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Why is Groupon overvalued?

June 18, 2011

We are right in the social media decade, which started back in 2004 with Facebook, and it seems to evolve to a new level with Groupon. With more than 83 million of users and a presence in 500 markets, Groupon turned the basics of social networking into a business model in less than 2 years. The start-up from Chicago has recently filled up a $20 billion IPO , despite a funding of only $1.4 billion and a loss of $400 million in 2010. So is Groupon worth it?

Based on a simple business idea – the good old coupon to which it added the power of internet – Groupon has the ability to make a huge profit. As long as it has a important customer base. And it does, but at a high marketing cost. Groupon is said to acquire each new customer for $5.50, and need them to purchase 3 coupons to break even. And customers are far from reaching such figures. Groupon simply expects that in the future the trend will change, as 44% of the suscribers expressed the desire to spend more over the upcoming year.

But beyond a simple discussion over figures, this is the business operation itself that makes Groupon far less attractive than it seems to be. It is true that Groupon can help a local business to reduce its loss during a slow season, or attract new customers for a specific time or offer. For example, a cafe willing to increase its sales during quiet afternoons might simply launch an offer via Groupon to sell its products at this specific time, and suddenly see an increasing number of customers changing their habits to get the hot deal. Eventually, the cafe’s owner simply turned an expected loss into a profitable operation. But the problem is two-dimensional here: first, such operation can be financially disastrous for businesses, such as forthe Posie’s Cafe. Groupon takes an average gross profit of 42% on deals, expecting over 50% discounts on products from the businesses. Needless to say, there isn’t much left for businesses to make a profit out of it, even if the marketing operation might be profitable afterwards. Second, Groupon customer base is largely composed of bargainers with a low loyalty dimension. They might increase the sales figures of the business at the time the offer is running, but won’t come back unless another offer is up. Which is the contrary of the marketing operation run by the local business. Moreover, the time-limit of the offers might as well hurt them, as many Groupon buyers try to use them after the deadline and feel upset when the refusal occurs.

This situation might not last forever: as more and more businesses will feel disappointed by the business model, Groupon might simply have difficulty to have any offer to propose to its customers! Moreover, Facebook and Google just entered in the business, and might force Groupon to reduce its profit margins in order to remain in the business. Facebook, with a “customer base” of about 600 millions might in a soon-to-come time take over the entire industry if played well. Groupon should better hurry getting its initial public offering approuved if it wants the cash to sustain its growth…

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Why transparency might lead to a split of the internet?

May 29, 2011

The internet is slowly but surely starting to split into two different worlds: the ones who disclose their real identities, and the others. In one hand, some are looking for establishing a transparent world, improving trust and relationships quality, while in the other hand, some others are looking for benefiting from the natural anonymity brought by internet in order to achieve a greater freedom of expression and action…

In 2006, Mark Zuckerberg launched the “News Feed” on his world famous social media platform, Facebook. In a nutshell, it aims is to show in real time what are your friends are up to in reverse chronological order. The end of the internet privacy as we knew it, already quite torn out by the necessity to register its real identity on the website, was one step closer. Everybody (or at least here, all your friends) are able to know “things” about you without asking for your permission. The control of your information is sensibly reduced, and if not taken care promptly and efficiently, might damage your reputation and your social life.

Basically, Zuckerberg states that “having two identities for yourself (on the internet) is an example of lack of integrity”. His main idea is that a transparent internet makes relationships more legitimate, enforcing trust between people. Your are thus more willing to disclose personal information to people you are sure who they are. The privacy control that naturally goes with such system – as you don’t necessarily want that the whole world to have access to your personal information, but only people you know and trust – is not clear stated by Zuckerberg. It may either be an end by itself, meaning limiting information disclosure to solely people we trust, or only be a simple mean to content current concerns, which eventually will lead to a world where everything will be public to anyone. His adjacent idea is that transparency will prevent bad internet practices, as people will be accountable for their actions. Piracy, bullying and other bad internet attitude will be thus impossible to do without facing consequences.

Christopher “Moot” Poole, the creator of the anonymous forum website 4chan has a radically different vision of the internet. In his vision, anyone should be able to express their opinions without the risk of repercussions. Everybody needs anonymity for creativity and experimentation. He believes that the cost of failure when contributing as yourself may be too high to accept for some people, and will therefore give up on their projects. More importantly, anonymity can also be seen as a way to protect activism. For instance, the risk to get caught might be too important for Chinese activists to express their opinions on the internet using their real identities. They need to protect themselves from the government repression.

Thus, the risk is now to see internet splitting in two very different structures: a “clean, net and upper” internet where people use their real identities, only interacting with people they know and trust, and where they face the consequences of any of their action (i.e. caught smoking pot on a photo posted on Facebook by a “friend”), and a “dirty, wild and lower” internet, only used by anonymous people, with a risk of use for bad reasons such as piracy and terrorism. Even though the current internet is nowadays clearly apparent to the second option, it is likely than in the future, that dual identity which is currently possible (an identity acting as the “official” representation of themselves, and an anonymous one to do everything that the society sees as a bad behaviour) will become harder to sustain. Virtual activities on the web, such as social media, forums, or online games will tend to develop the necessity to choose between the two visions. Transparent website and social media will tend to reject anything coming from anonymous users, and therefore, turn the internet into two levels. Both structure will work on their own, with little interaction between them.

Big corporations will then jump on the difference of vision to make money, and will create systems (a new internet?) to guarantee a certain part of the population (who said old?) to have access to a trusting and securised internet against big money. They will also at the same time deprive them to a rich part of the internet created by anonymous users, and limit their access to information. Any ideas or opinions that can only be anonymously disclosed (remember the Chinese dissidents?) will be classified as part of the secondary internet, and won’t reach as many people as it used to. Creativity apart, there is a tangible risk of danger for the freedom of speech here.

Moreover, people will also tend to refrain themselves doing anything that can possibly jeopardize their virtual social life, as attending a party, in case they do something wrong under the influence of alcohol. Even though people already limit their actions for obvious social reasons, consequences will be now stretched, as internet reach everybody and virtually for ever. A simple mistake might prevent to get a desired job 20 years later. Living with the mistakes from your past might become quite common in the future. What will happen if you can no longer be a trusting person for such reason? Will you be prevented from using the trusted internet?…

Why geolocation is the next big thing?

May 25, 2011

Internet evolves by decade: the 90’s were the time of retail websites and search engines, and the 00’s of Social Media. Everybody is now looking for the next big thing of the 10’s, hoping to become respectively the next Ebay, Google or Facebook. And trends seem to confirm that geolocation might be the next decade’s big thing...

Since its creation in 2009, everybody is watching closely a small start-up which is getting more and more popular: Foursquare. Based on the basic idea of “checking-in” at your location, it allows the user to connect with friends, exchange tips about the place, get badges or become a virtual mayor of a city or area (?). The start-up has gained about 7 million users worldwide, and is steadily expanding, thanks to some Hollywood stars starting using it. The benefits are not quite obvious, but the idea is out. Facebook is also following the trend, launching a similar service on its platform, called Facebook Places.

Geolocation is the natural evolution of both the social media and smartphone trends combined altogether. Or when the need to be connected to the world meets the always-moving new generation. People have been lately developing the willingness not only to simply connect to friends, but connect to friends who are next to them. Internet is not a “fixed” place anymore, as defined by sitting at their desktop, but a moving one, thanks to tablets and smartphones.

Benefits from such a technology are huge. It allows the user to interact with the world around them. It makes life easy in basic day-to-day activities, such as research (where is the closest movie theater in the area?), getting recommendation on-the-go (is that restaurant any good?), or connection (where are my friends?). But it also helps to develop new opportunities: apartment hunting, local dating, or even to raise money for charities.

Benefits are also blow-minding for business. Well first of all, geolocation acts as a gap between the virtual form of the business on the internet, and its “physical” presence in the real world. As most of people base their shopping decision on a online research – what are the products proposed by that brand? Are they in stock? – it became essential for businesses to be easily “findable” by the customers. This is thus the purpose of Google Place for Business, or for example in a smarter way, the Subway Store Locator App. Second, as Facebook allows companies to market according to demographic and interest criteria, geolocation allows them to market according to proximity with potential customers. Thus, when people pass by a shop, this latest can “hook” them on their smartphones, providing discount or coupon to encourage a visit to the store.

Nonetheless, the only difficulty will be a legal one. As the Apple case showed lately, people are willing to protect their privacy, and are not really into sharing their location with anybody. The right start-up will have to find the proper balance between privacy of users and the sharing of information with businesses in order to monetize their software. Sounds Familiar?

Why Twitter might beat Facebook?

May 22, 2011

The social media race is well established between the two giants Twitter and Facebook since Myspace and Friendster are out. Facebook reached 500 million users, and Twitter 300 million. And it doesn’t seem to stop. Though, there are significant differences between the two platforms that will be determinant to decide who will zin the social media battle in the future. And contrary to what people think, Twitter might well be the winner...

Let’s be clear on the principle: Facebook is primarily to see what you’re friends are up to, and Twitter is primarily to see… well, everything else. Once you know that your best friend has been trashed last night, or Miguel, that spanish block you barely remember praises eating apples with a fork and a knife, not much else to get interested in. Still pretty cool to look at the latest viral video on youtube, but that’s about it. Twitter is more about getting interested in… interesting stuff. Let’s say you’re a big fan of the brand Apple (which is purely random). You can follow the brand account to get latest news, look through the Twitter search engine (thanks to the genius idea of the #) to get even latest news (literally in the minute), or get connected to experts and professionals blogging about Apple. Twitter is not limited to your close friends as Facebook: it is open to the whole world.

The Ussama Bin Laden’s death, the IMF President’s scandal and a lot more other information has primarily been announced on Twitter. Not on Facebook which only relied it through your friends. Twitter becomes a new type of media to hear about the latest news. Short, simple and terribly fast, journalist rely on Twitter more and more everyday to share “hot” information. Moreover, for those who are not satisfied by 140 characters news, a simple link to a blog/ newspaper at the end of the tweet allows to get deeper information.

The force of Facebook is to allow quick communication between its members. Email became secondary in our life. First there was the “post”, then the “comment”, and finally the “like”. The two first are quite natural and are at the base of social communication over the internet. Though, and despite the fact that Zuckerberg thinks the “like” button is the greatest invention on Facebook, it also constitutes a “poor” way of communication, limiting conversation between people to a simple and generalized term, which barely describe the real thought of its writters. It is far more easier to click that write a whole comment. The level of communication is lowered. Far from getting into a philosophical consideration, let’s just say that Facebook’s conversations risk to become more and more trivial, leading to boredom. Concerning Twitter, it is only limited to the @. It remains simple, and forces the writer to a greater reflexion when sharing its thought. It can only benefit the reader. Moreover, the retweet allows to share the thought of others. Ideas are thus spread quickly and efficiently, easily becoming viral if about a “trending” topic.

Farmville is probably the new-generation spam. If any of your friends play to it on Facebook, you know what I am talking about. And more and more people are players, the worst it becomes. This not uncommon to see in your news feed dozens of unsolicited pages from your friends asking you to help them to grow their salads (?). If some limitation is no brought to such phenomenon (Can you really end a Facebook Friendship for such reason? I would say yes, but this is another topic), the risk is to see harassed users of Facebook leaving the platform for good. But that is not the worst. A new trend is appearing on Facebook, consisting in “forcing” you to “like” pages if you want to watch what seems to be a cool video. And you can “like” it without your knowing. Scary. And I am not even talking about new scams. The phenomenon is only starting. Facebook is slowly becoming a mess getting out of the control of their creators, and might harm its  popularity. Twitter, despite some viruses too, remains for the moment away from such difficulties.

Integration? Yes, it is quite handy to tweet on Facebook, and vice-versa. But who will it benefit? Undoubtedly Twitter. With such possibility, Twitter is slowly bringing Facebook audience on its own plateform. How? Well, As Twitter users don’t have many of their friends on the plateform, this is a good way to let them know that you have Twitter. It acts as a social PR. And it is unlikely that it brings users to Facebook, since all of them already have a Facebook account.

Facebook is way ahead in this race in matter of users, but Twitter is surely closing the gap. It is easier to use and does not encounter the limitations that face Facebook. This latest will be hard to beat, but Twitter is on the right path…

Why is it your last laptop?

May 19, 2011

This is not a big secret: Ipad is a hit, IT companies are rushing producing and marketing tablets, and PC sales are at best stabilizing, or at worst simply dropping. Consumers are simply changing their habits and the way they consume internet and other “apps”. You might have in your hands the last laptop you ever bought…

The new experience provided by the tablets is probably the primary reason of such a great adoption. No need to be stuck at a desk anymore. People use their tablets anywhere, and at any time. This is an interesting change of consumption habit, which seems to be more than just a phase. The touchscreen is literally a breakthrough in the way we interact with technology. The painful point-and-click previous experience is now looked as part of the past, somewhere between the diskette and the CD. The contact experience is definitely part of our habits now, making for example drawing on a computer far less stupid than before.  The speed of use is also decisive. Based on an ARM architecture, the tablet can be turned on in a second, which is of a practical use for meeting, presentation, or any use on the go. Some businesses found very quickly the benefit of such device.

The 2008 financial crisis had an unexpected effect on the technology industry: people are seeking cheaper products. They still want to benefit from the same features, but at a reasonably lower cost. Tablets can be found as low at $155, and though still provide the essential feature of any laptop: internet. The question remains to know if they are ready to pay a tablet for the same price of a laptop.

Is there any hope for the laptop? Well sure there is. Tablets can not technically compete yet with classic computers, and real gamers (World of Warcraft, Counter Strike, NOT Angry Birds) will still rely on their laptops for a long time. Programmers and engineers also won’t see any benefit from using a tablet. Just not powerful and practical enough. Just a question of time though.

But surely soon enough, and before the emergence of another technology, most of the market will strongly rely (if not only) on tablets.  We entered in a new era of technology consumption. Although the primary use of a computer was for writing software, internet is now pervasive, and is by far the most used application. It seems that we can absolutely do everything we desire with internet, and we tend to rely more and more on it. It is thus normal that our need to get access to it increase as well. We can not take the time to use internet anymore: we need it now. And tablets are simply better device to answer such need.