Groupon Buys LivingSocial, a Rival Once Valued at $6B(bloomberg.com) |
Groupon Buys LivingSocial, a Rival Once Valued at $6B(bloomberg.com) |
What I remember most vividly was trying to come up with a good name. LivingSocial was starting to get traction and we wanted to differentiate ourselves from them. The conversation went like:
Boss: What's the opposite of LivingSocial?
Me: I dunno, DyingAlone?Many small businesses don't adhere to professional norms of communication, negotiation, payment, etc -- that's not a big surprise, considering that many of them are owned by people without a lot of background in big business. The amount of time put into each deal is very high compared to the money you can get out of it.
This is why enterprise sales are so much easier than small business sales. You can make millions dealing with a small handful of enterprise companies, or you can try to make the same amount of money by dealing with hundreds or thousands of small businesses.
This implies that an unlimited number of people could have started profitable Groupon-like businesses.
Given all the stories that were going around for a long time about how offering through businesses like this was a losing proposition for most customers (really independent of the truth of those stories), I'm not surprised that there could be trouble making a profit in it.
As I recall, the standard deal with Groupon etc is 50% off retail price, then Groupon (or whoever) takes 50% of what's left.
So consider a product or service you usually sell for $100, which costs you $40 to deliver. When doing one of these deals, you're now selling it for $50. You get $25 of that, and the platform operator keeps the other $25. So your cost of sales was $40 and your revenues were $25.
Fine if you're happy to operate a loss-leader to attract quality clients who will return to you at full price later.
Unfortunately it seems that these daily-deal services often attract low-quality leads to your business. The kind of customer who exhibits no loyalty, and simply surfs from company to company taking advantage of these loss-leader deals, then never returning.
>The incentive to bring new customers by offering steep discounts is definitely worth it for those type of vendors.
But, it sounds like you either a.) Kept getting steep discounts with multiple Groupons for the same dentist or b.) Kept hopping to whichever dentist was offering a steeply discounted Groupon.
Neither of these is good for the dentists.
Or did I miss the sarcasm?
For a company of Groupon's size ($3B annual revenue), that doesn't necessarily mean that it was free, right?
That leaves a lot of legal wiggle room.
1) acquired assets / groupon total assets
2) acquiree pre tax income / groupon pre tax income
3) purchase price / total assets
Groupon has 1.7B in total assets. By looking at criteria 3, this means the purchase would have been at maximum 20% (340M - Wont get into reasons why we use 20%, but this is the ceiling) or less.
The price was likely in the 20-75M range, if living social contributed to less than 10% of the net loss of groupon (100M), and their assets were under 50M (likely).
As someone who went to both IPO lunches, it was a wild time. Throw Renren, and several other companies from that time period into the mix. 2012 was almost 5 years ago. Unbelievable. Well, at least tech companies actually did go public.
"On October 24, 2016, Groupon entered into an agreement to acquire all of the outstanding shares of LivingSocial, Inc. The acquisition is expected to close by early November 2016, subject to satisfaction of customary closing conditions. The acquisition consideration is not material."
For those comments questioning the "not material" part. I agree this looks like a potential legit issue: The price paid is probably somewhere in the 8 figures. But regardless of price, Groupon is a small company that doesn't make any money (they just announced they lost $36 million last quarter alone), so even a small purchase price, not to mention LivingSocial's future expenses, can be very material.
But more important than a debate over acquisition details and what is "material": Groupon management have been accused in multiple different lawsuits in recent years for making untrue statements or omissions of material facts. And they lose/settle for millions of dollars.
Innocent until proven guilty but if one reads further down to management's "Outlook" section of the press release it is very odd to see LivingSocial mentioned here:
"Outlook: Groupon's outlook for 2016 reflects current foreign exchange rates, as well as expected marketing investments, stabilizing trends in Shopping, the acquisition of LivingSocial, potential disruption related to country exits...Groupon is raising its revenue guidance range...and narrowing its expected 2016 Adjusted EBITDA range to between $150mm and $165mm"
If something is not material then how or why is it one of 6 things listed as reflected in the company's outlook??? Why even bring it up again?
Things that have an effect or get reflected in a company's outlook and guidance is material. Even in the most generous definition of material this is material.
I am not saying Groupon needed to disclose price paid or give a full biz synergy plan. But what is LivingSocial? Is it a going concern? Is this accretive or dilutive? Asset or liability?
This acquisition deserves more information than was provided and should not have been labeled as "not material". The stock's AH 10% drop feels very material to investors.
Groupon's 3Q2016 Press Release: http://investor.groupon.com/releasedetail.cfm?releaseid=9956...
So what is material depends on the eye of the beholder.
Also, if it's good news then there will be a higher threshold for what is material than when it is bad news.
Sure I am, if money is an issue. From [0]:
>...many uninsured individuals rely on health-related deals from Groupon...to lower their healthcare costs. This may mean they’ll visit a different doctor or dentist each time as they find new coupons. This doesn’t provide much of an ROI on the initial discount offered, and it also lowers the quality of care...
Sounds more like the OP's described use.
>Groupon seems to work best for large, one-time procedures on new patients and not counting on them returning to your practice in order to make up the initial loss.
Sounds unlike the OP's described use.
[0] https://www.patientpop.com/blog/marketing/groupons-really-at...
A little background... the company was in the television industry. The original product was "clickable TV," in which they'd managed to deploy a small Java app to set top boxes over the cable lines, which could display a small icon appear at the bottom of the screen. When a user pressed 'select' on their TV remote, they would get an email sent to them with more information. It launched in a small US city and they approached local news channels ("click now to get the full story") and local businesses ("click to get a coupon code") to sell it.
The product did work (even if you DVR'd the program, which was my favorite feature), but most of the local business that were contacted said "cool idea, but we don't have any TV commercials, so come back to us if you can do something else."
When it proved too hard to sell the clickable TV product (perhaps obviously -- even in 2010 it was 10 years too late), they decided to reach back out to the local businesses with a new idea... a Groupon clone. We ran it for a while and it did "okay," but not well enough to keep the lights on, and the company closed its doors soon after.
[0] http://www.businessinsider.com/groupon-survey-results-2011-7
[1] http://www.zdnet.com/article/second-life-lessons-what-linden...
Seriously, though, they could have a renaissance with the next AR/VR round.
Maybe it's more accurate to say 'the people who easily fell for Groupon's sales people'. In my area the various daily deal sites have very aggressive sales fleets, who literally go door to door in shopping streets convincing owners to put up a deal. Many of them lose money or barely break even; but then again some of them owe it to themselves (I bought a deal once and went back afterwards; she then said 'I'll give you the same price you paid for the groupon, because other customers have complained that they didn't think it was fair they had to pay more when they came back' Wtf?)
Anyway, I don't have exact data of course, but I've been interested in the business model for years, so I tried to get as much information from business owners as I could every time I bought a deal. The overall picture I got even after a few years (so since 2010-2011 maybe?) was that the typical groupon customer had distilled to the cheapskate vendor-hopping type (before that, when groupon was the hot new thing, it was mostly early adopters who weren't really price sensitive, but for whom getting a 'deal' was more about the social validation aspect of looking like a savvy consumer).
Everybody was suffering and cutting costs. I don't think it was so much as wanting to be price savvy, but rather, wanting to go out and not being able to afford it.
Groupon actually stemmed from a different startup that was supposed to be about something like community building. (The name alludes me, but I used to work for the "parent" company of Groupon and in the same offices as it was getting big. That startup never materialized, but the one they did was got a campaign that if they got x number of people, Motel Bar (which is bar in the same building) would give a deep discount. Andrew Mason, Eric Lefkowsky, Etsy al, quickly realized that that was a real business model, pivoted, and exploded.
Had it been in a different when people were not so price conscious and businesses were not on the edge of going bankrupt, I'm not so sure it would have done as well.
The businesses in that space that seem to still be going strong (see Gilt for example) tend to focus on more luxury items/markets, where they're either selling factory seconds (in the case of retail) or experiences that will likely target a higher class of consumer and will bring them back.
Their concept of the "campaign" became the cornerstone modeling concept for the Groupon platform.
This is burying the lede, IMO. Your sales structure should either be set up to catch shrimp or whales. You can have a product that sells itself and provide it cheaply - say, a smartphone app that summons a car to get you where you want to be. Or you can have a product that takes a full-time professional sales force, and get a lot of money out of the few sales you make there.
http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...
"There's no software priced between $1000 and $75,000. I'll tell you why. The minute you charge more than $1000 you need to get serious corporate signoffs... So you need to send a salesperson out to the customer to do PowerPoint"
This is Just-Eat's model - they have an army of sales people in every country they operate, pitching to the local food places in their area.
We average something like 2 hours per customer onboarding. However, the value of each customer is pretty high. Good customer relations is also fairly important as there's a lot of staff transfer within the industry. Satisfied customers basically do your marketing for you.
And even if you manage to build yourself a nice efficient well designed island other people will show up with avatars wearing massively over-detailed jeweler with 4k textures on every surface and with a few buggy CPU-killing addons that fight each other to try and fix a few of Second Life's design problems, and suddenly your server is on it's knees begging for more CPU cycles while your grapics card is busy choking every time their avatar is near.
The short version is when people can build anything you'll get some amazing works but you'll also get a lot of poor quality, performance killing crap. I don't see VR changing that, but there is a place for a Second-Life life competitor that limits what people can do to hit a nice balance of performance vs. freedom.
Interesting.
I kind of see how Snapchat is positioning itself against Facebook in this arena.
The vendor would realize the revenue up front, when all the "coupons" would be sold. Then they would fulfill the orders over a period of weeks or months, with some sort of breakage rate involved. Needless to say that put the incentives of the buyers and sellers in tension.
But overall the main model was not really just a simple loss-leader approach, it had a lot in common with loan sharking.
"Groupon keeps itself in cash by collecting money immediately when it sells its daily coupons to consumers while extending payments to the merchants over 60 days."
-http://www.wsj.com/articles/SB100014240529702043580045770279...
Certainly in the past we were "offered" the opportunity to do a 75% off deal. Then IIRC it was 60-40 in their favour. They got all the breakage (payees that didn't turn up) and we had ty wait until the end of the deal period to apply for the money.
It was as close to a con as you could get. Like selling pensioners ludicrously expensive fascia boards and guttering when what they needed was their gutters cleaning.
Groupon knew the business it was good for but seemingly marketed to those with little financial nous. They promised winning repeat custom on the one side and cheap one-off deals to the end-customer on the other.
IMO some version of this could have been good for businesses in my sector but it would require the company not to be greedy. Investors don't go for those companies.
¹ I don't know about Groupon, but other deal sites allow them to put certain conditions on the use of the voucher
The money lag also killed some small businesses who had assumed they'd get money at the pos to cover their costs and hadn't accounted for increased custom needing greater spending on inputs when money was locked up for 3 months. Cashflow interrupts easily kill a small (micro) business.
Indeed, it appears that we're both correct, assuming you're not in the US. Interesting article from 2012 sheds some light:
Some context about how the company operates: Groupon has had two very different payment structures. In what I call the American model, merchants receive cash upfront for a deal. Once the deal is closed, Groupon tallies up how much it owes the merchant and sends them the money in installments, with the vast majority of the money delivered within 60 days. If a Groupon isn’t redeemed, the merchant gets to keep the money. (Known in the industry as “breakage.”)
Outside the U.S. and Canada, Groupon has used a different scheme. For simplicity, I will call that the European model. In this scheme, Groupon only pays merchants when a Groupon is redeemed; merchants do not get cash up front. If a Groupon isn’t redeemed, Groupon gets to keep the money. Breakage is considered to be 20-25% of Groupon purchases, so this amount is significant.
There are exceptions to the above. I know of one popular merchant in Europe that negotiated to get the American model. But this is largely how it works.
http://venturebeat.com/2012/08/15/the-giant-red-flag-that-an...
Good follow up, thanks.
I wonder why they took those differing approaches - regulatory pressure?