to make up for the last time. Hence why people are calling it a Ponzi scheme.
- dreamdu5t 15y ago
  Not a business model, a strategy to generate profit from their current model. Groupon's current strategy is to take a customer base that doesn't generate profit, and make it larger. Yet they haven't shown any way that scaling will reduce costs much. How does capturing more merchants drive their costs down, when they have to pay significantly more for each one? Amazon had the answer of vertically integrating as much of the supply, warehousing, and shipment to drive costs down. Groupon doesn't have any way of driving costs down. That's the problem in my mind.
  - imjustatechguy 15y ago
    The founders have already found a business model that has generated them in excess of $500M. Thus Groupon for them has already been successful.
    - dablya 15y ago
      First few people in a Ponzi scheme make money as well...
  - Steko 15y ago
    Scale allows them to offer better deals -- if Groupon can generate 1,000 takers for a Dreamdu5t Cafe coupon and Google Offers can only come up with 200 then Groupon can drastically undercut whatever margin Google is taking and win your sale. Scale is THE moat in this arena. "Yet they haven't shown any way that scaling will reduce costs much." This is simply Parkinson's Second Law: expenditures rise to match income. Hence the IPO. They need as much cash now as possible in order to scale as fast as possible to build that moat as big as possible to fend off the barbarians. As the cost of getting more quality customers goes up you'd expect their costs in that area to proportionally decrease. And at that point, if they've defended their dominance in the deal-of-the-day market then they'll become massively profitable else if they're in a decent 2nd place then maybe Microsoft will buy them out for $5 bln more then they're worth, else they'll end up going the circuit city route.
    - sorbus 15y ago
      > Scale allows them to offer better deals -- if Groupon can generate 1,000 takers for a Dreamdu5t Cafe coupon and Google Offers can only come up with 200 then Groupon can drastically undercut whatever margin Google is taking and win your sale. If customers who arrive at a store through Google Offers are more likely to return to the store in the future without a coupon than customers who arrive at a store through Groupon, then stores will prefer Google Offers as a way to obtain loyal customers. And if stores prefer Google Offers to Groupon, then Groupon collapses. From the point of view of the merchants, this is all about getting repeat customers who will make up for the loss that they are taking on the coupons (or, in some cases, betting on customers spending enough in addition to the coupon to make a profit on the one sale). The moat that Groupon needs isn't scale, it's loyal merchants who will offer coupons on Groupon repeatedly - which will get users to use it. If it can't get that, then it will burn out once it runs out of new merchants.

marciovm123 15y ago

"...when you consider that better than 60 percent of Amazon's sales come from repeat customers--which implies that they're loyal..." That seems to be the key figure missing from the Groupon discussion. If they are buying loyal users and customers, their mad-dash growth strategy would seem rational. If their retention is poor, it would seem more like a Ponzi scheme.

ankrgyl 15y ago
Additionally, an article on HN earlier today pointed out that Amazon had to spend a lot of money investing in infrastructure, whereas the only similar thing Groupon has done is assemble a "phone book" of interested businesses and consumers.
melvinram 15y ago
I think the piece of the puzzle that most people have trouble with is not that they'll have repeat customers. It's that those customers are loyal to Groupon... or more specifically, loyal to the concept of deep discounts. The part most people, including myself, have a hard time grok'ing is that merchants will continue to punish themselves by doing business with Groupon.
- mattmanser 15y ago
  I think that perhaps you're not grokking Groupon, the customers of Groupon have never been the bargain hunters, they've always been the merchants. The bargain hunters are the product Groupon sells. You can then look at the model and realize Groupon have been screwing their own customers. It's a shame as I think the core concept of the business is pretty sound in my book, but I was astounded when I found out the Groupon were taking 50-100% of deals. Just seemed like short term gain for long term loss. I thought that at least they'd be making crazy profits, but it turns out they're making a loss! That was what truly astonished me. They don't even have any physical good, they're selling other people's products for free and they're making a loss. Jeezus, what a royal screwup. The discussion of the model here this last day has explained how/why they dug themselves into this terrible hole. If, and tbh it's still an if, groupon unravels, it'll be quite a few years before this model will surface again. Which is a shame as done in moderation it seems a sound one to me and a win for all involved.

deleted 15y ago

[deleted]

stevenj 15y ago

Does Groupon have a durable competitive advantage? Does it have a moat? I'm not sure.

mryall 15y ago
This earlier article has some discussion of Groupon's moat, or lack thereof. http://news.ycombinator.com/item?id=2616412 http://news.ycombinator.com/item?id=2616412

dlevine 15y ago

I actually though about Amazon when I saw people starting to rag on Groupon and its bottom line. Another important thing to remember is that Amazon actually figured out its business model later. For a while, it was pretty much just a dot-com that was hemorrhaging cash. I remember reading articles for years predicting that Amazon would go belly up any day. It wasn't until they cut costs and really dialed in their operations that they became a "real" business, and this didn't happen until years after they went public. Although I guess that they did always focus on making customers happy - they just eventually figured out how to do that without going bust.

podperson 15y ago
Even today, Amazon's position is surprisingly precarious. It relies on loopholes in tax laws for competitive advantage which, if they are closed, are predicted halve its income. And there are some analysts who argue that Amazon's "profits" are fictional, with all kinds of losses disguised as investments and hidden in other financial vehicles. Recall that even today, Barnes & Noble is simply unable to sell you a book as cheaply as Amazon does, either in store or online, even before sales tax.
- lurker19 15y ago
  Amazon hasn't taken on notable investment or debt in a long time, and vendors and employees still get paid every month. Amazon maybe be making some small fraction of what they claim, but it is certainly a positive fraction, which is the most important consideration for solvency.
- amac 15y ago
  Maybe excluding Apple, is anyone better positioned in the digital goods market than Amazon?
jamiequint 15y ago
The fundamentals of Amazon's business are much better than Groupon's though. Its still unclear whether or not Groupon is sustainable for merchants. There are two questions that merchants should be asking when they are trying to decide whether or not to run a Groupon: 1. "Will I make money on this offer even after the discount and after Groupon takes their cut?" The answer here is NO for a large majority of merchants, which should lead to question... 2. "Will I attract enough new customers from this deal to account for the lost revenue of operating the deal at a loss?" The answer here for most merchants is "I have no frickin' clue". Since almost no small business operates at 60-80% margins - the deal discount for most deals plus Groupon's cut is somewhere around this amount - its highly unlikely that the answer to the first question is "yes" for a significant portion of Groupon's merchants. As a result, its my opinion that the eventual success or failure of Groupon is highly depending on whether or not they can do two things: 1. Prove that the answer to the second question is "yes" 2. Prove that the answer to the second question is "yes" more often for them than for their competitors (otherwise they will experience decreasing margins as the space is flooded with competitors)

dr_ 15y ago

The biggest issue with Groupon is the fact that while it may offer a great deal for consumers, and may make tremendous revenue on each deal, it doesn't appear to be a great deal for the merchants involved. Oftentimes it seems like a losing proposition in order to have customers come thru the door - people who may never return until there's another Groupon. That may work while the economy is bad, but don't expect merchants to give in so easily once the economy improves. Groupon will have to either take less of a cut from the deal or offer a worse "deal" to the consumer.

nzoschke 15y ago

Hilarious comparison. I love it. Isn't the whole point of an IPO to allow everyone participate, therefore letting the market decide? If you don't like Groupon's numbers, don't buy the stock. Simple enough. I'm seeing a lot of: "Think of the poor regular investors when it pops!" sentiment. Are not these investors rational people acting on the same information we all have?

46Bit 15y ago
No. Of all the things you can describe the stock market as, rational is not one of them - and that's before you consider the amount of computer trading.
- jrockway 15y ago
  The computers are the most rational of all.
  - 46Bit 15y ago
    Not when they're programmed by people.
scrollbar 15y ago
This is a big moment that could potentially affect a lot of people. Some HNers may be considering investing- discussion of this opportunity will probably help with this decision making. Further there are many parties incented to pump hot stocks so they can profit from the fees and possibly from pump-and-dump: investment banks, current investors, soon-to-be investors, etc. I enjoy hearing both sides of the discussion here, and I do feel bad about people being misinformed and taken advantage of, even if it's ultimately their choice whether they buy in to the bullshit. The major question: is it bullshit, or not? Sounds like HN is undecided
- nzoschke 15y ago
  The discussion is great, don't get me wrong. Company IPOs, people buy or don't buy for tons of reasons, the company executes on their plan, and the market adjusts. Trying to label a company a ponzi scheme seems like little more than sensationalism to me. That said, I would never invest in Groupon, simply because I don't use the product ever.

gcb 15y ago

<quote> The essence of that critique is that Amazon is just buying customers, and that once it runs out of the money to do so the Ponzi scheme will collapse. Of course, Amazon is buying customers, just as all companies do. Some companies do it by dumping money into advertising, some by offering discounts. Amazon does both. The only important question is whether Amazon is spending too much on those customers, and the answer seems pretty clearly to be no. In its latest quarter, Amazon added 3.8 million new customers, and spent an average of $19 to acquire them. When you consider that better than 60 percent of Amazon's sales come from repeat customers--which implies that they're loyal--and that the average customer spent $116 in 1999 (10 percent more than in 1998), $19 seems like something of a bargain.

scottkduncan 15y ago

Amazon had to deal with customer acquisition and customer retention, while Groupon has the added challenges of merchant retention and margins being squeezed by competitors in a sector with relatively low barriers to entry. To me, it's a steeper uphill climb for Groupon.

9999 15y ago
The way that Groupon has defined the sector actually does present fairly high barriers to entry in that you need a dedicated sales force to 1) discover potential merchants and 2) arrange a deal that will work for the Groupon purchaser and the merchant. If someone redefines the sector by successfully removing the need for that sales force while maintaining the satisfaction of merchants and consumers, they will crush Groupon. BTW, I think that's exactly what Groupon's competitors will do and are doing. Heck, all they have to do is steal Groupon's previous merchants now that the trail has been blazed.

nhebb 15y ago

Timely, since Groupon competitor LivingSocial is heavily backed by Amazon. Amazon invested in their infrastructure, whereas Groupon lined their pockets. Theres is no real comparison between the two, other than the article's title. A few weeks ago LivingSocial publicly predicted that they'd surpass Groupon by January 2012. They're currently in ~40% of the markets that Groupon reaches and have ~40% of the revenue, so that's an aggressive goal. But (non-Ponzi) Amazon's backing lends it a lot of gravitas.

syllogism 15y ago
That interview with the LivingSocial CEO[1] was excellent. I think their idea of the local restaurant marketplace will do very well. That idea really makes sense to me, in a way that groupon doesn't. [1] http://www.businessinsider.com/livingsocial-tim-oshaughnessy-interview-2011-4 http://www.businessinsider.com/livingsocial-tim-oshaughnessy...

dreamux 15y ago

Back in 2000 online purchasing and e-commerce were still in their infancy. It was difficult to predict back then whether traditional models of commerce applied to these businesses, and to what degree consumers would adopt online buying. We know much more now about online business, growth (long and short-term), scaling, value of users (and their cost of acquisition), logistics, all sorts of relevant business benchmarks/analytics, etc. Enough at least that many are concerned about Groupon in a more justifiable context than Amazon circa 2000.

acslater00 15y ago

Lesson: as early as 2000, people were throwing around the phrase "Ponzi Scheme" to mean "a business whose long-term prospects I'm slightly suspicious of".

mikecane 15y ago

Maybe I'm just out of the loop these days or I need to get into Manhattan more, but I can recall seeing actual Amazon ads in places like bus shelters and subway platforms and also hearing radio ads back in 2000. All I've heard of Groupon is from the Internet. Have I missed any big ad campaigns they've done or has their growth all been Net-based word-of-mouth?

phxrsng 15y ago
I don't know of any, but on the other side of the coin lets consider that the net penetration 11 years later is much higher, and maybe the ROI of print advertising for their demographic is not as high.
kevinbluer 15y ago
They did a Super Bowl ad (at obviously significant expense): http://www.groupon.com/blog/cities/groupon-super-bowl-ads/ http://www.groupon.com/blog/cities/groupon-super-bowl-ads/ Wasn't regarded as a big success though: http://allthingsd.com/20110207/groupon-back-peddles-after-viewers-fail-to-see-the-humor-and-the-compassion-in-their-super-bowl-ads/ http://allthingsd.com/20110207/groupon-back-peddles-after-vi...
- mikecane 15y ago
  OMG. I'd forgotten all about those offensive and tasteless Super Bowl ads. Thanks (I think) for the reminder.

sushrutbidwai 15y ago

In Amazon's case, it was amazon which was taking up the losses and not the producers of goods. In group on's case it is group on as well as merchants are taking up losses and both believe repeat customers will eventually get them significant ROI. Now you may question whether offering of group on is good enough to make that happen or not. But growth like this needs investment. Another question is - Can group on defend itself against competitor, given that entry barrier is not big. I mean does group on sign any exclusive agreement with merchants? I dont think so. So there only entry barrier seems to be the large sales force which may not be enough to sustain this kind of growth. And last think - Group on's acquisitions in emerging markets like India. How much growth can group on expect from it? eg group on has acquired a very small player, sosasta and now trying to turn that around and into the biggest deal site. If groupon can pull this off, they will be bigger much bigger than their current valuations.

michaelpinto 15y ago

Yes Amazon turned out to be real, but Pets.com, Kozmo.com, Webvan, Flooz, eToys, Boo.com and the theGlobe.com weren't real. My guess is that there will be some winners from the graduating class of Web 2.0 — but there will be bodies. By the way if you ant to see a great film on that era check out Startup.com: http://www.imdb.com/title/tt0256408/ http://www.imdb.com/title/tt0256408/

swaits 15y ago

OMFG HN fail at understanding what a Ponzi scheme is. Enough.

cosminlehene 15y ago

Off topic: Here's how amazon.com looked like in Feb 2000 http://web.archive.org/web/20000229082606/http://www.amazon.com/exec/obidos/subst/home/home.html http://web.archive.org/web/20000229082606/http://www.amazon....

bobds 15y ago

Why are we comparing everything to a ponzi-scheme lately? "The essence of that critique is that Amazon is just buying customers, and that once it runs out of the money to do so the Ponzi scheme will collapse." That makes no sense if you ask me.

creativeone 15y ago

Comparing groupon to amazon is like comparing a candy shop to an entire shopping center.

alexandros 15y ago

The thing with Groupon is that it can't afford to keep it's implicit promise to merchants. It's a conflict over customer loyalty. If the customers become loyal to a couple of local restaurants, Groupon loses them and must 'purchase' new ones. If they remain loyal to Groupon's offers, then they will not be worth the merchants' expense to put out the offer. Based on this, Groupon must either keep spending to acquire new customers, or new merchants. Either way, the large marketing costs are here to stay (until they saturate the one market or the other and burn out). I don't think Amazon had any such fundamental conflicts to deal with.

krishna2 15y ago

For every one amazon.com, there is a list of webvan.com, pets.com...etc.

nmueller 15y ago

To be fair, Amazon's stock tanked over 90% in the next 18 months: http://www.wolframalpha.com/input/?i=amazon+market+cap+from+2000+to+2002 http://www.wolframalpha.com/input/?i=amazon+market+cap+from+... Amazon is a great company now but anyone who invested when that article was written wasn't made whole until 2007.

rockarage 15y ago

Back in 2000, Amazon did not face the same type of competition Groupon faces today. There was no Facebook or Living Social, Google did not have 30 billion in the bank. Groupon is now competing against Facebook, Google and Amazon(Living Social). If you're merchant, you have more options to choose from and less reasons to go with Groupon. 1.)Merchants can be certain that Amazon and Google will have the money to pay them. Groupon on the other hand does not have any profits and is burning through all their revenue to grow. 2.)Google, Facebook and Amazon has a larger user base. 3.)Merchants can get a better deal from Groupon's competitors as they try to lure/woo them from Groupon. Groupon is on very shaky ground the other players are not. The fact is, in 2000 Amazon did not have a number of very profitable businesses copying them. Amazon could grow, figuratively build a moat without being attacked, Groupon has no such luxury.