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The problem with all of these analysises is that they focus on rather meaningless things. Lots of companies operate with bigger debt than assets, as long you ha

by ig1 15y ago

The problem with all of these analysises is that they focus on rather meaningless things. Lots of companies operate with bigger debt than assets, as long you have incoming cash you can just get a bridging loan against it. What profitability comes down to is what the lifetime value of a user (in this case we have two types of users, consumers and providers) is and the cost of acquiring a user. Nothing else really matters, focusing on the accounting of how a company is handling raising money or managing it's cashflow isn't really that relevant in the long term. Sure it adds risk that the company might have cashflow problems in the short term, but it's the price you pay for agressive growth and presumably the investors are happy with it. People seem to forget that you could have said the same thing about Amazon, in the early days it was losing money hand over fist because it was using investor money to subsidize product sales. Amazon gambled on the high LTV of customers and it paid off hugely for them.

mikeryan 15y ago
Lots of companies operate with bigger debt than assets, as long you have incoming cash you can just get a bridging loan against it. Thats not the problem. The problem is greater expenditures then income. Very few companies survive long in this position.
- ForrestN 15y ago
  They aren't planning to operate with greater expenditures for long, as they've stated. The plan is fast-growth in order to compete with clones to establish market dominance, and then to drastically cut back the marketing expenses.
freshhawk 15y ago
You're missing the part where it's become obvious that Groupon is spending more on provider aquisition than their lifetime value and they are spending a lot on consumer aquisition, more than what most analysts would put as a high end of consumer lifetime value. Sure, it's a new market and there are some unknowns, but the only route to success with their current strategy is fanaticaly loyal consumers (who are very disloyal to providers but will be loyal to groupon over it's competitors?) and an ever expanding number of businesses that are willing to try groupon but have so far been unlikely to return. Sure, it might be an Amazon but it seems arbitrary to pick that comparison considering how many other businesses arounds Amazons time turned out to be exactly what everyone said they were: unsustainable.
- ig1 15y ago
  I'm not saying Groupon has a good business, I'm saying that most of these articles are talking about complete irrelevancies. LTV and acquisition costs are the important metrics that we should be judging them by, not the ones presented in this article.
yuvadam 15y ago
Let's stop with the Amazon analogy. Yes, Groupon, like early-day-Amazon, is bleeding cash on customer acquisition. It ends there. Amazon was building a retail infrastructure and they succeeded in providing value to their customers. Groupon is busy spending truckloads of cash on luring businesses into their pyramid scheme, while founders and early-stage VCs are cashing in. Pray tell how either customers or businesses are benefiting from Groupons. Is Groupon providing them with some service that I cannot duplicate tomorrow? Are they building some secret infrastructure that no one knows about? Follow the money, and you will see that no such thing exists. Groupon is a fraud, and it's time we call it the way it is.
- ig1 15y ago
  I'd like to see you build a global local salesforce tomorrow. Groupon's infrastructure isn't technological but rather operational and human resource based, something which is actually much harder to duplicate than technology. It's likely the reason that Google wanted to buy them isn't for daily deals, but the fact that they've got a huge salesforce with expertise in selling to local businesses. Local business ad spend in the US alone is a $100bn dollar market, only a tiny percentage of which is spent online at the moment, but the only way to reach this audience is direct sales. And that's something that google doesn't have the people infrastructure for.
  - jerf 15y ago
    "I'd like to see you build a global local salesforce tomorrow." I don't need to build a global local salesforce for Groupon to be in serious trouble. Hundreds of people can build local salesforces in their own area, and the aggregate will cause Groupon trouble. It's a bit of a different criticism that what most people are making, but I'm not seeing a big advantage to Groupon centralizing vs. hundreds of fast-moving much smaller competitors. There's hardly any economies of scale to speak of, the market in question is effectively made of people who have minimal "brand loyalty" pretty much by definition, even if every other criticism made is false I still have a hard time seeing an outcome in which Groupon actually own the national local market, precisely because "national local market" is basically an oxymoron. Even if they don't collapse under their weight, they'll still be pecked to death by hundreds of hungry budgies.
danmaz74 15y ago
Cash flow management is really important to the long term. Actually, if you run out of money in the short term, there is no long term at all...

by ig1 15y ago

mikeryan 15y ago

Lots of companies operate with bigger debt than assets, as long you have incoming cash you can just get a bridging loan against it. Thats not the problem. The problem is greater expenditures then income. Very few companies survive long in this position.

ForrestN 15y ago
They aren't planning to operate with greater expenditures for long, as they've stated. The plan is fast-growth in order to compete with clones to establish market dominance, and then to drastically cut back the marketing expenses.

freshhawk 15y ago

You're missing the part where it's become obvious that Groupon is spending more on provider aquisition than their lifetime value and they are spending a lot on consumer aquisition, more than what most analysts would put as a high end of consumer lifetime value. Sure, it's a new market and there are some unknowns, but the only route to success with their current strategy is fanaticaly loyal consumers (who are very disloyal to providers but will be loyal to groupon over it's competitors?) and an ever expanding number of businesses that are willing to try groupon but have so far been unlikely to return. Sure, it might be an Amazon but it seems arbitrary to pick that comparison considering how many other businesses arounds Amazons time turned out to be exactly what everyone said they were: unsustainable.

ig1 15y ago
I'm not saying Groupon has a good business, I'm saying that most of these articles are talking about complete irrelevancies. LTV and acquisition costs are the important metrics that we should be judging them by, not the ones presented in this article.

yuvadam 15y ago

Let's stop with the Amazon analogy. Yes, Groupon, like early-day-Amazon, is bleeding cash on customer acquisition. It ends there. Amazon was building a retail infrastructure and they succeeded in providing value to their customers. Groupon is busy spending truckloads of cash on luring businesses into their pyramid scheme, while founders and early-stage VCs are cashing in. Pray tell how either customers or businesses are benefiting from Groupons. Is Groupon providing them with some service that I cannot duplicate tomorrow? Are they building some secret infrastructure that no one knows about? Follow the money, and you will see that no such thing exists. Groupon is a fraud, and it's time we call it the way it is.

ig1 15y ago
I'd like to see you build a global local salesforce tomorrow. Groupon's infrastructure isn't technological but rather operational and human resource based, something which is actually much harder to duplicate than technology. It's likely the reason that Google wanted to buy them isn't for daily deals, but the fact that they've got a huge salesforce with expertise in selling to local businesses. Local business ad spend in the US alone is a $100bn dollar market, only a tiny percentage of which is spent online at the moment, but the only way to reach this audience is direct sales. And that's something that google doesn't have the people infrastructure for.
- jerf 15y ago
  "I'd like to see you build a global local salesforce tomorrow." I don't need to build a global local salesforce for Groupon to be in serious trouble. Hundreds of people can build local salesforces in their own area, and the aggregate will cause Groupon trouble. It's a bit of a different criticism that what most people are making, but I'm not seeing a big advantage to Groupon centralizing vs. hundreds of fast-moving much smaller competitors. There's hardly any economies of scale to speak of, the market in question is effectively made of people who have minimal "brand loyalty" pretty much by definition, even if every other criticism made is false I still have a hard time seeing an outcome in which Groupon actually own the national local market, precisely because "national local market" is basically an oxymoron. Even if they don't collapse under their weight, they'll still be pecked to death by hundreds of hungry budgies.

danmaz74 15y ago

Cash flow management is really important to the long term. Actually, if you run out of money in the short term, there is no long term at all...