Amazon: Ponzi Scheme or Wal-Mart of the Web? (2000)

"...when you consider that better than 60 percent of Amazon's sales come from repeat customers--which implies that they're loyal..."<p>That seems to be the key figure missing from the Groupon discussion. If they are buying loyal users and customers, their mad-dash growth strategy would seem rational. If their retention is poor, it would seem more like a Ponzi scheme.

The thing with Groupon is that it can't afford to keep it's implicit promise to merchants. It's a conflict over customer loyalty. If the customers become loyal to a couple of local restaurants, Groupon loses them and must 'purchase' new ones. If they remain loyal to Groupon's offers, then they will not be worth the merchants' expense to put out the offer. Based on this, Groupon must either keep spending to acquire new customers, or new merchants. Either way, the large marketing costs are here to stay (until they saturate the one market or the other and burn out). I don't think Amazon had any such fundamental conflicts to deal with.

Timely, since Groupon competitor LivingSocial is heavily backed by Amazon. Amazon invested in their infrastructure, whereas Groupon lined their pockets. Theres is no real comparison between the two, other than the article's title.<p>A few weeks ago LivingSocial publicly predicted that they'd surpass Groupon by January 2012. They're currently in ~40% of the markets that Groupon reaches and have ~40% of the revenue, so that's an aggressive goal. But (non-Ponzi) Amazon's backing lends it a lot of gravitas.

The big difference is Amazon has always sold tangible goods to actual consumers.<p>Even though they operated at a loss while taking investment, they weren't using the investment to pay out older investors. They had a solid plan for generating profit, which Groupon doesn't seem to have.

In Amazon's case, it was amazon which was taking up the losses and not the producers of goods.<p>In group on's case it is group on as well as merchants are taking up losses and both believe repeat customers will eventually get them significant ROI. Now you may question whether offering of group on is good enough to make that happen or not. But growth like this needs investment.<p>Another question is - Can group on defend itself against competitor, given that entry barrier is not big. I mean does group on sign any exclusive agreement with merchants? I dont think so. So there only entry barrier seems to be the large sales force which may not be enough to sustain this kind of growth.<p>And last think - Group on's acquisitions in emerging markets like India. How much growth can group on expect from it? eg group on has acquired a very small player, sosasta and now trying to turn that around and into the biggest deal site. If groupon can pull this off, they will be bigger much bigger than their current valuations.

Hilarious comparison. I love it.<p>Isn't the whole point of an IPO to allow everyone participate, therefore letting the market decide?<p>If you don't like Groupon's numbers, don't buy the stock. Simple enough.<p>I'm seeing a lot of: "Think of the poor regular investors when it pops!" sentiment. Are not these investors rational people acting on the same information we all have?

I actually though about Amazon when I saw people starting to rag on Groupon and its bottom line.<p>Another important thing to remember is that Amazon actually figured out its business model later. For a while, it was pretty much just a dot-com that was hemorrhaging cash. I remember reading articles for years predicting that Amazon would go belly up any day. It wasn't until they cut costs and really dialed in their operations that they became a "real" business, and this didn't happen until years after they went public. Although I guess that they did always focus on making customers happy - they just eventually figured out how to do that without going bust.

Lesson: as early as 2000, people were throwing around the phrase "Ponzi Scheme" to mean "a business whose long-term prospects I'm slightly suspicious of".

Back in 2000 online purchasing and e-commerce were still in their infancy. It was difficult to predict back then whether traditional models of commerce applied to these businesses, and to what degree consumers would adopt online buying.<p>We know much more now about online business, growth (long and short-term), scaling, value of users (and their cost of acquisition), logistics, all sorts of relevant business benchmarks/analytics, etc. Enough at least that many are concerned about Groupon in a more justifiable context than Amazon circa 2000.

Does Groupon have a durable competitive advantage? Does it have a moat?<p>I'm not sure.

Back in 2000, Amazon did not face the same type of competition Groupon faces today. There was no Facebook or Living Social, Google did not have 30 billion in the bank. Groupon is now competing against Facebook, Google and Amazon(Living Social). If you're merchant, you have more options to choose from and less reasons to go with Groupon.<p>1.)Merchants can be certain that Amazon and Google will have the money to pay them. Groupon on the other hand does not have any profits and is burning through all their revenue to grow.<p>2.)Google, Facebook and Amazon has a larger user base.<p>3.)Merchants can get a better deal from Groupon's competitors as they try to lure/woo them from Groupon.<p>Groupon is on very shaky ground the other players are not. The fact is, in 2000 Amazon did not have a number of very profitable businesses copying them. Amazon could grow, figuratively build a moat without being attacked, Groupon has no such luxury.

Why are we comparing everything to a ponzi-scheme lately?<p>"The essence of that critique is that Amazon is just buying customers, and that once it runs out of the money to do so the Ponzi scheme will collapse."<p>That makes no sense if you ask me.

The biggest issue with Groupon is the fact that while it may offer a great deal for consumers, and may make tremendous revenue on each deal, it doesn't appear to be a great deal for the merchants involved. Oftentimes it seems like a losing proposition in order to have customers come thru the door - people who may never return until there's another Groupon.<p>That may work while the economy is bad, but don't expect merchants to give in so easily once the economy improves. Groupon will have to either take less of a cut from the deal or offer a worse "deal" to the consumer.

Yes Amazon turned out to be real, but Pets.com, Kozmo.com, Webvan, Flooz, eToys, Boo.com and the theGlobe.com weren't real. My guess is that there will be some winners from the graduating class of Web 2.0 — but there will be bodies. By the way if you ant to see a great film on that era check out Startup.com: <a href="http://www.imdb.com/title/tt0256408/" rel="nofollow">http://www.imdb.com/title/tt0256408/</a>

Maybe I'm just out of the loop these days or I need to get into Manhattan more, but I can recall seeing actual Amazon ads in places like bus shelters and subway platforms and also hearing radio ads back in 2000. All I've heard of Groupon is from the Internet. Have I missed any big ad campaigns they've done or has their growth all been Net-based word-of-mouth?

Amazon had to deal with customer acquisition and customer retention, while Groupon has the added challenges of merchant retention and margins being squeezed by competitors in a sector with relatively low barriers to entry. To me, it's a steeper uphill climb for Groupon.

To be fair, Amazon's stock tanked over 90% in the next 18 months: <a href="http://www.wolframalpha.com/input/?i=amazon+market+cap+from+2000+to+2002" rel="nofollow">http://www.wolframalpha.com/input/?i=amazon+market+cap+from+...</a><p>Amazon is a great company now but anyone who invested when that article was written wasn't made whole until 2007.

For every one amazon.com, there is a list of webvan.com, pets.com...etc.

Comparing groupon to amazon is like comparing a candy shop to an entire shopping center.

OMFG HN fail at understanding what a Ponzi scheme is. Enough.

&#60;quote&#62; The essence of that critique is that Amazon is just buying customers, and that once it runs out of the money to do so the Ponzi scheme will collapse. Of course, Amazon is buying customers, just as all companies do. Some companies do it by dumping money into advertising, some by offering discounts. Amazon does both. The only important question is whether Amazon is spending too much on those customers, and the answer seems pretty clearly to be no. In its latest quarter, Amazon added 3.8 million new customers, and spent an average of $19 to acquire them. When you consider that better than 60 percent of Amazon's sales come from repeat customers--which implies that they're loyal--and that the average customer spent $116 in 1999 (10 percent more than in 1998), $19 seems like something of a bargain.

The difference is... Groupon can never scale well and have great profitability-- they need 8000 employees to do what? They have a list of merchants and a database of emails and what else? As pointed out on another HN thread, Amazon built a moat what has Groupon done?