Groupon. The company that floated a few weeks ago to critical acclaim has slipped and fallen right on its muffin top. Stock is down over 16% from the float price.
However, Groupon has long been on my pet hate list. Not so much because the people are unfriendly or anything. Actually the opposite is true. I had a brief chat to Groupon UK CEO Chris Muhr at Kings College London after his speech earlier in the year and he was brilliant and open with his communication.
No, my beef with Groupon is that it makes money by destroying value - both brand value and true value for the people that are its customers. Case in point. If you have a widget to sell with Groupon, you need to put it on sale at a discount of at least 50% to attract a deal. So you would be left with $50 out of $100. Of that remaining $50, groupon takes $25 more as a spotters fee. This leaves the vendor with $25 out of $100 original dollars.
Here's the thing... that's $25 in REVENUE. not profit. So in a business like...oh... a cake shop where you can expect operating margins of around 10% and therefore a cost of $90 for every $100.. you'd be losing about $65 dollars... or 65% of your business!
This isn't a joke... it happened in real life where this London Bakery baked 102,000 cakes at a loss thanks to Groupon.
Groupon... makes it to my pet hate list! One daily email at a time!
What's Up Jono?
However, Groupon has long been on my pet hate list. Not so much because the people are unfriendly or anything. Actually the opposite is true. I had a brief chat to Groupon UK CEO Chris Muhr at Kings College London after his speech earlier in the year and he was brilliant and open with his communication.
No, my beef with Groupon is that it makes money by destroying value - both brand value and true value for the people that are its customers. Case in point. If you have a widget to sell with Groupon, you need to put it on sale at a discount of at least 50% to attract a deal. So you would be left with $50 out of $100. Of that remaining $50, groupon takes $25 more as a spotters fee. This leaves the vendor with $25 out of $100 original dollars.
Here's the thing... that's $25 in REVENUE. not profit. So in a business like...oh... a cake shop where you can expect operating margins of around 10% and therefore a cost of $90 for every $100.. you'd be losing about $65 dollars... or 65% of your business!
This isn't a joke... it happened in real life where this London Bakery baked 102,000 cakes at a loss thanks to Groupon.
Groupon... makes it to my pet hate list! One daily email at a time!
What's Up Jono?
Totally agree. Also I think it is an incredibly unsustainable business model. See http://finance.yahoo.com/q?s=GRPN as the market realises this.
ReplyDeleteToo right Bavan! I wonder how long the market will take. It was interesting to note that Bain Capital also sold its stake in LinkedIn... I thin that's a heaps better model though.
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