The difference is that Groupon is generating revenue near billions, whereas in 2000 companies were IPO'ing without any significant revenue or traction.
>The difference is that Groupon is generating revenue near billions,
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.
>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 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.
Not at all. Groupon is cementing it's position as the market leader by spending a huge amount in expansion, thus it's going to result in losses for the foreseeable future. However, that doesn't mean they're not going to be profitable in years to come.
What does "market leader" mean in this market? The one who spends the most on direct marketing? I haven't talked to a single person who has brand loyalty to Groupon or uses it exclusively and there certainly isn't repeat business amongst a majority of their merchants. They're also in a business that, judging by the number of new entrants into the market, will see an attrition in profits-per-deal as time goes on.
Market leader in this market means the brand that has the most users or most potential value to partners. That is, if a business is going to use a discount service to acquire new customers, the market leader will be able to bring in the most customers or the most high-value customers.
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.
The issue with this is that of the businesses who run deals, many operate them at a loss. As a result, they actually do not want the maximum number of new customers that Groupon can bring. "High-value" is a different issue altogether. In my opinion, Groupon does not have ability to judge what makes a "high value" customer to the merchant as they don't ever see the customers on-site purchase pattern at a given merchant. The real value here would be separating "deal chasers" from people who actually go back to businesses they bought a Groupon at in the past which currently they have zero ability to do.
>Groupon is cementing it's position as the market leader by spending a huge amount in expansion, thus it's going to result in losses for the foreseeable future.
>It's HARD to tell the difference between Iridium and Amazon
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" :)
I think that very early on, picking AMZN as a winner is luck. But the difference between them and their competitors (even in the early days) was constant innovation both in technology and business. For example, one-click purchasing, free shipping on orders over $25, users also viewed, reviews etc.
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).
The only thing I notice is that people like and use groupon. Just this past Wednesday there was a status update in my news feed: "I ♥ Groupons!" from a recent college graduate who teaches English as a second language (ie not a hacker or startup nerd).
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 HARD to tell the difference between Iridium and Amazon.
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's why the spectator sport hindsight-investing is so popular.
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.
