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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 fi

by 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)
- Alex3917 15y ago
  Groupon can always lower their cut in the future though once they have built out their database of customers. It also wouldn't surprise me if they laid off half their workforce once their rate of customer acquisition starts leveling off.
  - ecuzzillo 15y ago
    To do that, wouldn't they have to admit that they aren't growing like nuts anymore, and wouldn't that kill their valuation? (Even established companies like Apple and Google base most of their valuations on the premise of future growth. When the premise of future growth goes away, you have Microsoft.)
    - Alex3917 15y ago
      It shouldn't negatively affect their valuation. They would still be able to grow at the same rate, but they would do it by widening the channel rather than by acquiring new customers. It would actually be a big win for investors.
      - jamiequint 15y ago
        My point is that it if the answer to the 2nd question is "no" for most merchants it doesn't matter how much you widen the channel the business is still unsustainable in the long-term. Even so, how do you see them widening the channel? Going into a completely different model that does not fit their brand? The entire discount space in every market is now chock full of competitors doing similar things to Groupon.
    - jeffool 15y ago
      Ah yes, poor Microsoft, the lowly company that only makes billions a quarter. Don't get me wrong, your point on stagnation isn't totally missed, but do we really still need eternal growth to be "successful?"
flomo 15y ago
Disagree - the catalog business model was a proven quantity going back a century or more, e.g. Sears. Amazon was the first mover and was focused on building footprint pretty much from the beginning. Despite this critical article, a more accurate survey of that era's business press would give the impression that Amazon.com was the "good one" compared to the Outpost.com like pump-n-dumps that were often nothing more than a few webservers. Maybe Amazon didn't get serious until the lean times, but the press hype was generally correct. On the other hand, the Groupon business model has always been borderline. (I remember my parents buying these coupon books with deals like half-off steak dinner on Tuesdays before 8PM. How many of those companies are still around?) Furthermore, its been tried before on the Internet, although never at this scale. Nobody's quite said it, but it really does seem like the underlying idea is "Facebook has created The New Economy! What possibly could go wrong?"

by dlevine 15y ago

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)

Alex3917 15y ago
Groupon can always lower their cut in the future though once they have built out their database of customers. It also wouldn't surprise me if they laid off half their workforce once their rate of customer acquisition starts leveling off.
- ecuzzillo 15y ago
  To do that, wouldn't they have to admit that they aren't growing like nuts anymore, and wouldn't that kill their valuation? (Even established companies like Apple and Google base most of their valuations on the premise of future growth. When the premise of future growth goes away, you have Microsoft.)
  - Alex3917 15y ago
    It shouldn't negatively affect their valuation. They would still be able to grow at the same rate, but they would do it by widening the channel rather than by acquiring new customers. It would actually be a big win for investors.
    - jamiequint 15y ago
      My point is that it if the answer to the 2nd question is "no" for most merchants it doesn't matter how much you widen the channel the business is still unsustainable in the long-term. Even so, how do you see them widening the channel? Going into a completely different model that does not fit their brand? The entire discount space in every market is now chock full of competitors doing similar things to Groupon.
  - jeffool 15y ago
    Ah yes, poor Microsoft, the lowly company that only makes billions a quarter. Don't get me wrong, your point on stagnation isn't totally missed, but do we really still need eternal growth to be "successful?"

flomo 15y ago

Disagree - the catalog business model was a proven quantity going back a century or more, e.g. Sears. Amazon was the first mover and was focused on building footprint pretty much from the beginning. Despite this critical article, a more accurate survey of that era's business press would give the impression that Amazon.com was the "good one" compared to the Outpost.com like pump-n-dumps that were often nothing more than a few webservers. Maybe Amazon didn't get serious until the lean times, but the press hype was generally correct. On the other hand, the Groupon business model has always been borderline. (I remember my parents buying these coupon books with deals like half-off steak dinner on Tuesdays before 8PM. How many of those companies are still around?) Furthermore, its been tried before on the Internet, although never at this scale. Nobody's quite said it, but it really does seem like the underlying idea is "Facebook has created The New Economy! What possibly could go wrong?"