A few months ago I wrote a tame little piece called “Why Groupon Sucks” about the utter insanity of the group buying segment. I love being right, and I am so often wrong, that today I had to grapple with that unfamiliar feeling of vindication. Today, The Week informs us that Groupon has revised their IPO filing, revealing hundreds of millions of dollars of losses MORE than the market had expected. Think about that one for a second.
Investors already expected Groupon to have lost lots and lots of money “acquiring its customer base,” but now its just a matter of just how much money they are losing. And this company is going public? WHY LORD!
To wit:
the company reported a $420 million loss for 2010 and a $117.1 million loss for the first quarter of 2011. In the second quarter of 2011, Groupon had a record $878 million in sales but still lost $102.7 million. Does this “startling turnabout” spell doom for Groupon’s IPO, which had been expected to raise $750 million and value the company at $30 billion?
Flash Sites and Group Buying Are Nothing New
Kevin Ryan, Gilt’s chief executive, said the company was simply repositioning as “a broader lifestyle brand, all high-end,” adding, “Whether it’s full-price or discount is a detail.” But others say the effort reveals that the much-heralded flash-sale business is hitting its limits.
The Times continues:
Mr. Ryan said that Gilt’s flash-sale sites continue to be successful. Gilt, three-and-a-half years old, brought in $500 million in gross revenue last year. “It’s impossible to say that this has not grown very quickly in a very short period of time,” he said. Inventory fluctuates, he said, but there is enough available for Gilt to host 30 sales a day.
$500 million in gross revenue! Awesome. Wait, how much are you spending? Cause if its more than that, you are NOT profitable. And then this:
Still, most of the flash-sale sites remain, like Gilt, unprofitable, analysts say, and many have also tried to grow by expanding into new areas, though not into full-price commerce. Rue La La and ideeli, for instance, have branched into children’s apparel, travel and local deals, but have rarely sold full-price items.
Emphasis mine.
I think I’ve figured out why there has been so much ink spilled in the service of sites like Groupon, Living Social, Gilt, Lot18, Fab and all the hundreds of others. These sites promised to exorcise the ghosts of the internet bubble. Back when the internet was first learning to walk and crawl, the first thing that “it” (the internet) tried to do, was make money. Funny, that seems like the only thing American companies EVER try to do, whether they are ready to or not. But the internet couldn’t even crawl, let alone walk over to the bank and take out some money.
Now, however, the internet can walk, it can talk, it can sue your ass, it can go mobile, it can socialize, it is 100% verified and ready to party. This internet is all growns up and it wants to remake how you do almost everything. And ya know, I am down for the good majority of that. There is so much in our society that simply needs a good resurfacing, more even, remaking. So if the internet wants to invite itself in and remake vast swaths of our society, improving much of what it touches, I am fine with that.
But the idea that the internet is going to generate tremendous profits for the same old crap because of a slight tweak of existing retail models is preposterous and the failure of Groupon and the “pivots” of Flash sites like Gilt illustrate this as elegantly as anything.