Image via CrunchBaseRocky's premise that the whole daily deals business is crap, well, I don't buy into that. I am at the other end of the spectrum on that thinking. I think they are onto something cutting edge. What Fascinates Me About GroupOn
My Web Diagram
Unless Google would be willing to employ thousands of salespeople, Google and others can not compete with GroupOn, but in employing those salespeople Google will have veered from its core so far that that stretch might end up hurting its core businesses. Google is better off doing smart cars and wind farms in the vast oceans and monorails.
Self Driving Google Car
Google Car, Google Monorail
Offshoring The Wind Harvesting: Google Wind
And to say GroupOn can so easily be copied is like saying Google Search's competition is only a click away. It is easier to compete with GroupOn than with Google Search, but still it takes a lot.
GroupOn as it exists today is the first draft. Hopefully future drafts will be better. It is like when you go to a supermarket, and a restaurant has someone stand outside handing out free samples. That is GroupOn. You don't hand out for free. You hand out for really low prices, sometimes below cost prices, because you see it as a form of advertising.
It is a new industry. There will be controversy. There will be some fraud and bad behavior. New best practices will emerge.
Does GroupOn take too big a cut when it takes 50% or more? Yes, I think so, I always thought so. I also think Apple charging 30% is a shark rate.
GroupOn might be the Lycos of daily deals. I am open to that possibility. But the sector is promising.
Groupon Was “The Single Worst Decision I Have Ever Made As A Business Owner”
“What was the saddest part of it for me was that this had had happened to a lot of businesses but because no one had ever said anything we all just assumed (and myself included) we just assumed we were bad business people. That we just didn’t know what we were doing. If everyone loves Groupon so much, we must be wrong.” She estimates that she lost $10,000 in hard costs. Other businesses she heard from claim far greater losses....... “Our most successful advertising is through Facebook. And that’s free. Even offering deals through Facebook, which is also free.” ..... The pizza place across the street from Posies has now run a second Groupon. Something worked for them in a way that didn’t work for Posies.Google Offers Is A Cheap Knockoff
they get an A- for effort, but a C for originality ....... For the past six months, Google has been aggressively marketing its local services in Portland. It’s easily the largest Google consumer marketing campaign I’ve seen. By my estimates, they’ve spent at least $1 million promoting Google Places. Street teams have been out encouraging businesses to claim their business on Google Places and giving them NFC stickers for their store windows...... Google doesn’t have a tipping point. If only 1 person buys the deal, it’s active. ....... Google doesn’t offer its customer service number on its Web site; you have to enter your phone number and wait for a call back. Groupon has a toll-free number listed. ...... Google’s payment terms for merchants are more generous, with merchants receiving 80% of their share in about four days. Groupon pays out 1/3 in 5 days, 1/3 in 30 days and 1/3 in 60 days. ..... The biggest potential difference that we can’t see is the cut that Google takes of each deal and how it compares with the cut that Groupon takes. Neither company is transparent about this and the ranges are wide. In some cases, the deal company pays the merchant more than the revenue generated; in other cases, they want all of the revenue and the merchant gets nothing...... Google’s products have typically revolved around solving hard problems with innovative technology. Even failed products like Google Wave and Google TV have tackled really difficult problems. Offers does not....... For the offer that I redeemed at Floyd’s Coffee, for instance, the cashier manually copied the coupon number onto a piece of paper. It would be easy for someone to print out dozens and redeem them because they are not validated in real time...... All in, it’s a weak first effort and I hope it fails.Why I Want Google Offers And The Entire Daily Deals Business To Die
There has been a lot of excitement about the daily deal being the next big thing in online marketing. It’s actually just a clever repackaging of old ideas. ...... There is very little transparency in the daily deals business. ...... Priceline’s opaque bidding was sheer brilliance. A couple of weeks ago, I stayed at the Westin in Seattle for $75 a night. The lowest direct rate for that hotel was $179, a savings of 58%. ....... a transaction where everyone benefits: I get a great rate, Priceline gets a small transaction fee and the hotel gets to fill unoccupied inventory without suffering brand dilution. ...... how bad the deal economics are for businesses. ...... Transparency alone would drive a race toward lower fees. Of course, none of the deal companies would want to do this. But the fact that the business model would not survive transparency should be a red flag to investors. ....... businesses who have seen customers come in with the same coupon multiple times and then threaten them with bad Yelp reviews if they don’t get what they want. ....... the notion that deep discounting is the way to acquire loyal customers is equally dangerous. Competing on price doesn’t get you love; delivering high quality products and services, engaging with your customers and creating unique experiences does. The best customers buy experiences, not price. ...... in the long run, deep discounting is bad for the brand. ..... The daily deals aren’t as simple as running newspaper ads. There is a lot of complexity and merchants don’t know where to turn for advice. So they get it from the deal providers. ..... Some of the advice is just awful. ....... I’m not against discounting as a business strategy. For the right audiences, I even advise giving out free products. Even in their current form, the daily deals can be effective in some limited cases. But for many businesses, the daily deals cast too wide a net and are too expensive. ...... Most people are only willing to drive a small distance for everyday services. Neighborhood businesses can’t afford to pay the costs to advertise in a daily newspaper. ...... The daily deals “solution” is to raise the cost of local advertising to the point where you can sustain a salesforce. It takes Internet advertising and makes it more expensive, less trackable and less targeted. It’s really quite a brilliant way to disguise the underlying business. When you do the math, the amount that the deal companies get on a single deal is comparable to print advertising. Funny how economics works. ....... The daily deal is really a financial services product tied to an overpriced advertising vehicle. All of a sudden, because of financial engineering, businesses can “afford” marketing that they couldn’t afford before. ....... We have a brand new, overpriced, aggressively hyped, hard to understand product. We have no data on how it will perform over time. It is being sold to people with limited disclosures of important details. ...... Daily deal providers are the moral equivalent of predatory lenders selling subprime liars loans to people they knew couldn’t afford it. ....... Google is already making more money from Groupon than Groupon is — a lot of the $800 million or so Groupon will spend on marketing this year is headed toward Mountain View. (With another big chunk headed to Facebook in Palo Alto.) ...... The daily deals business has all of the hallmarks of a build-to-flip business: little transparency, a too-good-to-be-true vibe, frenzied demand, a lot of missing but important performance metrics, questionable accounting practices and early investors cashing out at every opportunity. ..... Google Offers is just plain exploitative. I love Google, but I absolutely hate Google Offers.Why Groupon Is Poised For Collapse
it’s hard to get small businesses to spend money on advertising. Really hard. ...... Businesses are being sold incredibly expensive advertising campaigns that are disguised as “no risk” ways to acquire new customers. In reality, there’s a lot of risk. With a newspaper ad, the maximum you can lose is the amount you paid for the ad. With Groupon, your potential losses can increase with every Groupon customer who walks through the door and put the existence of your business at risk. ...... Groupon is not an Internet marketing business so much as it is the equivalent of a loan sharking business. The $21,000 that the business in this example gets for running a Groupon is essentially a very, very expensive loan. They get the cash up front, but pay for it with deep discounts over time. ...... Buying Groupon stock could be as bad a deal for investors as running a Groupon offer is for merchants. ...... Groupon touts a win-win proposition. But the reality is that Groupon usually wins and merchants usually lose. ..... Groupon’s process for selecting which deals it runs has little transparency. It’s not always the highest bids that win; sometimes, lower value bids win just to keep subscribers opening their emails. (In this case, think of merchants bidding with discounts, so the deeper the discount, the higher the bid). I’ve also heard from merchants who say Groupon has changed their deals at the last minute to make them more profitable for Groupon. ....... Many small businesses are struggling for cash and the Groupon sales pitch resonates. Marketing with no upfront payment. You get cash within days. A steady stream of customers. ......... they were doing what struggling families do when they max out a credit card—they get another one. ....... Taking out another Groupon loan is a quick fix. (If I were a sales rep, I’d have that date marked on my calendar for follow up. “I know we did 50/50 last time, but I’m thinking Groupon gets 70% this time.”) ....... Groupon is essentially holding a portfolio of loans backed by the receivables of small businesses. ....... The most successful businesses don’t need Groupon for customer acquisition or financing...... The assumption is that nothing will go wrong and all of these “loans” will be paid back. (At least the subprime mortgage lenders were able to sell that risk off to Wall Street and AIG.) ...... Like the mortgage lenders, Groupon doesn’t know exactly how much risk it has piled up. Because some merchants track redemptions on paper, Groupon has no way of knowing how many unredeemed Groupons are outstanding. If a business goes under and the records are unavailable, every buyer of that Groupon could try to make a claim against it. ....... Groupon could mitigate this risk by changing its terms and conditions so that the consumer is responsible in case a merchant goes bankrupt. ...... Where does Groupon get all the money to give to these merchants? Credit cards—yours. Groupon gets paid within a couple of days by its banks. It then takes that money and gives it to the merchant in three chunks. ....... They’re using money from new deals to pay for previous deals. They need to keep growing revenue. As of March 31, they owed merchants $290.7 million. ...... If those businesses go with Google’s more generous terms, that too will starve Groupon of the cash it needs to pay earlier merchants. ....... If Groupon collapses, a lot of small merchants could be left holding the bag.
