The Fall of Groupon: Is the Daily-Deals Site Running Out of Cash?

Groupon is spending a huge amount on customer acquisition. They've stated numerous times that this is a short-term competitive play, to try to create as much of an advantage as possible to counteract the dozens of clones by building up their brand awareness and subscriber list. The idea that they are a ponzi scheme or the next Madoff because they are choosing a fast-growth strategy is absurd. I might disagree that this is a smarter strategy than growing more slowly, but this doesn't prove that they're insolvent or something. Existing customers don't stop spending after one purchase, so the idea that they have to spend on acquisition in order to make money to cover operating costs is nonsense. They have total control over how much they spend on customer acquisition, and at a certain point will have to slow down. Again, you can disagree with their strategy, but there's no scam here.

Likewise, there is no evidence that any majority of businesses who work with Groupon, or customers who purchase Groupons, are overwhelmingly dissatisfied with the value they get. Tons of business still agree to run groupons every day, including businesses that have run groupons many times. Obviously, it's not a great experience for everyone, and I'm not even arguing that in the long term this model will do well. But to say that Groupon doesn't do anything or provides no value just isn't backed up by any credible evidence, at least that's been present in all these threads.

Boston is not Groupon's oldest or largest market. And the numbers in that article are to be expected, and aren't really "troubling" as the BI article's source states. Groupon is spending money to acquire more subscribers because the initial trove of low-hanging fruit has already been acquired. They're trying to keep a big market from rival companies, so they're going after people who are more difficult to acquire (and obviously therefor less likely to spend). Anyone who expects these more difficult acquisitions to spend the same amount per user as people who found their way to Groupon more easily is ridiculous.

I'm not arguing that Groupon isn't overvalued, or that their model doesn't have problems. But the arguments that Groupon is a scam or not a real business or that they're going to have to close up shop any day now range from unsophisticated to dishonest.

This is the problem with those early payouts (I don't mind these in theory but this case was egregious). There's not a lot of incentive anymore for the people running the company to do anything but what they're currently doing. They've already had their exit.

Groupon-hate is tired. More interesting is a bull case: http://news.ycombinator.org/item?id=2904187

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.

I believe some of Charles Ponzi's companies also suffered from these kinds of structural problems, luckily Ponzi like Mason was able to exit his position in the company through follow on investors before the issues started to seriously affect the valuation of the company.

I'll go out on a limb and guess that most of Groupon's sales team consists of ex-mortgage brokers and washed-up real estate agents.

Another way to respond to this critique: Groupon could have theoretically solved this problem by adopting faster payment plans for merchants. That would make theirs a worse business with lower cash flow, but it would help their PR (and perhaps their valuation). It’s counterintuitive that Groupon could make their business worse but make their valuation better—it depends on whether their share price is, at the margin, determined by the skeptics or the believers.

( http://www.digital-dd.com/hp-immaterial-usability-users/ )