April 29, 2012

Weekly Reader: Groupon, Sonos, why air travel sucks

Filed under: groupon, sonos, weekly reader — Rakesh Agrawal @ 7:18 am

I didn’t write any posts this week!

I spent the first part of the week in Chicago chatting with current and former Groupon employees and with the folks at edo Interactive, Braintree and GrubHub. GrubHub has a very interesting product that will be announced on Tuesday; I think it’s an important step in the market. I spent the second part of the week in New Orleans for Jazz Fest.

I will have plenty to say about Groupon based on my Chicago conversations in the next few weeks.

Although I didn’t write, I was quoted elsewhere.

Me quoted elsewhere

3 On Your Side: Daily Deal Fatigue — I talk to CBS Philadelphia about the consumer side of Groupon and how consumers can protect themselves. Actually, I didn’t talk to anyone in Philly; they just recycled video from an interview I did with CBS San Francisco. (I don’t think SF has aired it yet.)

Sonos at 10: Speakers command attention — I talk to USA Today about Sonos, a company I really like.

Surviving The Road Wars Of Economy Travel — I talk to Forbes about why air travel sucks. It’s mostly because vast majority of consumers aren’t willing to pay for it. If people were consistently willing to pay more, we’d have higher quality.

Other interesting nuggets

May 20th has been set as the date for my monthly wine and cheese event. DM me for details.

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April 22, 2012

Weekly Reader: Facebook virality, Twitter patents and Groupon’s Lefkofsky

Filed under: daily deals, facebook, groupon, twitter — Rakesh Agrawal @ 8:46 am

This contains a summary of my work this week. I had two very important non-Groupon stories this week, on Facebook and Twitter.

My work

Secrets of Facebook’s success: Virality — Facebook’s photo tagging feature was an important driver of its growth. Traditional marketing approaches aren’t as effective as products that are designed to take advantage of the social nature of people. Google+ misses the basics. While Google spends millions running beautiful Oscar ads, they ignore very basics of product design necessary for social interaction.

Can Twitter and Yammer fix our broken patent system? — Twitter announced a new agreement with its employees that Twitter will only use patents for defensive purposes and will not become a patent troll. Employees who invent for Twitter will have a say in how Twitter can use the patents. As an inventor, this has a lot of appeal. Could this be a sign of more sanity in patent battles?

Chicago Tribune talks to Groupon chairman Lefkofsky; asks the wrong questions — A Chicago Tribune business columnist sat down for an extended interview with Groupon chairman Eric Lefkofsky and failed to ask the hard questions, such as: Why did you take so much money off the table pre-IPO? How is it that you made so much money on previous companies and investors were left holding the bag.

“It just works” rules — I’m launch a new feature on VentureBeat where I’ll be taking a look at brilliantly designed products. My goal is not to traditional product reviews, but to help product people learn from great design. Do you have a product that fits my criteria? Shoot me an email.

Staying connected with friends for frequent travelers — For someone who travels as much as I do, staying in touch with friends can be a challenge. Here’s a strategy I came up with.

Other interesting nuggets

The Perils of the Daily Deal Customer — A first person account from a merchant on her daily deal experience. The merchant’s experience is exactly the result I expect from the economic model of the daily deal. At their core, daily deals create unserviceable demand from untargeted customers at massive discounts.

I just finished the final hellish weeks of a Groupon deal I ran a year ago. I’ll probably never do one again. If enough merchants grow to feel the way I do — and many already do — Groupon and its countless imitators will wither and die because they will not be able to get enough businesses to participate in the deals you so enjoy.

Why aren’t we going back for more? Because daily deal customers are worse than normal customers in every way imaginable.

April 19, 2012

Staying connected with friends for frequent travelers

Filed under: Uncategorized — Rakesh Agrawal @ 4:08 pm

Since the mid-90s, I’ve been a frequent traveler. I’ve flown more than a million miles and stayed the equivalent of several years in hotel rooms. All of this can take a big toll on friendships and relationships.

I recently came up with a new approach to help me stay connected to friends and family: I committed to hosting a monthly wine and cheese gathering.

This does a number of things for me:

  • I get a fun evening with friends.
  • It makes it easy to meet up with a lot of people at once.
  • It forces me to clean my place at least once a month.
  • It forces me to unpack my suitcase at least once a month. Too often, I’ve lived out of a suitcase, even when I was actually “home.”

Having this outlet is also good for business as it helps ward off loneliness when on the road.

At once a month, it’s not a significant time commitment and the benefit is well worth it.

I also try to time it so friends and business associates who are visiting from out of town can see my friends and connect with Silicon Valley.

Because it’s in my home, I don’t post the details. But if you’re a regular reader and are visiting SF, shoot me a note and I’ll see if I can extend an invite.

April 18, 2012

“It just works” rules

Filed under: Uncategorized — Rakesh Agrawal @ 8:04 pm

Me with my Commodore 64

Back in the day, I used to like to tinker with software and set configurations and such. The picture above is me working on my Commodore 64 a long, long time go. Back then, I rocked BASIC. I even wrote a stock portfolio app that I submitted for publication in RUN magazine. (What a kid was doing writing a stock portfolio app… well, I was a dork.)

Now, I just want stuff to work. Out of the box. I don’t want to tinker. I have a life that I want to live and that doesn’t involve searching support forums or calling tech support.

To further that goal, I’m launching a bi-weekly column featuring products and services that just work. The column will run bi-weekly on VentureBeat. (Assuming I can find enough products to feature.)

Here are some high-level guidelines on what I’m looking for:

  • Must be consumer-focused.
  • Hardware, software and Web apps are fine. Bonus points for seamlessly blending all of them.
  • Must be shipping or soon-to-be shipping.
  • Bonus points for elegantly handling network connectivity.
  • Ideally, it makes the complicated simple.
  • An ordinary user can go from unboxing to primary use cases within 10 minutes. (I know I’m not an ordinary user, but I can play one when I’m testing products.)
  • Bonus points for elegant visual design.
  • If it’s a location-based product, I need to be able to use it near my home in San Francisco.

Here are examples of things that are likely to disqualify a product:

  • Requiring users to enter things like hexadecimal codes or entering IP addresses like
  • Burying essential instructions for operation in a thick user manual.
  • Requiring users to install software from a CD and providing no alternatives for downloads.

This isn’t designed to be the traditional product review. It will look closely at great products and what makes them great. It doesn’t mean I won’t criticize the product, but the point is to encourage great products and help designers learn from great designers.

Based on my experience, my sense is that products from companies like Apple, Square and fitbit generally qualify. Products from companies like Cisco (except the dearly departed Flip), Microsoft and Comcast wouldn’t.

Got a product like that? Shoot me a note: Please don’t ship stuff to me without an OK — my apartment is tiny.

Bet with Paul Kedrosky

Filed under: Uncategorized — Rakesh Agrawal @ 7:47 pm

I have this bet with Paul Kedrosky:

  • If Groupon’s market cap falls below $6 billion on any day on or before June 3, I win.
  • If Groupon’s market cap stays above $6 billion until after June 3, Paul wins.

Market cap is measured as the market cap at the end of trading on any day, as reported by Google Finance. Intraday dips don’t count.

$6 billion is the price that Google reportedly offered for Groupon.

Stakes: loser buys dinner at restaurant of winner’s choice when we’re in the same city.

Update: A day late and $200 million short! Groupon closed above $6 billion on June 1, but below $6 billion on June 4. The markets weren’t open on June 3. (I didn’t check the calendar before proposing the bet.) On the plus side, I’m now in the win column on my bets with Semil Shah and Felix Salmon.

April 11, 2012

Another open letter to Andrew Mason

Filed under: daily deals, groupon — Rakesh Agrawal @ 4:35 pm

Dear Andrew:

As you may have heard, I am coming back to Chicago in the next couple of weeks for another round of Groupon research. Although you didn’t take me up on my invitation the last time I visited Chicago, I’d like to encourage you to re-consider this time.

Since I started writing about Groupon last June, I’ve been right about most things. Here are some of my predictions that have come true:

  • Groupon would have to abandon ACSOI.
  • Groupon would have to use net accounting instead of gross accounting.
  • Groupon Getaways wouldn’t be meaningful.
  • Groupon Now wouldn’t be meaningful.
  • Consumers would fatigue of daily deals.
  • The deal quality would go down as better merchants figured out that running Groupons is a  bad idea.
  • The Groupon Promise would turn out to be too expensive. During my last visit, I very explicitly told your PR team that they were underestimating the refund rate. This, as we know, was the cause of your restatement that has sent the stock into freefall.

I’m happy to chat with you about the current state of Groupon and the steps that management is taking to fix these problems.

There are a few other reasons you should consider meeting with me:

  • I will be meeting with current and former Groupon employees during my trip. I can only spend so much time in Chicago, so any time I spend with you is time that I’m not talking to employees.
  • I talk to most reporters who cover Groupon. Because I have spent more time than nearly anyone studying the space, I give background information to many others who are looking to learn and write about it.
  • I talk to money managers about Groupon and the local space. Before the IPO, I talked to many money managers about the offering. Most everyone I talked to listened to what I had to say and didn’t buy at the offering. (And they’re now very thankful — considering that the stock is down 35% in less than 6 months.) If there’s a better story to tell for the future, I’m sure they’d love to know.

And, who knows, after meeting, we may decide that my April Fool’s joke isn’t such a bad idea.

April 10, 2012

In Chicago April 21-25

Filed under: Uncategorized — Rakesh Agrawal @ 7:24 am

I’m due for a trip to the Windy City for some Giordano’s, my pilgrimage to Wrigley, and of course to visit my friends at 600 W. Chicago and the Motel Bar.

While I’m in Chicago I would love to speak with current and former Groupon employees. Anonymity assured, if you’d like it. Email me at

Yes, I’m always interested in positive stories, too.

I also want to talk with interesting startups in Chicago. Interesting is subjective, of course. But take a look at my recent coverage. If you do something in space that I might want to cover, shoot me an email.

April 9, 2012

Proposed stakes for a new bet with Felix Salmon

Filed under: Uncategorized — Rakesh Agrawal @ 9:14 am

Bet is based on Groupon’s market cap as a percentage of Priceline’s market cap at the close of trading on April 9, 2013. Wolfram Alpha numbers will be used.

If the ratio is below 15%: Felix will buy Rocky dinner at a place of Rocky’s choosing in New York.

If the ratio is above 15%: Rocky will buy Felix dinner at a place of Felix’s choosing in San Francisco.

If Groupon goes bankrupt or is delisted before April 9, 2013, Rocky can claim his dinner in New York at any time after the bankruptcy or delisting.

April 7, 2012

Look at the logo Google News puts next to Groupon

Filed under: daily deals, groupon — Rakesh Agrawal @ 9:49 am

From this morning, a search on Groupon returned these results:

Google News algorithms put the Enron logo next to a story about Groupon

Google News algorithms put the Enron logo next to a story about Groupon

I think I’ve made the Groupon and Enron comparison myself. In both cases, you had high-flying companies that focused on short-term growth while ignoring the underlying risks of what they were creating.

One of the challenges of negative press like this is that Groupon is dependent on cash flow from selling new deals to pay off merchants from old deals.

The right way to think about Groupon is as a currency. Such constant bad press could create a confidence crisis in the Groupon currency. Small businesses who do the most basic due diligence (Google “Groupon”) will see the negative news and refuse to run new deals. It will exacerbate Groupon’s adverse selection problem, meaning only shakier and shakier businesses will run Groupons, increasing Groupon’s refund liabilities. (If you were on the bubble about running a Groupon, the bad press will sway you toward not running one.)

Consumers will also stop buying deals. It could also lead payment processors like Chase Paymentech and American Express to terminate their merchant relationships, which would also lead to cash-flow issues for Groupon.

If the Groupon currency market were as efficient as bond markets, this news would cause Groupon to collapse overnight like Lehman Brothers. Fortunately for Groupon, the market is not that efficient.

Groupon customers outside of the United States and Canada will also be hurt because Groupon generally holds on to their money until a Groupon is redeemed.

When Groupon collapses, it will cause some serious pain for Chase Paymentech and possibly American Express. I estimate that Chase has at least $500 million in chargeback liabilities if Groupon goes under. But because Groupon doesn’t accurately track which Groupons were redeemed, this liability could be much higher. Any consumer who had purchased a Groupon could claim they didn’t get what they paid for. I called on credit card companies to take a look at their exposure from Groupon months ago in a Bloomberg West appearance.

The biggest losers in a Groupon collapse would be the small businesses who run Groupons. As of the end of the 4th quarter, Groupon owed small businesses $520 million. This number is likely at least $100 million higher. These are people who can hardly afford to take a hit of several thousand dollars.

The other potential loser is Ernst & Young, the auditor that signed off on revision after revision of Groupon’s bogus financial statements. (Though I don’t expect Groupon to take down Ernst & Young like Enron took down Arthur Andersen.) I’m not ordinarily one to call for Congressional hearings, but E&Y deserves to be raked over the coals for sanctioning Groupon’s financials.

Oh, and a note to the Los Angeles Times: I fully expected this.

See my worst-case scenario of what happens if Groupon collapses. Also see my collection of Groupon stories following the restatement.

Disclosure: I have investments and several ongoing bets related to Groupon.

Why I like the American Express approach to offers

Filed under: Uncategorized — Rakesh Agrawal @ 9:24 am

I am in Las Vegas and went out to dinner last night a the Public House, a fantastic restaurant at the Venetian.

We were having a great meal when several of us decided to check in on foursquare. (Hey, we’re from San Francisco, we do dorky things!) We noticed a check-in special for a free house beer with purchase of an entree. All of us had entrees, so two of us decided to get beer.

I asked the waiter for the house beers. He pointed to the beer list and we ordered.

When the check came, we showed our phones with the offer. He then told us that the offer was only good on a specific beer, not the beers we ordered. (There was no mention of this on the offer.)

This added some friction to an otherwise pleasant meal. He also went to check with the manager who refused to do anything. (It would have been $15-20 on a $210 tab.) He also told us that we should have showed our phones when order the beers so that he could direct us to the discount. At a fancy restaurant where I’m out with friends, I don’t want to have to show a phone for a discount, especially during the meal.

While I understand the need to have restrictions, there is the tradeoff with the consumer experience. One of the things I love about the American Express approach to offers is that I don’t have to worry about whether I get the deal I was promised. It’s automatic as soon as I swipe the card. There’s no presenting anything, there’s no arguing. From a business owner’s perspective, this adds a number of benefits: no staff training, no POS integration and a better guest experience.

And I get a confirmation within seconds of completing my transaction.

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