Quote:
Originally Posted by dyna mo
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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I think that a lot of this is what people simply do not or refuse to understand. If you have a spa - you normally charge $200.00 for the XYZ Massage Package and want to use Groupon, you have to offer that for $100.00 and then you have to give the lions share of that $100.00 collected to Groupon and it takes months to even get that from them.
In that example, you didn't create customers. Sure, you exposed more people to your super duper massage.. but you lost your ass on it, you flooded yourself with useless appointments AND those are not people with money, people who become repeat customers and people who refer people to you with money. Those were people who only did it because it was a "deal" or because it was given to them as a gift or whatever.