The difference is that Groupon is generating revenue near billions, whereas in 2000 companies were IPO'ing without any significant revenue or traction.
there is no problem to generate a billion revenue that costs a billion and half. Barings bank in 1995, Enron in 2002, Merrill Lynch in 2008 ...
>in 2000 companies were IPO'ing without any significant revenue or traction.
Of course, nobody would fall for this old trick of 2000 - IPO without revenue. So the new trick of 2011 is huge revenue, profit negative. You see, at the scale of a billion it is clear whether it is a profitable scalable business model or not.
Iridium satellite phones.
Amazon lost $3 billion over 8 years before they started turning a profit. [1]
It's HARD to tell the difference between Iridium and Amazon. That's why some investors make money and some lose money.
[1] http://www.slideshare.net/faberNovel/amazoncom-the-hidden-em...
yep. And it was hard to pick Amazon among the well funded overhyped dot-com crowd. Nothing indicates so far that Groupon is Amazon, not Webvan for example.
>That's why some investors make money and some lose money.
Ones who picked AMZN would like to think that they were smart, not just lucky. Ones who picked some dot-com loser instead of AMZN would like to think that they were unlucky, not "unsmart" :)
Much of what they did is par for the course today but, at the time, it was innovative. Amazon didn't win because they were lucky. They won because they were smart. Investors who recognized this were betting intelligently, not just lucky.
The other thing to notice is that that culture still exists today. They take big chances in areas seem tangential to their business (eg. AWS, Kindle) or use business innovation to drive sales (eg. Amazon Mom).
That's one obvious difference between Iridium and Amazon. 10 years ago, when Amazon was still losing money, I had already made purchases from them. It was the first place I checked if I wanted to buy books online. I had never heard of Iridium.
I don't think groupon will be as successful as Amazon, but having real fans among consumers is a big deal.
It's funny how many people are so sure of the soundness/lack of soundness of a business model, yet surprisingly few put their money where their mouth is.
I agree, which is why it is important to also look at the behavior of the founders who have intimate knowledge and secret desires. I won't begrudge anyone taking some money off the table but the amount they are funneling out seems completely out of line with the idea that they expect this business to keep growing.
That doesn't answer the question about the ratio of investor cash-outs to expansion, though. It just (somewhat) addresses the question of whether a growth strategy without profits makes any sense at all.
In all three of these cases, you have situations where sophisticated financial instruments were used to hide real losses or very risky and costly investment bets.
That's a very different situation than one where you're leveraging debt to gobble up market share to become the market leader for a certain kind of service. This is particularly useful in types of businesses where winner takes all.
It sounds like an ad agency, but perhaps better suited to surviving through recessions.
The important aspect – that needs to be determined – is whether existing clients are happy, and therefore returning for more business.