Felix Salmon is one of the sharpest business and finance bloggers out there but I've never quite shared his enthusiasm for the Groupon business model
. Disagreeing with Salmon on business matters makes me a little nervous, so I feel a bit better to have Kaiser Fung on my side.
Fung (who shares my high opinion of Salmon's acumen) has a good take-down
of Salmon's analysis. You should probably read the whole thing but there's one particular aspect that strikes me as requiring additional attention.
Let's start with [Salmon's] neighborhood restaurant example:
At Giorgio's, for instance, diners paid $15 for their Groupon -- which gave them $30 of food. But dinner for two at Giorgio's, with some kind of alcohol, can easily run to $100 or more. So even after knocking $22.50 off the bill (remember that Giorgio's kept $7.50 of the proceeds of Groupon), the restaurant would often still make money.
This is a bit complicated. We can trace how the cash flows. For Groupon, diners pay them $15, and they keep half of that, $7.50. For the diners, they paid Groupon $15 (now worth $30 spending), and so they pay Giorgio's $70; in other words, they paid $85 out of pocket (Read more...)