Chicago-based Groupon is certainly one heck of a startup. Like Zynga it sort of came out of nowhere in 2009. Even last December I was sort of only vaguely aware of how fast it was growing.
But it was clear by early 2010 to the whole world that Groupon was on a tear. First a round valuing it at $250 million. Then just a couple of months later it raised new money at a $1.35 billion valuation.
And then in the last few weeks Yahoo offered something even higher for the company – between $1.7 billion on the low side and probably $4 billion on the high side. And Groupon passed.
Revenues are in the $50 million per month range, and the company has roughly 50% gross margins. By some measures, Groupon is the fastest growing company, ever.
Groupon is often said to be the next eBay at Silicon Valley insider dinners and events. But Groupon isn’t going to have the same success eBay has had.
At first blush it seems like a valid comparison. Groupon’s revenues and profits blow the early Ebay results out of the water. When eBay was three years old and going public in 1998 it had revenues of just $4.7 million. Groupon does that much in revenue every three days or so right now.
Today eBay has revenues of a little over $2 billion every three months and is worth around $30 billion. It’s not at all unreasonable to think that Groupon could eventually grow its revenues way beyond $2 billion/quarter – the local products and services category would easily bear that kind of fruit.
But there’s a couple of problems with Groupon. The first is how it scales – it needs a lot of sales people for each market it handles and already probably has more than 2,000 of them on payroll. But the real problem is the complete lack of a network effect to protect its business.
Ebay is expensive. And it has a horrible user interface. Buying stuff is a pain compared with sites like Amazon that have put real effort into making buying painless. It’s also expensive. Everyone would love a better eBay, but after ten years of people trying to kill it, it just keeps going.
Why? Because everyone’s already on eBay. And every new buyer or seller makes eBay more valuable than it was before. Anyone competing with them has to find a way to counter that, and it’s nearly impossible. Even free listings from big companies like Amazon and Yahoo flailed dramatically.
In other words, eBay would have to really work at it to destroy its core business. And since it dominates the market it can continue to charge exorbitant fees and not worry about the user experience.
Groupon has none of that. When Groupon gets a new user that’s great. But that user will quickly leave to Living Social or One Kings Lane or any of thousands of other competing sites for better deals. And when Groupon gets a new “seller,” there’s no reason why that seller won’t also go try out the competitors, too.
There’s just no network effect in Groupon’s business model. Which means competitors can flourish and margins will get crushed.
At TechCrunch Disrupt, Benchmark Capital’s Matt Cohler said he wasn’t sure if Groupon would succeed over the long term. I asked him if he wished he was an investor in Groupon:
That question keeps me up at night. the question for me is…if you look at it from a purely academic point of view, there are neither barriers to entry nor are there switching costs in that product. Typically when a product has those characteristics margins tend to collapse over time. In theory the only thing stopping that from happening is Groupon’s brand…It may turn out that daily deals are ad units, and lots of different products can apply that ad unit.
What can Groupon do to avoid having their margins crushed by competitors? Establish generous revenue sharing relationships with distribution partners, fast. And that appears to be exactly what they’re doing. In the next several weeks the company will likely announce partnerships with Yahoo and CitySearch, we’ve learned.
Oh, and one more partner, too. And that partner will be…eBay.
Update: Great email comment from Alex Rampell:
I actually think Groupon is a “winner take most” market and not winner take all. Amazon has a plurality yet a distinct minority of ecommerce share ($25B in 2009 revenue out of WW ecommerce rev of $600B) yet has a market cap of $74B, 2.5X that of eBay. No barriers to entry.
There are no barriers to entry for online commerce companies — yet Amazon keeps decimating the competition. There are, however, economies of scale. I think Groupon can be the Amazon of Online2Offline commerce, and there’s no reason they can’t get to $25B in annualized revenue like Amazon, but at a much higher margin.
Whether they’ll command the same kind of earnings multiple as Amazon is another story.
Ebay launched a Group Gifts service using Facebook’s application programming interface, aptly named for the ability to digitally pay for a present with contributions from more than one person.
Go to the group gifting page on eBay, and you see a button that can open the Facebook logon window, prompting the request for permission to access profile information, friend lists and their respective birthdays, among other data that might influence a group buying decision.
Group Gifting designates one person as the organizer who chooses the gift, and then invites others to contribute funds. I think version 2.0 ought to give you the option to invite friends first, and then make a group decision on the gift; offline, when we buy presents as a group, people often give suggestions about what to buy before coughing up any cash.
The next best thing to making a group decision on what to buy is looking at your intended recipient’s wish list on eBay, which you can certainly do right now using the current iteration of Group Gifts. And if your intended beneficiary doesn’t yet have a list on eBay, I suggest you look for it on other online retail sites, in addition to your friend’s profiles on social media and personals sites. It’s also helpful that the gifting service asks you the occasion for the gift, with a drop-down menu. Here’s another idea for version 2.0: Allow people to name their own occasion that isn’t on the list of choices.
For now, whoever initiates the group buy chooses the gift, then invites other would-be contributors and sets a deadline for contributing. No transaction goes through until enough people pony up money to meet the cost of the item.
If you have a sense of deja vu, perhaps you’re thinking of Facebook’s partnership with Amazon.com announced this summer, which enabled the ability to tap the social network for product recommendations. That integration doesn’t yet include group funding of gift purchases, but I wouldn’t be surprised if something to that effect became available in the very near future.
The group gifting service looks pretty cool and tempts me to start plotting acts of generosity toward the people nearest and dearest to me. I bet you’ll feel the same way after watching the explanatory video below:
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Introduction - If you are still learning about search engine optimization (SEO), you are probably a bit confused about the difference between on-site and off-site SEO strategies. On-site tactics are more straight-forward for the beginner and are probably written about the most. I thought I would write an article and cover what I've learned. This pool of SEO knowledge comes from working with about 10 clients and another 10 personal web sites over an 18 month period.
To anyone with an SEO background, there are certain basic on-site SEO tasks that any web master, business owner, or Internet Marketer needs to be aware of. These include the following major components:
1) Title Tags - The title tag in your HTML meta code is the tag that tell the browser what to display in the title of the window at the very top of the screen. Because this text is so visible to the user, Google likes to rely heavily on this text as a clue as to what your page is about. As a result, it is a really important SEO strategy that your title tag be filled with keywords that are appropriate to the content of the web page. Furthermore, you really don't want the same title tag on every page. This is not good for SEO. Instead, you want to have different keyword phrases in your title tags that properly identify the theme of that particular page. Remember, you are trying to help the search engines easily digest your content. That's basically what SEO is. You want to aid them in their understanding of what this page is really about.
2) The first H1 tag - Similar to the title tag, Google will look at the first H1 text to appear on your page as a strong signal as to what the page is about. Use it wisely. Again, you want to place keyword phrases here that are thematically related to what the information on the page is conveying to the end-user.
3) The name of the page itself - As you name your pages in your web site, use plain English as much as possible for SEO. You will notice that WordPress uses this extensively in their blog software. This is no accident and WordPress is considered the best blog for SEO. For example, http://example.com/?On-Site-vs-Off-Site-SEO-tactics&AID=22 will perform much better for SEO than http://example.com/?AID=22. Why? Because there is descriptive text in the longer version of the page name that helps the search engine know what the page is about. Many people have written about issues around "dirty links" and SEO (links including system variable data such as AID=22 in the example above). I think it is better if you can design your system without any variable data at all. It just takes this SEO issue away. And it's just easier for the search engines. It's also easier for the end-user. However, there is no problem promoting pages via SEO with variable data in the links. I've been able to make both fly using the same SEO tactics with no problems. The search engines are smart enough by now to manage through that variable data. Just make sure your plain English is in there.
4) Keyword meta tag - This tag used to get a ton of play for SEO, but is now largely ignored by the search engines. I believe it fell out of favor due to manipulation and misuse. It is a tag that is not seen by the end-user, so unscrupulous web masters abused it and it became less-and-less important for SEO. Real SEO tactics don't abuse or deceive. I still populate my keyword tags because I believe they are still looked at, but I don't believe they are very critical. If nothing else, it's another instance of your keywords. They all help SEO.
5) Description meta tag - This tag is still useful, but probably more for Yahoo and MSN. Since you will be in this part of your web site anyway to get the Title right, you might as well make this variable-driven as well and make the description appropriate to the page. Again, it can't hurt SEO.
6) Keyword Density - This is very important for SEO. Keep in mind that the search engines are just large computer programs digesting your site and trying to figure out what it is about. One of the simplest things they do is to count up all the words and look for repeats. They then calculate percentages, or densities, of specific 1-word, 2-word and 3-word phrases that are found in your text. By looking at the most popular keyword phrases, their programs understand the important themes of your page. If you observe your own writing on a specific subject, you will see the patterns as well. I don't recommend that you write solely with keyword density in mind as it will result in lower quality content. However, I also don't recommend that you completely ignore keyword density in your content creation. My preferred approach is to write content straight-up for the first draft. Then, as you edit for grammar, consistency, and clarity, also edit for density. Run your content through a density checker and see what phrases are used the most. Make adjustments accordingly so that your top themes / keyword phrases are showing up between 2-4% of the time. But don't do this to the extent that anything reads as unnatural. You need to always keep your audience in mind.
7) Outbound links - What your page links to matters, in terms of both the quality and quantity of links. As you build links out of your page, be specific about where they go. Don't link to low-quality or bad-neighborhood sites. Also watch your number of links. Generally, the less the better. However, having no outbound links is not always good. I believe Google uses your outbound links as a way to position your site in the vast weave that is the Internet. Often times, Google can get a good feeling about what your site is about just by looking at who you link to. So again, select these links wisely understanding they will actually impact your SEO.
8) High-quality, original, content - I probably should have put this first because it can't be stressed enough for SEO. Your site needs to provide high-quality and original content. You will read this maybe a hundred times as you research SEO. Content is king. And I firmly believe this to be true. If you are under the impression that the internet is so big that search engines can't identify content as really unique, guess again. One afternoon spent playing with CopyScape will convince you that there is technology available today that is able to tell you if any given sentence has been repeated anywhere on the Internet. It's staggering, actually, when you really think about that. The volumes of data are just outrageous. But if CopyScape can do it, I'm betting that Google can do it also. And I firmly believe that your site receives a positive bump when Google determines that the content is original. Many people have asked me if using content that is repeated on other sites will penalize the site. I believe the answer is no, you will not be penalized by Google (copyright infringement is a completely different and very serious legal topic that I won't go into today). But I also believe that you won't get where you want to be by using content that already has high mileage. The other hot debate related to how sites using duplicate content can actually rank higher than the site where the content originated from. Yes - This has been demonstrated empirically a bunch of times. But you don't need to be too concerned with that for reasons we will get into later. Just keep your eye on the ball. Put in the time, energy and creativity it takes to create unique content and you will be rewarded. Plain and simple.
9) Appropriate amounts of content - Somewhat different from #8 is the issue of how much content to put on your site for good SEO. I don't believe there is a single magic answer as each site has a different objective. But as far as SEO goes, I generally believe the more the better (assuming you are following #8). Give those hungry spiders as much food for thought as you possibly can. But let me also qualify that statement. You need ensure that your content doesn't stray too far from the core message of your site. If it does, this can create confusion around what your site is really about. Tightly focused sites perform much better than more generically focused sites. For example, a site selling used Honda Civics that uses appropriate SEO strategies will probably get ranked higher and faster than a more generalized site selling all types of used cars. This is a generic statement, and there are many exceptions, but it's a reasonable place to start your thinking about niches and themes.
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