Comments from an Australian daily deals site that pivoted

Posted on August 11, 2011 by Rakesh Agrawal

Here is an email exchange I had with an Australian deals site that pivoted away from the daily deals model. Note that, as I’ve said in the past, an upfront payment model encourages fraud from merchants who take the money and run.

Dear Rakesh,

Having read your commentary on Groupon, I must say that we agree. This space is a house-of-cards. We ran a business in the “traditional” daily deal model for approximately 6 months before coming to the conclusion that the space was unsustainable.

We have sinced re-spawned as www.twodollardeals.com.au ….. whilst we obviously forsake significant revenue in the short term, we believe our model IS sustainable and will ensure that we are a permanent feature of our merchant’s marketing strategies (rather than a one-off, never again experience). The merchant pays ZERO commission – they just have to put a good deal together.

It also benefits our members significantly – they get fantastic deals, only pay when they receive the service/product (not weeks or months in advance of redemption), get treated as cash-paying customers …AND, have the ability to refuse to pay if the service or product is not as promised.

Keep up the good, insightful work !

We previously traded as www.dealmonkey.com.au (we are currently converting this site into a deal and coupon aggregator).

ps. further to your commentary, we had four merchants do the “cash and run” job on us.

Posted in daily deals, groupon | 1 Comment

The SEC should have Groupon start over on its S-1

Posted on August 11, 2011 by Rakesh Agrawal

I’ve spent much of the last two days dissecting the second amendment to the Groupon S-1. I was hoping to post my complete thoughts tonight, but I’ve seen so much shoddy reporting on this S-1 that I want to make sure that I’ve polished the most important pieces. What I’ve read in the S-1 makes me so angry that I’ve expanded the scope of my analysis to essentially re-calculate all of the key numbers from Groupon’s highly misleading document.

Although Groupon has largely eliminated the controversial adjusted CSOI metric — for which it was rightfully beaten up by just about everybody — there is still a lot of stink on this S-1. Groupon and its underwriters have done a masterful job of torturing the English language to make things seem very different from what they are. At every turn, Groupon tries to get investors to focus on misleading and inflated metrics while ignoring the ones that are economically important.

There are the major issues, such as gift card liability, gross vs. net accounting and inflated customer numbers that I talked about before this amendment was released. (See my blog post about Groupon’s accounting practices and my conversation with Emily Chang on Bloomberg TV.) Based on my revised estimates, Groupon has between $500 million and $750 million in liabilities it is not showing on its books.

But there are many others.

In the revised S-1, there are some new metrics. Although they should elucidate, they again only serve to mislead. One new metric, the average Groupons purchased per consumer, would lead the average investor to believe the business is going well. It has been reported in the press that the average consumer purchased four Groupons. While that is technically true, it is highly misleading.

The number that Groupon provides is the arithmetic mean; the most relevant number is the median number of Groupons purchased. That number is 1 — more than half of Groupon customers have only purchased 1 Groupon.

Here is a quick explanation of mean vs. median. Assume that there are 100 people in a room. Each is worth $100,000. The mean and median in this case is $100,000. Now, Bill Gates walks in. Add in his $56 billion net worth and the new mean is $555 million, but the median is still $100,000. (See Khan Academy’s video on averages for a more in-depth explanation.) Groupon is similarly distorting its financial reporting. I’ll dive more into this later.

If Groupon truly believes that the arithmetic mean is the appropriate measure, its management is grossly incompetent. If they are putting out a number to deliberately mislead, then the SEC should freeze this offering.

Groupon’s median sales to Groupon list subscribers is… Zero. This company literally can’t get 80% of its mailing list to buy money at half off.

Groupon also shifted its financial reporting to emphasize year-over-year comparisons vs. quarter-over-quarter comparisons. Given that the company is still at an early stage, the only numbers that matter are the quarter-over-quarter comparisons. Groupon blended its first and second quarter results in the front section of the document. This has the effect of hiding the substantial declines in its business in the second quarter.

Likewise, Groupon is hiding the numbers for its poor performance of its Asian operations in its more lucrative European operations. The characteristics of the markets are so different that they should be reported separately.

Even the basic terminology Groupon uses has the effect of misleading potential investors. The term “gross profit” has no resemblance whatsoever to a profit. It is what should be considered “revenue”. What Groupon calls “gross margin” is really its weighted average (mean) revenue share percentage. (This is an important metric and I expect it to collapse within the next year.)

It isn’t unusual for IPOs to have shareholder lawsuits. Groupon co-founder Eric Lefkosky has had more than his share with previous companies, according to Fortune. Investors and employees have been left holding the bag while Lefkosky has profited immensely. Lefkosky and his family have already pocketed $382 million from Groupon, according to Fortune. The depth of deception in this S-1, if gone unchanged, will give plaintiff’s lawyers a lot of ammunition. (As will the many news stories generated every time Groupon fudges metrics.)

I know I’ve disappointed many interviewers when I’ve refused to describe Groupon as a Ponzi scheme or a pyramid scheme. I researched those terms today. Those terms are not technically accurate. But we may soon start using the phrase Groupon scheme.

For some of the best analysis on Groupon’s second amendment to the S-1, see:

Posted in groupon | 6 Comments

Groupon’s new S-1 shows even more cause for worry

Posted on August 10, 2011 by Rakesh Agrawal

A few initial thoughts on the Groupon S-1. I will have an updated post later tonight.

  • The key takeaway from Groupon’s amended S-1 is that the company’s best days in terms of revenue growth are behind it. Groupon has been selling investors an aggressive growth story. That story is collapsing. Sequential revenue growth went from 76% to 26%.
  • Based on the Q2 numbers, I would estimate that Groupon is holding between $500 million and $750 million in gift card liabilities that it is not showing on its books. Again, no one, not even Groupon knows the exact number.
  • The key numbers for investors to focus on are gross margin %, customer acquisition cost (not disclosed by Groupon but it can be calculated) and sequential revenue growth. The gross margin dropped 3.1 percentage points from Q1. Although that number has been volatile, I expect that number to collapse from its current 38.8% to the 10-15% range as merchants get wiser about the economics and competition strengthens. The comparable number in the American Express/Facebook relationship would be 3-4%. The company’s customer acquisition costs are substantially higher than those of Netflix.
  • With emerging industries, there are always questions about how to account for things. But Groupon continues to take every opportunity it has to make its numbers appear better to investors than they really are. Zynga is an interesting comparison. If you buy a virtual tractor from Zynga (something that costs almost nothing for them to produce), they recognize revenue from that over the expected life of the game. Groupon takes things that have significant real costs and recognizes revenue immediately. Not only do they recognize the revenue immediately, they also recognize money they never see.
  • It is easy to manipulate the top line revenue numbers that Groupon is reporting. Investors should ignore it all together. Consider what Groupon wrongly calls “gross profit” as “topline revenue”.
  • Groupon continues not to report critical numbers like email open rates, unsubscription rates (churn) and customer acquisition costs.
  • To reiterate, I’m not saying Groupon is doing anything illegal with respect to accounting. (There are things they are doing that are illegal.) They rightfully got beat up for Adjusted CSOI. But in some ways, that was like a magician’s trick…. it was a distraction to deflect your attention from the other problems in its numbers.
  • In my conversations with investors I’ve seen a lot of short interest in Groupon. (I even had one short ask me to stop writing about the company.) I expect that today’s amended S-1 will only increase that short interest.
  • It is important for investors to understand that Groupon is a sales and marketing company, not a technology company. Groupon employs more people writing pithy editorial descriptions than writing code. As of June 30, fewer than 400 wrote software.
  • It will scale as a sales and marketing company does — poorly — and should be valued as such. It’s employee growth is scary. Groupon has gone from “over 7,000 employees” on June 1 to “over 9,600 employees” on August 9.
Posted in groupon | 3 Comments

Groupon’s other funny numbers

Posted on August 8, 2011 by Rakesh Agrawal

It seems Groupon might be dumping Adjusted CSOI, its much ridiculed accounting metric that I frequently describe as “the best possible way to view our business if you ignore all the things that make our business look terrible.”

Although CSOI was an utterly ludicrous metric, there are other accounting practices that potential Groupon investors should be wary of.

I’ll preface this by saying that I’m not saying Groupon is violating accounting rules or doing something illegal. Because it’s a new business, these determinations haven’t been made. Ernst & Young, Groupon’s accountants, were comfortable signing their name to the S-1. Instead, I’m focusing on the economics that matter to investors.

Gift card liability

As of January 29, 2011, Target had $422 million in gift card liability. These were gift cards that were purchased by Target customers and hadn’t been redeemed yet. I know that because I found that in their 10-K statement.

How much liability does Groupon have? We don’t know. No one does — not even Groupon. The way their business and operations are structured, it’s currently impossible for anyone to know exactly how much Groupon value is outstanding. By my estimates, Groupon has between $300 million and $500 million in liabilities that don’t show up on its books. (This is based on their sales volume and assumes a U-shaped redemption curve.)

Here’s how revenue recognition for gift cards typically works: if you buy a $500 Target gift card, that $500 is recorded as “deferred revenue” by Target, not as revenue. “Deferred revenue” is a liability of the company because they owe you $500. Only when you use that $500 to buy an iPad does Target record the revenue as earned.

That’s not how Groupon does it. As soon as you buy a Groupon, they record the entire amount as revenue. They don’t even track how much Groupon value is outstanding.

Groupon does this because they claim that they’re just a marketing agent and that they aren’t responsible for the Groupons that are issued. It’s technically a liability of the merchant issuing the Groupon.

But that’s not how they’ve been acting — if a merchant goes out of business, Groupon has typically issued refunds. If a merchant simply decides they don’t want to honor Groupons (this happens), Groupon issues refunds. After a merchant has received their final payment from Groupon (usually 60 days), it has no financial incentive whatsoever to honor them. This risk is significant because of the general instability of small businesses.

In these cases, Groupon loses twice. They lose not only the amount they received from the transaction but also the money paid out to the merchant.

From an accounting standards perspective, we could argue over whether Groupon should be tracking this liability. But for investors, what matters is that Groupon and its customers are treating it as Groupon’s liability.

This exposure is only increased by the fact that many states don’t allow gift cards to expire and Groupon could be on the hook indefinitely.

Gross vs. net accounting

Groupon is booking the entire amount it receives in a transaction as revenue. If you spend $25.00 on a Groupon and the merchant gets $12.50, Groupon is saying they received $25.00 in revenue and paid $12.50 out as “cost of revenue.”

FASB 99-19 looks at gross vs. net and offers some guidance and examples on how revenue should be booked. My read is that Groupon should be recording just the portion of revenue that it receives. ($12.50 in the example.)

That’s how other companies who engage in similar transactions do it. When Amazon and eBay sell merchandise on behalf of others, they only book the fees that they receive as revenue. What Groupon calls its “gross profit” is what these companies would call their revenue.

To take an extreme example, if Square were to book revenue using the same methods that Groupon uses, it’s on a run rate to book more than $1 billion in annual revenue. It’s actual revenue would be closer to $28 million.

This matters because the top line revenue as Groupon reports it is extremely easy to manipulate. If they wanted to show $100 million in revenue growth, they could sell $200 American Express gift cards for $100. Sell a million of them and you’ve got $100 million in revenue. It’s a definite money loser, but it generates revenue growth.

Inflated customer numbers

As of March 31, 2011, Groupon claimed 15.8 million customers and a mailing list of 83.1 million. For most businesses, a 20% conversion rate would be phenomenal. For an opt-in mailing list where many deals are pretty close to giving away cash for half off that number is terrible.

And even that 15.8 million number is inflated. I recently set up a new test account with Groupon using a different email address. Four days later, I received an email with the subject “Incredible deal for you from AMC Theatres”. It was an incredible deal alright — $4 for a movie ticket worth up to $12. I bought two. This deal is not generally available on their Web site; it’s a new customer offer.

Groupon does this for two reasons: 1) It gets your credit card on file, which makes it even easier to make future purchases. 2) It gets to count you toward that 15.8 million customers and the $4 toward revenue. We have no idea what proportion of Groupon’s 15.8 million customers only a purchased a giveaway like this.

The movie theater deal is a no brainer. If you go to the movies, there’s little reason not to buy it. But if that’s all you ever buy from Groupon, you are just a loss to the company.

Except to the extent that they can use your numbers to sell their stock in their IPO.

Posted in groupon | 14 Comments

Answers from the Insurance Information Institute on Airbnb

Posted on August 1, 2011 by Rakesh Agrawal

This is a Q&A with Loretta Worters of the Insurance Information Institute on insurance coverage and short-term rental sites like Airbnb. See the companion piece which looks at other risks with Airbnb and includes comments from State Farm.

If a guest is paying to rent your house or apartment damages your property, is it typically covered by your homeowners/renters/condo insurance?

 No.  The guest must have their own rental insurance.

If a guest is paying to rent your house or apartment trips or falls or is otherwise injured, is it typically covered by your homeowners/renters/condo insurance? 

No.  Homeowners who rent their property can protect themselves from financial loss by purchasing a landlord policy.

If a guest is paying to rent your house or apartment gets drunk and jumps off the roof, is it typically covered by your homeowners/renters/condo insurance?

There is no coverage under your homeowners/renters or condo policy.

Does it matter how many days a year you rent out your home/apartment? 

No.

Would any of this be covered by umbrella liability insurance?  

Umbrella insurance is designed to provide liability protection beyond the limits of homeowners, auto and watercraft personal insurance policies. With an umbrella policy, depending on the insurance company, the policyholder can add an additional $1 million to $5 million in liability protection. This protection is designed to “kick-in” when the underlying liability on other current policies has been exhausted.  Most likely the insurance company would want you to have the landlord policy as your “underlying policy.”

 Is there a specific type of policy that consumers should purchase to ensure they are covered?

Yes, people who rent out their home, condo, etc., should purchase a landlord insurance policy which covers:

§  The house. Much like a homeowners policy, it usually provides coverage against hazards such as fire, lightning, falling objects, smoke, explosion, wind and hail, water damage, among others.

  • Other structures located on the property (garages, sheds, etc.). This coverage is often limited to 10 percent of the overall coverage on the house. For example, for a home with a $200,000 policy limit, no more than $20,000 would be paid to a policyholder to cover losses incurred to structures on the property but apart from the house itself.
  • Property contents. While landlord insurance policies do not insure a tenant’s belongings, they do typically cover any of the landlord’s personal property that might be used by a tenant, such as tools, landscaping equipment, appliances and furniture (either stored on site or provided by landlords for use by their tenants). The best way to be sure of having enough personal property coverage is to take an accurate inventory of the contents on the premises.
  • Lost rental income. This coverage reimburses a landlord for any lost rental income due to building damage. Typically it provides up to 12 months of lost rental income.
  • Legal fees and liability protection. Landlords may be liable if a tenant is injured on the property. Most landlord insurance policies cover the landlord’s legal fees should a tenant file a lawsuit. This type of policy would also pay out in the event of a judgment against a landlord, protecting his or her personal belongings and assets if the tenant prevails in court. The policy may also cover medical payments in the event that a tenant is injured.

Landlord policies generally cost about 25 percent more than a standard homeowners policy because landlords need more protection than a typical homeowner. There are many factors used to determine the price of a landlord policy, including:

  • The square footage of the house and any additional structures, such as a detached garage.
  • Building costs in the area.
  • The features of the home, and construction materials used to build it.
  • The crime rate in the neighborhood.
  • The likelihood of damage from natural disasters, such as hurricanes and hail storms.
  • The home’s proximity to a fire hydrant (or other source of water) and to a fire station; whether the community has a professional or volunteer fire service; and other factors that can affect the time it takes to put out a fire.
  • The condition of the home’s plumbing, heating and electrical systems.

When planning to rent out a home, it is important to take some basic precautions:

  • Require tenants to show proof of renters insurance for personal property, family liability, guest medical and additional living expenses. This not only provides them with protection, but will prevent tenants from trying to sue the landlord if there is a fire or other disaster.
  • Notify an insurance agent or company representative that the home is being rented out, and discuss the implications. Be aware that many insurance companies do not provide coverage for vehicles that are left at a landlord’s home and remain accessible to tenants.

Have P&C insurers dealt with claims related to Airbnb?  

Not that I am aware of  I looked at their site and notice their terms of use leave them not liable for any damage.  Some of the wording:

WE SHALL NOT BE LIABLE FOR DAMAGES OF ANY KIND (INCLUDING, BUT NOT LIMITED TO, ANY DIRECT, INCIDENTAL, GENERAL, SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES) EVEN IF WE HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, ARISING FROM OR RELATING TO: (A) THE USE OR INABILITY TO USE OUR SERVICES; (B) HARM OR DAMAGE TO YOUR PROPERTY AS A RESULT OF USING OUR SERVICES; (C) DISCLOSURE OF, UNAUTHORIZED ACCESS TO OR ALTERATION OF YOUR CONTENT; (D) ANY HARM TO YOU CAUSED IN WHOLE OR PART BY A THIRD PARTY, INCLUDING BUT NOT LIMITED TO ANOTHER USER OF THE SERVICES;

That’s why it is so important for people who rent out their home to make sure they demand the person have insurance before they allow them to take possession of the rental property.

Assume I have homeowner’s/renter’s/condo insurance and I stay at someone’s place. While there, my iPad, laptop and camera are stolen. Would my insurance cover that? I know there is usually some off-premises coverage. (It may not be worth filing a claim over, but would be good to know the coverages.)

Your homeowners/condo or renters insurance provides protection for the camera under off-premises coverage (which is anywhere in the world).  Something like an iPad or laptop usually has a rider that you can purchase from your insurer.  For the person who rents, it is important to have renters insurance which includes liability to protect you if someone sues you for falling, etc.  The person who falls, might try to sue you and the owner, so you need to protect yourself.

Posted in airbnb | 50 Comments

An Average User’s First Google+ Experience: “Ug. This Is Already Too Much Work.”

Posted on July 21, 2011 by Rakesh Agrawal
Kristin

Kristin

Much of the discussion of Google+ has been from the point-of-view of very experienced users and early adopters. In my analysis, I’ve really tried to focus on how a normal user would evaluate Google+, especially someone who was a heavy Facebook user. Google will need to get the attention of a lot of them in order for Google+ to be considered a success.

What follows is a transcript of an IM exchange with a friend during her first experience with Google+. Kristin is in her mid-30s and has a Ph. D. in systems engineering. She is currently working on hydrogen fuel cells. She uses Facebook but doesn’t use Twitter and hadn’t heard of digg.

This type of research is frequently done during product launches. It’s really best to do this outside of Silicon Valley as the pool of potential testers here is very polluted. Ideally, you’d do it with the researcher on site. But you can also do it on the cheap — I did this entirely over IM.

I’ve always found it to be one of the most fun parts of product development. This is just one user’s experience, but it provides important insight into a non-techie’s view of Google+.

The key takeaways:

  1. Google would have failed acquisition marketing 101. Kristin’s first experience with the product was to get an invitation from me. When she clicked through, she was told she wasn’t allowed in. She tried a couple of times. Then, when space was available, there was no follow up message asking her to try again. If I hadn’t asked her about it, she likely would’ve forgotten about it for a while. After she signed up, there was no message back to me saying, “Hey, your friend Kristin signed up! Here’s her profile page… come say hello!” I could’ve served as a welcome wagon, improving her first experience. (If my own usage had lapsed, it would have been a trigger for me to reengage.) Onboarding is an extremely important part of the end-to-end product experience. This is especially true for social products.
  2. Her initial reaction to inviting friends was confusion over who was already in the product versus those who were not. (This is differentiated in the interface, but easy to miss.)
  3. There was a feeling that the product required too much work and repeating work that she’d done before on other sites. Referring to dragging people into circles, she said “ug. this is already too much work.”
  4. Her friends (aside from me) who were already on Google+ aren’t doing much posting.
  5. She didn’t see a clear differentiation between Facebook and Google+. “Really, this seems like a carbon copy of facebook, except that you can drag people into groups.” In order to get users to convert to change existing habits, there needs to be a clear, compelling message.
  6. She wants location-based circles. This is actually a very common need and I’m surprised that no one has done this yet. This provides a lot of value to the user and can be done automatically. Think of iTunes Smart Playlists.
  7. Her mom is on Facebook. This presents a significant switching cost. Even if her mom were willing to switch, those of us who do technical support for parents know that it’s easier to have them continue doing what they’re doing.
  8. She’s willing to try new products and would be willing to dump a large proportion of her friends, if there was a very significant benefit, but Google+ currently doesn’t provide it.
  9. She is worried that this will just create another place to check and more work.
  10. She would like her social network to also be a news source for topics she cares about. She would like this information segregated from updates from her friends.

The exchange has been lightly edited to fix typos, remove personal information and adjust IM synchronicity issues. There was no set up other than me inviting Kristin to Google+ shortly after the launch. Emphasis added.

me: did you get into Google Plus yet?

Kristin: no, I’ve checked a couple of times, but it always says the same thing.

I’m wondering if it’s because I’m in Germany

me: i see people from other places on there

do you have a different email address i can try?

Kristin: i can give you my work one

oh wait!

i just tried the original one.

looks like its working!

haha, Gender: male, female, or other

me: are you going with other?

Kristin: haha, what are you implying?

me: i was at a bar the other day where they had two bathrooms, each with 1 stall. a woman came out of the men’s room and i was joking with her about her penis.

Kristin: ok, I’m in!

hmm

it’s suggesting people that I am pretty sure are not on Google+

for example, my mom

me: it’s based on your address book in gmail

there should be a section somewhere that shows you just people who are already on Google Plus

Kristin: ug. this is already too much work.

me: how so?

Kristin: dragging people

just my first impression.

this looks just like facebook.

me: would you switch over from facebook?

Kristin: no. unless there is a good reason to do so.

after reading your post last week, I don’t think there is one.

me: Do you see any of your friends already on G+?

Kristin: yeah, actually about 20 of them.

me: any of them posting anything?

Kristin: you!

me: anyone who is not a nerd?

Kristin: and my friend Rommy

Wanita

is she a nerd?

I’m not sure.

me: Less so than you.

Kristin: so for example, this is asking me to fill out my profile. Something that I have already done a million times in other apps.

I don’t feel like doing that again.

Kristin: What about me? Am I in your “nerd” circle =)

me: You wouldn’t come anywhere close to my nerd circle.

Kristin: Wait, what? I’m not nerdy enough for your nerd circle?

me: Not even close.

You’ll have to settle for close friends.

The intersection of nerds and close friends is quite small.

Kristin: haha

damn, now I feel a challenge to become nerdier.

did you know I was on the Junior Engineering Technical Society team in high school?

me: What other circles would you add?

Kristin: I added one called “Berlin”

maybe “DC Friends”

but, you know what I really want?

I want a news feed added into facebook that give me feeds of articles on topics that I am interested in. I don’t want them mixed in with status updates, but on their own tab or something.

me: that’s what twitter is for, no?

Kristin: really? I don’t know, I don’t use twitter. I thought it was a way to read people’s random thoughts on stuff every 30 seconds.

they could be ranked by importance and quality, which would be voted on by other readers of the articles

me: you mean like digg?

Kristin: I don’t know, what’s Digg?

I’m really subtracting from my nerdiness rating now!

me: see, you don’t belong in my nerd circle!

Kristin: I need a nerd tutorial!

me: so would this news feed be based on general population or just your friends?

Kristin: no, not my friends.

although, maybe. maybe I could switch between the two.

you know like on NYT, it has articles your friends shared, and articles everyone shared.

me: your friends already share news items in the regular feed, no?

Kristin: yeah, some of them do.

so that’s fine.

but for example, I am friends with the California Fuel cell partnership, and they regularly post news articles.
which is cool, I like that because I see fuel cell news. but it would be nice to separate that stuff from the friend stuff.

me: you don’t want your worlds to collide?

Kristin: I guess that’s kind of what circles does, but I’d also like to filter based on what kind of content it is. FB used to have a thing where you could view all pictures, all status updates separately. I don’t know if it i has that anymore.

i don’t mind worlds colliding, but sometimes I just want to read news without other stuff interfering. For example, when I am eating lunch and want to mouse but not keyboard bc I might get food on the keys.

another topic, but now I’m like, oh man, now I have to check Google+ AND facebook? Seems like it’s the same kind of stuff posted on there.

really, this seems like a carbon copy of facebook, except that you can drag people into groups.

me: do you see any other differences?

Kristin: seems faster

obviously the stream filters on the left

I have less friends

I’m assuming the chat is gchat integrated so it is probably better than the fb chat.

also maybe its integrated w/ gmail

which would be cool bc fb messages suck.

me: Would you use a better product if it only had half your Facebook friends?

Kristin: which half? haha

but seriously, it depends. I could probably dump half my fb friends without too much heartache.

but only the ones I don’t know that well

so, to answer your question, yes, BUT: it would have to be quite a bit better. not just marginally.

AND it would be great if all the fb data ported.

me: is your mom on facebook?

Kristin: yeah

me: when did she get on facebook?

Kristin: mm, I don’t know

maybe a year ago?

no, more than that. 2 years?

but she doesn’t use it that much

I don’t think we’re ready for a fb alternative anyway. It’s too hot right now. Give it a few years, then give us something better and people will switch. That’s just my amateur opinion.

me: do you think your mom would switch?

Kristin: to Google+? Definitely not.

me: hey, can i post this online? i can delete your last name if you want. i think it’s important that tech people know how real users react

Kristin: Sure.

Kristin: Check this out – here is what my friend Rommy wrote. I read this just now, after I wrote that stuff above.

Now what WOULD have been awesome is Google organizing the content for me. If G+ is truly a “sharing” network, then Google can uses its power as a predictive search company to do an automatic categorizing of incoming content in all my circles placed into categories like “tech news” or “gaming” or “politics” or “business news” or even “photos” or “statuses” would be compelling. And a page which shows the top news and keywords being shared across all my circles by category would be incredible.

What I really find compelling, which no network has managed well is content. Because even with Circles, the organization of content ceases to exist. I can make a Circle of Tech friends, but they’re not talking about Tech much of thetime. I can make a Circle of Close friends and they can post just about anything. Even my Politics friends won’t be talking politics all the time. All of which somewhat defeats the purpose of Circles.

I’m not saying get rid of Circles, I’m saying organize the content within Circles so that it becomes more digestible.

OK, it’s me again. That is exactly what I was trying to say.

fb slightly accomplishes that, in that I can filter out updates from specific apps like farmville. But I cannot say, show me news articles, show me pictures, show me stuff about hydrogen.

Kristin: btw, I have lists of contacts in Gmail, why doesn’t it use those as default circles? In my case, it wouldn’t really make too much sense bc of how I have it organized, but it seems like that would be a sensible place to start.

though maybe they felt burned by the Google buzz thing.

I remember there was some kind of controversy over people being automatically added.

Posted in facebook, google, social networking | 22 Comments

Google should just buy Twitter already. At any price.

Posted on July 5, 2011 by Rakesh Agrawal

I’ve been thinking more about Google+ since my TechCrunch post on the Google circles colliding.

Even if you buy the argument that categorizing your friends into buckets offers user value (which I don’t), that is not a defensible feature for Google. Facebook could replicate that functionality in weeks, if not days.

And sitting on top of years of interaction data, Facebook could do it better. Based on your interrelationships, Facebook could suggest which friends to put in to the college bucket, friends bucket, best friends, ex-girlfriends, etc. That would create the value of Circles without the upfront pain of manually categorizing your relationships.

As it’s currently structured, Google+ is a bigger threat to Twitter than to Facebook. (Even then, just based on network effects, I don’t think it’s a big threat.) Twitter is a simple but extremely clunky platform. A lot of the constraints that were essential for its early growth just don’t apply any more.

Think of Twitter as a command-line interface for communications. You have obscure commands like @, ., d, #. It’s extremely unfriendly to users. DM fails happen regularly. We had to invent an inefficient layer of URL shortening services to deal with Twitter limitations. It relies on handles, which is a geeky thing.

For content publishers, tracking activity on Twitter is a challenge to say the least. When people reply to conversations, it’s much harder than it should be to track what they were responding to.

Google+ is a GUI for communications. But so is Facebook.

Despite its clunkinesss, Twitter has built an extremely loyal following of publishers. If you have 1 million, 100,000 or even 1,000 followers on Twitter, it’s going to be extremely hard to get all of them over on to Google+. Unless Google+ entirely replaces Twitter or Facebook, it’s just another place to check and to manage. If there were unique functionality, it might be worth incurring the overhead. But the new functionality is marginal at best.

With a Twitter acquisition, Google could transfer those relationships onto a more user-friendly platform. Google benefits from having a huge firehose of information and relationships.

Twitter also benefits in that it gets a partner with deep algorithmic and search experience. Twitter has also fallen asleep at the wheel when it comes to local — something I don’t understand at all, given its strong assets. Google is one of the leaders in local. Local could be Google’s backdoor into social, given that a lot of social interaction happens in places.

Someone asked me what price Google should pay. My answer: whatever it takes.

Google has had many failed attempts at social. Without Twitter, Google+ isn’t likely to work either. And Google can’t afford to keep failing at social.

See my answer to “Is Google overreacting to the the rise of Facebook?” on Quora for the reasons why.

Posted in facebook, google, twitter | 5 Comments

Selling value, not price

Posted on July 3, 2011 by Rakesh Agrawal

I had an interesting Twitter exchange this morning with Milk and Honey Spa in Austin, who recently started following me.

Have you run a Groupon or daily deal?

No. The economics have never worked out and risk to brand has been too great.

When you say brand risk, what are you referring to?

We create a luxury experience and hire and train employees to deliver that experience. That’s not compatible with discounting

Would you consider Groupon if they gave you 100% of the revenue and you just had discount?

Never say never, but probably not. We tend not to discount up front, but offer a rewards program to regular customers.

See http://ow.ly/5vIEi for our reward program details. Regular customers get nice discounts for certain behaviors and actions

That’s terrific! Did you design rewards program yourself or you model after someone?

We designed it ourselves, but within the parameters of the spa management software that we use (Millennium by Harms)

How many times a week are you called by deal companies?

It’s slowing down a bit, but about 2-3 times per week.

Do you do spafinder?

We did a couple of years ago, but stopped. We prefer to manage our customer experience and not cede it to other vendors.

With an elegantly designed Web site, strong Facebook and Twitter presences, Milk and Honey is doing a lot of things right. They are posting availability, introducing customers to their staff, talking about events and interacting with customers. The pictures on their Facebook page not only show off the business, they include examples of community involvement.

The structure of the rewards program incents a lot of desirable behaviors:

  • Referring friends and family to the spa.
  • Pre-booking appointments.
  • Trying out new services.

Other businesses would do well to emulate Milk and Honey’s practices. Next time I’m in Austin, I’ll have to go for a massage.

Posted in groupon, marketing | 2 Comments

My great Groupon customer service experience

Posted on June 27, 2011 by Rakesh Agrawal

In early May, I bought a Groupon for Robb’s Really Good Food. It’s a food cart in Portland, Ore.

Before I got a chance to use it, Robb sold his food cart. (He plans to open a new one.) I knew something was up when I drove to the location to redeem it and Robb was nowhere to be found. I thought it’d be a good opportunity to test Groupon’s customer service. But given that I only paid $3 for the Groupon, it wasn’t high on my priority list.

Groupon actually found me. Last week, I got an email from Groupon:

Hi Rocky,

Thank you for purchasing the Robb’s Really Good Food Groupon.

We are writing to inform you that Robb’s Really Good Food is moving to a new location. Due to the location change, Robb’s Really Good Food will be closed until July 21. Fortunately, Robb’s Really Good Food has graciously decided to extend the expiration date from 11/04/11 to 12/04/11 to make up for lost time.

Here is the address for the new location:

SE Foster Rd. & 52nd Ave.
Portland, Oregon 97206

If you have not redeemed this Groupon and no longer wish to due to this new information, please email us at support@groupon.com and we’ll be happy to issue a refund to the original credit card used for the purchase or to your Groupon account to be used for future purchases.

Thank you for your continued support and let us know if you have further questions.

Regards,

Kate R
Groupon Customer Support

I responded that I wanted a refund. In less than an hour, I received this:

Hi Rocky,

No problem. I just issued you a full refund and removed this Groupon from your account. Please allow up to 10 business days for this to be reflected on your statement.

Regards,

Sarah-Kate H.
support@groupon.com

Less than 24 hours later, the money was back in my account.

As a consumer, I loved this. Proactive customer service is rare.

But as someone who analyzes this space, this is a red flag about the stability of the daily deal business. Many small businesses fail, especially within the first year of ownership. As I’ve written before, the optimal time to run a Groupon is if your business is going under and you can’t get a loan from a bank. Both create significant adverse selection problems. And such generosity to customers leaves Groupon holding a lot of risk.

Posted in groupon | 15 Comments

Things I love

Posted on June 26, 2011 by Rakesh Agrawal

I know there has been a lot of negativity on this blog lately in connection with my coverage of the daily deals space. New readers may be wondering, what the hell? Does this guy like anything? Well, in fact I do. I have written about many of these. (All of the links are to pieces I’ve written.)

My Keen Newports at Cinnamon Bay in St. John

My Keen Newports at Cinnamon Bay in St. John

Here are some of them:

  • NEW Instagram. It’s a quick and easy way to share memories and connect with others.
  • NEW Chromebook. I was skeptical of the Chromebook when it first came out. But I recently took mine on a 2 1/2 week trip (along with my iPad mini) and it performed really well. At only $250, if I happen to forget it at a TSA checkpoint, I won’t lost sleep over it.
  • NEW iPad mini. The best tablet ever. Despite the lack of a retina display. When I pick up a regular iPad now, I notice its bulkiness more than I notice the display.
  • Sonos. Wireless networking and music is complicated. Unless you’re using Sonos. It, like Apple, makes the complex simple.
  • fitbit. This little gadget keeps track of my daily steps. Calling it a pedometer would be understating what it does. It’s an integral part of my batshit crazy challenge.
  • moo. The funky printing company makes high quality, full-color business cards. The cards are beautiful and their customer service is outstanding.
  • gogo. Suddenly, transcontinental flights go by in no time thanks to gogo inflight. I was so excited about the technology that I took a flight in 2008 just to test it out.
  • Costco. Great prices, great treatment of employees. For what reasons, other than low price point, do consumers shop at Costco?
  • Nordstrom and Nordstrom Rack. Wonderful service, friendly employees and fair pricing.
  • Square. A product that is optimal for its target market. What Square’s new Register and Card Case means for small businesses. Update 5/5/13: I still love Square for use by small businesses. But I’m having a hard time justifying it given the valuation and the fact that they lose money on small dollar transactions.
  • foursquare. Constantly pushing the ball forward on mobile innovation. Foursquare 3.0 takes mobile ball to a whole new level. Update 5/5/13: I loved them when I wrote this post 2 years ago. But in that time, the company has failed to gain meaningful consumer traction and hasn’t come up with a business model.
  • Google. Incredible innovation that has transformed the world. Maps, Transit, Gmail are all amazing products. I really wish I’d been better friends with Larry Page in high school. I remember when I was at AOL and Maps launched. The head of Mapquest sent out an email saying nobody would ever use those features. I knew he was wrong. To be fair, there are products that I disagree with: Google Offers and Book Search. Google TV is a disaster and I don’t think Chromebooks are going anywhere. Update 5/5/13: I don’t see Chromebook Pixel going anywhere. Google Wallet’s strategy is one of the dumbest things I can think of in payments. (And there are a lot of dumb things in payments.)
  • Facebook. A revolutionary platform for social connectivity.
  • American Express. Really terrific customer service and great products. Innovation like its partnership with foursquare and the launch of Serve. I’ve been a cardmember since 1993 and currently have six different AMEX cards.
  • Netflix. Killed a multibillion dollar competitor and staved off threats from Wal-Mart and Amazon. It’s stock has outperformed Google by miles.
  • Quora. A new platform for creating, sharing and discovering high quality content.
  • Khan Academy. Talk about changing the world. One man on his quest to revolutionize education. It’s much needed.
  • Apple. Some mock Steve Jobs for hyperbole like “magical” and “revolutionary”. But he and Apple have created the most amazing products over the last few years. Apple was the first one to say to carriers, “Screw you. We’re going to build something consumers will love.” I knew when iPhone was announced that it would be huge. Despite naysayers, Apple has built the most successful retail presence ever. Unlike most companies, they focus on the full product experience.
  • Starwood Hotels and Resorts. They pioneered social media participation with William Sanders, the Starwood Lurker. He’s been helping consumers with travel since 1998. Their SPG loyalty is terrific and customer service has been largely excellent. Travel is a business that is highly dependent on people for execution. As a result, bad things will happen sometimes. But Starwood has always made it right for me.
  • Flipboard. These guys are going to revolutionize how we consumer content. Apple should just buy them already and embed Flipboard on every iPad shipped.
  • Virgin America. I don’t think it’s an exaggeration to say that Virgin is responsible for our in-flight Internet access. They were the first to have fleetwide WiFi. They gave gogo a lot of credibility. They’ve forced United to up its game on its transcontinental p.s. service from LAX and SFO. Their in-flight service goes to unheard of levels. They are master marketers who can even make daily deals work for them.
  • Keen Footwear. Incredibly comfortable shoes that fit even my wide feet. Great customer service to boot. I had a coupon for a free pair of socks up to $17. The pair I bought was $18. When I handed over my dollar, they said not to worry about it. (And, yes, they’re worth $18.)
  • Kindle. Kindle and digital books in general will fundamentally transform the way we learn. (A Kindle post has been on my to-do list.) It will also diminish the power of religious nuts on Texas schoolboards to dictate content and rewrite history for kids across the nation.

These are listed in stream-of-consciousness order.

One of my favorite quotes is from Tim O’Reilly: “Create more value than you capture.” I think these companies all do that to some extent. At the very least, they all provide incredible products backed by great customer service.

My fundamental problem with the daily deals business is that it’s exploitative at its core. Asking businesses to give up 75% of revenue for the theoretical benefit of new customers is just wrong — especially when many of the new customers have attitudes like this.

If you build a great product that delivers real value, you don’t have to sell it through high-pressure sales people who disguise key elements of the product. The world may not beat a path to your door, but your customers will surely tell others about how much they love you.

Disclosures: I’m friends with Tristan Walker at foursquare. I worked for Mike McCue at Tellme. My brother works on Chrome OS at Google. (Sorry to dis your product!)

Posted in Uncategorized | 1 Comment