18 ms·

it's increasingly clear that groupon is essentially a ponzi scheme with some graphic design. can't wait for the post mortem documentary a la "the smartest guys

by dreww 15y ago

it's increasingly clear that groupon is essentially a ponzi scheme with some graphic design. can't wait for the post mortem documentary a la "the smartest guys in the room".

pbreit 15y ago
Groupon's cash flow is just like any other business: it buys merchandise (coupons) from vendors (on a net 60 basis), marks it up and sells it to consumers. How is that a ponzi scheme? I think you might be confused since many news outlets are making it sound like today's Groupon buyer's are funding yesterday's vendors in some sort of mischievous way. But that's how all businesses work.
- freshhawk 15y ago
  Most businesses don't spend more money to aquire new customers than the lifetime value of that customer. There's a reason the term ponzi scheme is being used by the business news, and it's not because they don't know how businesses work.
  - cbr 15y ago
    don't spend more money to aquire new customers than the lifetime value of that customer. If groupon thought they were doing this they would stop.
    - freshhawk 15y ago
      Why? It's entirely possible they are doing this, it's also possible they don't believe they are doing this. Either way, they are making a lot of money and the early investors have already been paid off very well. So if this is the case why would they stop until they run out of new cities?
- danmaz74 15y ago
  The Ponzi scheme allegation isn't about the cash flow model, it's about the investment return model: Groupon used money from the late investors to pay back the first ones with a profit, even if for now their business is losing money - and it isn't clear if they will start making real money from their business model. Or at least enough money to make the total investment worthwhile.
  - pbreit 15y ago
    I've typically seen "ponzi" referencing Groupon's business model, not it's financing activity. Having a late stage investor payoff earlier investors/shareholders is not uncommon. IPO investors then payoff those investors and so forth. Is that what you mean?
    - ForrestN 15y ago
      As you stated elsewhere, the explanation for this was that it insulated them from the pressure of takeover offers. Getting offered 6 billion for a company you started 2 years ago must be an incredibly difficult thing to turn down, so taking some equity out allows you to make decisions that you think are best for the business without worrying so much about your personal risk profile and so on.
    - danmaz74 15y ago
      Yes, that's what I mean. Ponzi schemes are about investors - who expect to earn money from their investment - not about consumers. In the end, if after the IPO the business starts making money and that money gives a healthy return to the latest investors, everything is fine. If, on the other had, it turns out that the business model can't give a return on the investment and the latest investors lose their money, which was used to pay off the first investors, the mechanic of a Ponzi scheme is perfectly respected :)
- dreww 15y ago
  if groupon is losing money on every customer, adding more customers actually exacerbates the cash flow problem, and every time those customers buy a deal, groupon goes farther in the hole. they use the cash to pay their oldest debts but eventually there will be a reckoning. it's unfathomable to me that it would be an attractive investment.
  - pbreit 15y ago
    Your whole comment is lacking but this part is plainly false: "every time those customers buy a deal, groupon goes farther in the hole". Groupon's share of the every coupon purchase, which is around 40%, drops right to the bottom line.
  - webwright 15y ago
    For how many years did Amazon lose money on every customer? Land grabs WORK. I'm not convinced that it will here, or that Groupon is a good investment at its current valuation... But the idea that a retail voucher business can't be self-sustaining seems kinda silly. Groupon has 42% gross margins in 2011 q1 (UP 6% from the previous quarter).
    - chromatic 15y ago
      For how many years did Amazon lose money on every customer? Fewer than most people think. Consider the financial model of a (successful) grocery store ostensibly losing a penny on each transaction. If you're clever, you can make plenty of money by arranging your contract terms carefully.
      - webwright 15y ago
        6 years is the answer to my rhetorical question, if you're curious. Groupon is less than halfway to that point, and has much higher gross margins than Amazon did at the time (and about 2x what Amazon has right now).

by dreww 15y ago

it's increasingly clear that groupon is essentially a ponzi scheme with some graphic design. can't wait for the post mortem documentary a la "the smartest guys in the room".

pbreit 15y ago

Groupon's cash flow is just like any other business: it buys merchandise (coupons) from vendors (on a net 60 basis), marks it up and sells it to consumers. How is that a ponzi scheme? I think you might be confused since many news outlets are making it sound like today's Groupon buyer's are funding yesterday's vendors in some sort of mischievous way. But that's how all businesses work.

freshhawk 15y ago
Most businesses don't spend more money to aquire new customers than the lifetime value of that customer. There's a reason the term ponzi scheme is being used by the business news, and it's not because they don't know how businesses work.
- cbr 15y ago
  don't spend more money to aquire new customers than the lifetime value of that customer. If groupon thought they were doing this they would stop.
  - freshhawk 15y ago
    Why? It's entirely possible they are doing this, it's also possible they don't believe they are doing this. Either way, they are making a lot of money and the early investors have already been paid off very well. So if this is the case why would they stop until they run out of new cities?
danmaz74 15y ago
The Ponzi scheme allegation isn't about the cash flow model, it's about the investment return model: Groupon used money from the late investors to pay back the first ones with a profit, even if for now their business is losing money - and it isn't clear if they will start making real money from their business model. Or at least enough money to make the total investment worthwhile.
- pbreit 15y ago
  I've typically seen "ponzi" referencing Groupon's business model, not it's financing activity. Having a late stage investor payoff earlier investors/shareholders is not uncommon. IPO investors then payoff those investors and so forth. Is that what you mean?
  - ForrestN 15y ago
    As you stated elsewhere, the explanation for this was that it insulated them from the pressure of takeover offers. Getting offered 6 billion for a company you started 2 years ago must be an incredibly difficult thing to turn down, so taking some equity out allows you to make decisions that you think are best for the business without worrying so much about your personal risk profile and so on.
  - danmaz74 15y ago
    Yes, that's what I mean. Ponzi schemes are about investors - who expect to earn money from their investment - not about consumers. In the end, if after the IPO the business starts making money and that money gives a healthy return to the latest investors, everything is fine. If, on the other had, it turns out that the business model can't give a return on the investment and the latest investors lose their money, which was used to pay off the first investors, the mechanic of a Ponzi scheme is perfectly respected :)
dreww 15y ago
if groupon is losing money on every customer, adding more customers actually exacerbates the cash flow problem, and every time those customers buy a deal, groupon goes farther in the hole. they use the cash to pay their oldest debts but eventually there will be a reckoning. it's unfathomable to me that it would be an attractive investment.
- pbreit 15y ago
  Your whole comment is lacking but this part is plainly false: "every time those customers buy a deal, groupon goes farther in the hole". Groupon's share of the every coupon purchase, which is around 40%, drops right to the bottom line.
- webwright 15y ago
  For how many years did Amazon lose money on every customer? Land grabs WORK. I'm not convinced that it will here, or that Groupon is a good investment at its current valuation... But the idea that a retail voucher business can't be self-sustaining seems kinda silly. Groupon has 42% gross margins in 2011 q1 (UP 6% from the previous quarter).
  - chromatic 15y ago
    For how many years did Amazon lose money on every customer? Fewer than most people think. Consider the financial model of a (successful) grocery store ostensibly losing a penny on each transaction. If you're clever, you can make plenty of money by arranging your contract terms carefully.
    - webwright 15y ago
      6 years is the answer to my rhetorical question, if you're curious. Groupon is less than halfway to that point, and has much higher gross margins than Amazon did at the time (and about 2x what Amazon has right now).