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Why is Groupon not merely a tech-bubble datum but a Ponzi scheme? Simple: Groupon has found that you can get local merchants to try anything once if it brings them new customers.
A few local merchants in Chicago get them started, and Groupon shows good revenues. In fact, Groupon immediately remits half of those ?revenues? back to the local merchant ? they were never Groupon revenues in any meaningful sense of the word.
But, optically, Groupon revenues look high ? which they use to raise a financing round at a high valuation. Then they use the proceeds to hire vast armies of salespeople to dig deeper into Chicago?s local merchant community and repeat the trick in other cities.
Meanwhile, many early-adopting merchants find that the burst in customers immediately disappears, and since they can?t perpetually discount 75%, those merchants stop using Groupon. But Groupon?s sales force adds many more new merchants than it loses (for now). And Groupon goes out and raises another round at an even higher valuation; they hire even more salespeople and expand into even more virgin territory. Lather, rinse, repeat.
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