Why Groupon Is Poised For Collapse. Editor’s note:This guest post is part of an in-depth series looking at the daily deal industry written by Rocky Agrawal, an entrepreneur who has worked on local products since 1995. Read Part I, Part II, and Part III also. He blogs at reDesign and Tweets @rakeshlobster. Imagine you’re a small business owner. You have to choose between two propositions: You can pay $62,500 for marketing. I’ve been working on local for a long time and I know it’s hard to get small businesses to spend money on advertising.
There’s no way a business will sign up for #1. Except they are. Although they sound completely different, #1 and #2 are really the same—it’s the Groupon business model. Businesses are being sold incredibly expensive advertising campaigns that are disguised as “no risk” ways to acquire new customers. Groupon is not an Internet marketing business so much as it is the equivalent of a loan sharking business. In many cases, running a Groupon can be a terrible financial decision for merchants. Groupon: Doomed to Fail or Worth a Leap? A Twitter Debate. Among those debating the value of Groupon as it filed for its hotly-awaited initial public offering — which could give it a market capitalization as high as $30 billion — were two startup entrepreneurs who took to Twitter on Thursday night. On the “Groupon is doomed to fail” side of the question was David Heinemeier Hansson, a partner at 37signals and creator of Ruby on Rails, and on the “give Groupon a chance” side of the debate was SimpleGeo co-founder Joe Stump.
Who won? You will have to judge for yourself. Their conversation is embedded below. Hansson started the debate by tearing apart Groupon’s financials, noting that the company had not only lost more than $500 million so far, but that its losses and spending were actually accelerating, and that it was costing the company far more than $1 to make $1 in revenue — a fundamentally unsustainable situation.
Is growth enough? Excerpts from their full conversation are embedded below: The Bank of Facebook: How will Facebook interact in the global economy? Brian Solis. InShare483 design by ericaglasier.com - @EricaGlasier What follows is a guest post by Venessa Miemis…I’ve asked her to share insights from a developing research project she’s currently leading, The Future of Facebook Project. I recently took part in the project as I believe this discussion is more relevant than we currently imagine.
There has been much speculation recently about the role Facebook Credits could play in becoming a global virtual currency, and even the possibility of Facebook becoming a bank. In many ways, it already is becoming a bank – just not in the traditional sense. Facebook is harnessing the power of the social graph and has certainly adopted an expanded definition of what ‘currency’ means. As I’ve been conducting research for The Future of Facebook Project, the experts and thought leaders interviewed shared some compelling views about the evolution of virtual currencies, and Facebook’s potential role in their development.
Credits as Currency Identity as Currency. Why Groupon is bad for your business (and mine) Groupon, the so-called social buying site (even though there is very little social going on outside of the manipulation of basic human behaviors like their reaction to a situation where there is sense of scarcity) and the fastest growing company in history, is bad for your business. It’s bad for your business for a number of reasons. It destroys the profitability within your market Coupons trigger people’s pleasure side of their brain, that is the site that gets addicted to things and that requires more over time in order to get the same satisfaction. So if you run a 50% off campaign in your local area or in your industry it will be very hard for anyone in your sector to come back to the pricing levels that you used to get.
In effect you destroy profitability not just for you, but for all involved. Instead of focusing on discounts and coupons companies should focus their efforts on longer lasting competitive differentiators like service levels, or uniqueness of their offering. Groupon e Groupalia funzionano davvero? [inchiesta] Social Commerce. Many businesses have been ‘exploring’ the opportunities of social media over the past number of years. However, the time has now come for companies to think about realising a direct sales return from social media. A Nielsen report last year highlighted that 90% of consumers trust the opinions of people they know. 70% trust anonymous ratings and reviews posted online. Compare this with just 33% who trust online banner ads. Social commerce is about leveraging word of mouth referrals to support the sales process; harnessing the power of social and participatory technologies to drive conversions. Many brands have been shy about asking for the sale when engaging with social media.
There has been an etiquette on social media that says we shouldn’t do the hard sell. 1. Dell makes millions through their ‘outlet store’ on Twitter where they inform customers about offers on refurbished computers and electronics. 2. 3. 4. It’s not all about Facebook and Twitter of course. 5. 6. 7. 8. 9. 10. 11.