Category Archives: Economics

A little follow-up to this post.

Not saying Groupon’s going to go bust any time soon, but when you have a billion dollar round of funding and “much of this new round of financing, if not all of it, will… be used to cash out existing investors,” someone’s getting screwed. I’ve long held the belief that “investing” cash in something that only goes to cashing out other shareholders is, in fact, not investing at all (one implication of this belief is that retail buying/selling of stock isn’t really “investing” since on average the other side of the trade will HAVE 100x MORE INFORMATION THAN YOU). When your investment only leads to cashing out another investor what you’re really doing is simply trading. Your transaction does nothing to add to the company’s investment capital and cannot be used to garner further company returns.

To me, investing means Continue reading →

Was reading through this article on Groupon where the author mentioned that the company “takes 50% of the actual revenue driven by its platform.” Maybe 2 SBUX venti iced coffees isn’t enough and I’m a little slow right now, but something didn’t quite add up.

The several times I used Groupon I got advertised discounts of around 40-50% off retail price. Generally, I don’t get things that I have no idea what the “retail” price is. I have only gotten things that was like 50% off total receipt at XYZ retailer. This way, I know for a fact I am getting 50% off most anything in the entire store, even sale items.

What was confusing to me was the following. If Groupon users are getting up to 50% off retail prices, and Groupon is taking 50% of revenue (it’s unclear to me what Groupon is taking 50% of), then merchants either: (a) are taking a loss on every Groupon sale (maybe just to temporarily boost foot traffic?), (b) have MUCH higher profit margins than I imagine, or (c) are jacking up “retail” prices so that the after-discount/after-Groupon net revenue still translates into a profit for them.

Searched around the net for “Groupon business model” and found Continue reading →