[andrew]

Hi guys, Andrew here (author of the medium post). Thanks for the feedback. I'm just going to try to summarize the questions/criticisms that have been raised in the comments - it seems like they're all mostly hitting on the same few things. I think it would be great for Groupon to answer them.

Here it goes:

* Groupon attracts bargain hunters that never come back. It can't be compared to other forms of advertising because the customer you get as a result of a Groupon is less valuable than customers you get from other forms of advertising.

* Groupon cannibalizes sales from customers that would have otherwise paid full price.

* In summary, why should I believe that Groupon is a good form of advertising for small businesses when compared to the other options?

* Whatever the answer, why should I take the word of this corporation over the many small business owners who have reported poor experiences?

Let me know if I missed anything and I'll add it.

Andrew

[fijal]

Hi Andrew, thanks for taking your time.

Since you're trying to capture it in one place, there is a comment hidden down with ctiticism that you did not capture in your list, here it goes:

"unclebucknasty 3 hours ago

That and the fact that those customers were Groupon's customers, not the businesses'. Their loyalty was to Groupon and the never-ending stream of discounts they provided. OTOH, the businesses that offered the discounts were essentially commodities in the scheme. They created the value via their discounts that Groupon then sold to customers. Few cared about the businesses, as people were not buying the underlying service or product from those businesses. Instead, the product was the discount itself, which they were buying from Groupon."

[andrew]

IMO that just seems like an elaboration upon / the reasoning behind "groupon customers are bargain hunters and won't come back", yes?

[fijal]

I think there is a distinction here between "groupon customer" and "business customer" highlighted in that comment that goes beyond the term "bargain hunter". You can still have bargain hunters that would only come to your shop once you display 10% off or once you're selling out stock that did not go away, but they still bring value to your business. That's different than a situation where neverending stream of discounts means you can change your provider as long as you're loyal to groupon.

That might be just word semantics that I'm missing, but I think there is a major distinction.

[unclebucknasty]

fijal is correct that I meant something much more fundamental than the bargain hunter problem.

Groupon's core selling proposition to businesses is that it will bring them people who can be cultivated into loyal, long-term customers. However, it's something of a fallacy because those customers are loyal primarily to Groupon. In fact, Groupon is actually a hyper-competitor to its business customers.

It's not just semantics or an issue of bargain-hunting. The model itself actively works against the core promise it offers to businesses.

BTW, while I'm not much of a Groupon fan, as a fellow-CEO whose tried something new and taken a lot of flack for it, I'll offer a little unsolicited advice: Don't let 'em get you down.

[golergka]

I haven't followed Groupon closely, so it might have already been addressed, but a couple of years ago I heard a very curious criticism of the company: Groupon holds money that goes from customers to vendors for quite some time (from the time customer prepays to the time the deal is over and Groupon handles over the cash minus commission to the vendor), and this other people's money sitting in Groupon's bank account makes the company quite a profit. I'm not sure what kind of accounting magic is involved, but it seems like a believable scheme.

Is there truth in this allegation?

[jon-wood]

It's not quite so awful, but Groupon don't immediately pay out - they sell the coupons, and as customers redeem them they'll pay out a week a so later (I can't remember the exact period), so if you're a cash business that could hurt. The company I was at when we tried it do all payments online, so we were used to a waiting period from our payment processor.

The other place they can potentially make a ton of money is people who buy a coupon but never redeem it. In that case the supplier never sees any of the money, Groupon keep the lot effectively making 100% commission.

[valgaze]

@andrew Could you talk about what businesses it is perfect for? (Ex great for walking tour, not so great for restaurants)

Really love hearing your insights on all this stuff!

[mdasen]

For me, Groupon went from feeling like a cool outsider way to get a deal to a company squeezing small businesses for money.

In your article, you say, "as a small local business owner, I can’t imagine a lower risk, more cost effective, or higher impact way than having Groupon send a one-time offer to 500k people in the Bay Area about Detour, with a few thousand of them buying it for half off." I think that sounds great. It's like posting a flyer on the bulletin board of the local coffee shop but thousands of times more effective. Basically, you want a community megaphone that you get for a day.

The problem is that once everyone is listening to that megaphone, power dynamics come into play. If I own that megaphone and can only let one person use it each day, I'm going to be picky. I'm going to want 50% of the revenue generated and at least half off so the conversion rate is high. That's driving down what the small business is taking in to 25% of list price or less. I'm going to want to give the megaphone to someone that has no limit on the number sold so that I'm not limiting my revenue which is 50% of the take. I'm going to want to give the megaphone to people who are already popular rather than someone more quirky or with more limited appeal. Target wants the megaphone? Yea, I'm sure people don't know Target exists and. . .well, lots of people will want money off at Target and I'm getting a 50% cut. While we're at it, rather than someone from the community, let's get a pro at the megaphone so the conversion rate will be better.

Ultimately, I just don't think that really works as a profitable, growing company simply because of the power dynamics. When it's new and quirky, it's this weird community megaphone. As you try to scale that up, it just doesn't feel that way. It feels like a company that gained access to people's inboxes as a funky, friendly thing that's now trying to squeeze revenue.

And the problem is that it's hard to scale a daily deal. You can't just send your list 100 emails every day. There's a limit on the number of conversions a small business wants. There's a limit on the number of days in a year. There's a limit on how high you can push conversion rates via writers and such. That somewhat necessitates a pivot if your expectations for revenue growth are high.

I think there are other valid criticisms, but this is what left me lethargic about Groupon. Groupon wanted to scale and daily deals just don't scale nicely. Either you have to start eschewing local coffee shops for the Gap or milk higher commissions or steeper discounts (for higher conversion rates) or more than one deal a day or something. And I think that's where the power dynamic comes into play and people hate power dynamics.

As you said, "If I was working my ass off to build a tech startup and I saw [Groupon] come along and get huge, I’d be like, fuck that. It’s the tech startup equivalent of camping in an undetectable corner in an FPS and sniping people — it feels like cheating." It feels like Groupon was this quirky, funky email promoting one small, local business a day whose profit incentives push it away from being what it started out as. It feels like cheating because it went from that quirky megaphone to something else - something that would gain the revenue needed for a billion dollar valuation. Pizza deals don't drive multi-billion dollar valuations. But it's past 4am here on the east coast so this might be totally incoherent.

[devit]

Surely you could send different e-mails to different subsets of the subscribers, and thus have the same economics as a small company?