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This is just 'the sky is falling' thinking. If groupon defaults, the businesses will just not honor the groupon coupons. After all, they haven't been paid for

This is just 'the sky is falling' thinking. If groupon defaults, the businesses will just not honor the groupon coupons. After all, they haven't been paid for. The entire hypothesis of this article is that Groupon amounts to a marketing firm where you pay most of the cost in kind much later, instead of paying up front for a big marketing campaign. The 'in kind and later' part makes your scenario absurd. However, I this article basically misses the point. Lots of businesses have excess capacity that costs them nothing to utilize. For example, a hair salon which employs 4 stylists will have several hours per week, and perhaps many more, where a stylist is idle. Giving someone a very cheap haircut when otherwise idle is a chance to win a future paying customer, and has basically no cost. It's a win for the customer and a win for the stylist, and of course groupon is getting a fee for that. The same is true of items, like designer clothing and food, that have absurd markups. Selling it for closer to cost will cannibalize some future purchases, but overall isn't really that harmful, and may generate recurring income from newly converted customers. It is certainly MUCH lower risk than an advertising campaign, in that all the cost is baked in to people who actually show up in your store, instead of spread to the wind in the hopes of hitting the right people. The problem with groupon is that it has no moat. http://37signals.com/svn/posts/333-warren-buffett-on-castles-and-moats http://37signals.com/svn/posts/333-warren-buffett-on-castles... Any competitor can come along and set up an identical business, and there is basically no network effect to speak of to keep customers coming to groupon instead of living social or any other competitor, and no risk for retailers or customers of trying another competing site. This is why there is 1 classified site in the US (craigslist) and 1 auction site (ebay), but innumerable comparison shopping sites all sharing the same retailers (amazon, half, cnet, shopping.com, pricegrabber, etc etc).

cletus 15y ago
> Lots of businesses have excess capacity that costs them nothing to utilize. I dispute this assertion or, in the very least, see this as being far more complex than you suggest, for two reasons: 1. Customers who might otherwise pay full price will end up using these deals, which is a direct loss to the business; and 2. The inventory may be used up by such offers to such an extent that customers who might otherwise pay full price may not be able to do so. > The problem with groupon is that it has no moat. On this point you are I agree. As for being "win win", apart from the above, you have to look at a number of factors: - Do Groupon customers return? - What word-of-mouth do they give to businesses as a result? - How much do they spend (initially and on repeat visits)? - Are they people brought in by Groupon representative of your existing or desired customer base? There is plenty of anecdotal evidence suggestings "Grouponers" are "cheap" (both in spending habits and tips). The "offer marketplace" providers (Groupon, LivingSocial or whoever) seem to be missing a golden opportunity to mine useful data here by tying an offer redemption to an actual person.
- pemulis 15y ago
  3. Most of the people redeeming Groupons will come at peak hours, so you still have excess capacity at slow hours. If Groupon Now (or something similar) catches on, that might solve the problem of excess capacity, but Groupon Classic does not.
  - justin_vanw 15y ago
    This isn't true of all things, for example you have to make an appointment to get a haircut most places, and for things like rafting trips or overnight stays you always do.
    - macnulty 15y ago
      Call me a redneck but I've never made an appointment to get a haircut in my life, and "rafting trips or overnight stays" are a pretty selective subset in my opinion. Speaking from personal experience, the GP is correct. At my local climbing gym, the groupon special just brings in 30 extra new faces to the already crowded gym during peak hours. The slow times are just as slow as always. They are now under-staffed during the peak hours (which get busier every time they offer a special) which means that the general state of the gym declines and the new customers just accept it because hey, they got a deal right? It's a race to the bottom and I can see customers turning to businesses that focus on offering a great experience every day. Those businesses don't use groupon.
- joe_the_user 15y ago
  "Lots of businesses have excess capacity that costs them nothing to utilize" Yes, This is one of the most dubious Groupon "sells". There are a very small class of businesses that excess capacity which costs nothing to use. These mostly the type of business where you're just consuming an "experience" - adult classes, skydiving school, etc. Unfortunately, a big part of business, classes, is already competing with the Internet. And so the rest is skydiving schools, martial arts schools, and yoga schools, the few places where you just have to be there. But those are pretty marginal. Restaurants certainly aren't in that class. Food is expensive. Food is a significant share of cost for anything but the most expensive restaurants. Sure, restaurants may throw food away each day BUT the only way to profit from that optimizing that is to sell food cheap on the contingency that its available. That's far from the Groupon model and clearly would "cheapen" the feel of any given restaurant. I heard of a restaurant in France years ago that priced by the hour. That could actually cut waste to nearly zero - but it would destroy "the feeling of specialness" which many higher end restaurants cultivate.
deleted 15y ago
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cletus 15y ago

> Lots of businesses have excess capacity that costs them nothing to utilize. I dispute this assertion or, in the very least, see this as being far more complex than you suggest, for two reasons: 1. Customers who might otherwise pay full price will end up using these deals, which is a direct loss to the business; and 2. The inventory may be used up by such offers to such an extent that customers who might otherwise pay full price may not be able to do so. > The problem with groupon is that it has no moat. On this point you are I agree. As for being "win win", apart from the above, you have to look at a number of factors: - Do Groupon customers return? - What word-of-mouth do they give to businesses as a result? - How much do they spend (initially and on repeat visits)? - Are they people brought in by Groupon representative of your existing or desired customer base? There is plenty of anecdotal evidence suggestings "Grouponers" are "cheap" (both in spending habits and tips). The "offer marketplace" providers (Groupon, LivingSocial or whoever) seem to be missing a golden opportunity to mine useful data here by tying an offer redemption to an actual person.

pemulis 15y ago
3. Most of the people redeeming Groupons will come at peak hours, so you still have excess capacity at slow hours. If Groupon Now (or something similar) catches on, that might solve the problem of excess capacity, but Groupon Classic does not.
- justin_vanw 15y ago
  This isn't true of all things, for example you have to make an appointment to get a haircut most places, and for things like rafting trips or overnight stays you always do.
  - macnulty 15y ago
    Call me a redneck but I've never made an appointment to get a haircut in my life, and "rafting trips or overnight stays" are a pretty selective subset in my opinion. Speaking from personal experience, the GP is correct. At my local climbing gym, the groupon special just brings in 30 extra new faces to the already crowded gym during peak hours. The slow times are just as slow as always. They are now under-staffed during the peak hours (which get busier every time they offer a special) which means that the general state of the gym declines and the new customers just accept it because hey, they got a deal right? It's a race to the bottom and I can see customers turning to businesses that focus on offering a great experience every day. Those businesses don't use groupon.
joe_the_user 15y ago
"Lots of businesses have excess capacity that costs them nothing to utilize" Yes, This is one of the most dubious Groupon "sells". There are a very small class of businesses that excess capacity which costs nothing to use. These mostly the type of business where you're just consuming an "experience" - adult classes, skydiving school, etc. Unfortunately, a big part of business, classes, is already competing with the Internet. And so the rest is skydiving schools, martial arts schools, and yoga schools, the few places where you just have to be there. But those are pretty marginal. Restaurants certainly aren't in that class. Food is expensive. Food is a significant share of cost for anything but the most expensive restaurants. Sure, restaurants may throw food away each day BUT the only way to profit from that optimizing that is to sell food cheap on the contingency that its available. That's far from the Groupon model and clearly would "cheapen" the feel of any given restaurant. I heard of a restaurant in France years ago that priced by the hour. That could actually cut waste to nearly zero - but it would destroy "the feeling of specialness" which many higher end restaurants cultivate.

deleted 15y ago

[deleted]