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Steve, Siri and a step into The Semantic Web


It’s been a pretty eventful October, first with the launch of the iPhone 4S and then Steve Jobs’ death the day after. Initially, Jobs’ death brought about a sinking feeling, as if I’d lost a close friend, although I’d never even met him personally.But, the more I reflect on him and Apple, a different opinion emerged. So, this entry will be a reflection on Jobs and his relatively new passion, Siri. I wont’ even attempt to be thorough in my assessment of Jobs; this is rather a cursory attempt to balance all the superlatives written about him in mainstream media and break out of that walled zen garden that is Apple.

It all started with Al Gore’s comment about Jobs being a man that the earth sees once in 250 years and the idolization of him in the media . But, even the pope needs to create miracles to deserve sainthood. Have they heard about Einstein, Gandhi, MLK? It’s just like someone who stares at the sun at noon and proclaims that it’ss the brightest and biggest star in the galaxy—even the universe. Jobs has been the tech star equivalent for the last few years. He made technology cool and helped redefine geek chic by thrusting Apple squarely into the pop culture lexicon. The biggest celebrity news these days is not about Lady Gaga or Justin Bieber; it’s about iPhones and tablets.

From a Gladwellian perspective, some of Jobs’ success can be attributed to luck or happenstance, as it were. After all, he was born in 1955 in the SF Bay Area—the epicenter of Silicon Valley almost—and he was at the right age and place to take advantage of the burgeoning personal computing scene. I guess it also helped to have a home brew computing club in his neighborhood where, most notably, he eventually met someone named Wozniak. But, when you think of Apple, you think of Steve Jobs and not the “other” Steve. The New York Times recently had a great article on maximizing the return on one’s luck. Though that piece covered Bill Gates, it is equally applicable to Jobs as well.

As successful as he was, not all of Jobs’ products were an overnight success and he didn’t have a great vision for many of them. The iPod was not initially successful when it came out in 2001. Only after iTunes debuted in 2003 did sales really take off. Tomes have been written how Jobs had figured out about iPhone and app store all the way back in 2005, when the iPhone project first got started. Most people ignore that it was not the iPhone but rather the disastrous ROKR (a joint project with Motorola) that was Jobs’ first venture into mobile phones. The same thing could be said about the app store. The name itself was borrowed from Marc Benioff (of Salesforce.com). The app store didn’t come into existence until 2008, a full year after hackers installed their own apps on jailbroken iPhones. It is to bring some order to the chaos and maintain curation that the XCode IDE for designing apps was released to the public. To rephrase Einstein’s quote, Jobs could see further because he was standing on the shoulders of giants like Dieter Rams (Braun’s designer) and Clayton Christensen.

Another widely-shared notion was that Jobs didn’t give a hoot about Wall Street, but that’s not entirely true, either. Jobs cared as much as anyone about Apple stock and he privately settled a stock options backdating case with the SEC. Another case in point is when Jobs joined investor call investor call in 2010 to issue a strong statement about Android. Apple, far from being a walled zen garden, is a high wire act, balancing passion and profits, but sadly they lost their best acrobat!

Jobs’ parting gift to the world could be Siri. It is the first ever product that Apple released in beta version. Siri might a small step forward in mobile phone evolution but it’s a big leap into the semantic web. To provide a bit more detail, old forms of AI agents simply search a problem domain for an answer. One such “intelligent agent” with huge backend databases is the Watson supercomputer . Siri ushers a brave new world where agents behave in an engaging and intelligent ways and can accomplish tasks at the beck and call of its master—things that even personal secretaries find difficult to do. This could be a boon to handicapped and elderly users.

Users might want to adapt to Siri to fully avail of it’s capabilities. Speaking slowly and clearly, saving proper names and places( work and home) to contacts, saving important events to calendar, are many such little things that help Siri better understand you. Lately, the apposphere is abuzz with talk of Sir’s API. While the API will give apps a powerful input/output voice interface, an even more salient promise lies in Siri’s ability to navigate the semantic web. To this end, I am looking for a Siri SDK and/or metatags syntax that will identify individual applications with their capabilities. I even foresee a “Yelp” like crowd-sourced reviews of apps that can help Siri separate reliable apps from others.

I want to make another note about intelligent systems in general. If Siri ever really evolves as a human personality clone, drastic changes to iPhone hardware need to be made. CPUs with massive parallel processing and higher capacity hard disks are some of those changes. Also, it is not enough to deeply integrate Siri with the existing OS—a new generation of firmware, and maybe even a different semantic OS, needs to be created.

Lately, it seems like everyone’s saying that companies who can master social, mobile and game layers will rule the tech world. Should we add a “semantic” layer to that list now, too? Companies might be better off honing in on a particular technology rather than going after all these rapidly-evolving moving targets. Only time will tell.

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Posted by on November 4, 2011 in Uncategorized

 

What do American Idol and LA-based VCs have in common?

VC funding and American Idol


*Pic courtesy of Rickey.Org

We recently had a chance to stop by a “Meet the VCs” event organized by LAVA here in Los Angeles.

Here are some observations & lessons learned:

Taking a page out of dating in the digital age, the event’s basically a speed dating night where VCs move from table to table with, with three entrepreneurs at each table pitching their respective startups. By the time the 7th round rolled around, it was pretty evident that the VCs were pretty fatigued—something I could totally sympathize with.

I mean, there’s only so many times you can hear different variations of the same pitch about members-only shopping sites and Farmville knockoffs without starting to feel like you’re living in some perverted tech version of Groundhog Day.. 

All this to say, I don’t think I’d ever want to be a VC and certainly not one who has to endure hearing pitch after pitch about different variations of the same technologies only to bring the letdown. As Mark Suster said, saying “no” to entrepreneurs is not all that fun.

That notwithstanding, it still remains somewhat of mystery to me as to what makes or breaks startup funding—kinda like the way it is for performers trying to break into the music business.

I mean, you can have all the talent in the world but if you don’t ever get that once chance—that golden opportunity, that world stage—to strut your stuff, you’ll never get noticed and you’ll never land a record deal. Or, will you? Say what you will about shows like American Idol or The X Factor, but I think it’s fair to say that those shows have forever changed the landscape of the music recording industry because—at long last—you didn’t have to come with industry connections or a bag full of money to get a record deal. Obviously, I’m oversimplifying everything, but I don’t think it’s too far of a stretch to say that shows like American Idol leveled the playing field for would-be music hopefuls by democratizing the auditioning process. Not independently wealthy enough to cut and distribute your own record? No problem. Not Billy Ray Cyrus’ daughter? No problem. These shows promised the world’s music hopefuls that all you needed was sheer and raw talent and you, too, could have a chance at a real recording career.

And, so it is with VC events like LAVA where the best and most talented startups are the ones that get noticed and—ultimately—gobs and gobs of funding. Or, is it? To be sure, VC events like LAVA can be seminal moments of opportunity for a startup but at the end of the day, a company’s got to have the talent (i.e. IP) to back it up and so we continue to refine and build out the best possible localized e-commerce platform possible in the confidence that the end product will speak for itself.

Some shout-outs for a few other startups we met there:

Phillip Butts’ LinkedIn-killer idea- Have you ever wondered who that person is on the business card you exchanged two days ago? Phil has an idea for a great app that leverages multimedia to keep track of new contacts and allows you to make referrals.

RedNook.Com- Not really a “members-only” designer home decor portal, but Great, modern design aesthetic.

GamerGrub- Specialized food for gamers for whom (video) gaming is a part-time job.

Love to hear some comments from fellow LA entrepreneurs and wantrepreneurs!

 
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Posted by on October 25, 2011 in Uncategorized

 

Why Google can’t kill my startup

Brutal honesty helps when you are dealing with the careers of employees and hundreds of thousands of dollars in investment. This is why I want to answer hard
questions sooner rather than later. It would also help assure to merchant partners and prospective investors that we are building a highly valuable product here at Trolion.

No startup worth its weight can be built in three months with any degree of reasonable success. We’ve been in hibernation mode for the last year, only occasionally sharing the details with friends and family. But, now we are excited to let everyone know that we are ready to launch soon.

The core of Trolion’s value proposition rose from my experience owning and operating small businesses. That experience continues to shape how we do things here. As a restaurant and travel agency operator, I experienced firsthand how challenging it was to attract and—moreover—retain loyal customers and clients. Sometimes 80 hr. weeks for several years doesn’t even cut it. In food & beverage and hospitality, our operating margins aren’t that high, so marketers who cater to these businesses really need to provide great bang for the buck. Deal-making sites really need to re-evaluate their business practices if they’re going to be in it for the long-haul and charging 50% commissions just isn’t going to work anymore.

With “offers” Google is making the above mistake, and it deludes into thinking that NFC is going to take over the world. Given its questionable ROI, small business owners won’t replace credit card equipment. Google won’t intimidate me let alone kill my business.

Trolion has great value proposition for customers too. They have been wary of the barrage of daily deal sites out there and have been misled by companies promising great deals on local products and services, but then get spammed with useless deals that are of no relevance to them. Add to that, when customers do buy these deals, the redemption experience is less than pleasant, to say the least[.

Our product, Rush49, is aiming to change the way local merchants do business by turning the “daily deals” phenomena up on its head by delivering real value and generating customer loyalty . At the heart of Rush49 is the Resonance engine which takes into account an individual user’s personal preferences, location, and time of the offer. It learns what you like and dislike and where you are and where you want to go. We complement the engine with a discrete appointment and redemption app that is integrated with merchant’s back-end systems to provide a more seamless, hassle-free redemption experience.

Consumers expect increasingly more from businesses and will continue to do so as technology makes things easier; but, technology has to come to terms with humans, and not the other way around. At Trolion, we refer to this as human-centric technology. It is our intention to stay away from easy profits and build protectable IP around this technology.

Full disclosure: Image borrowed from memeburn.com. I don’t hate google but I strongly feel that it stick what is good at i.e enabler of global commerce

 
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Posted by on October 4, 2011 in Uncategorized

 

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Death of daily deals and dawn of value

The daily deals are dead

The daily deal sites are zombies

Daily deals are down and rightly so! I can not confirm this by looking at just 1 data point from Experian Hitwise,but I have a feeling this is going to happen sooner rather than later. My family owns a couple of small businesses, and I have first hand experience on how daily deals done the wrong way could kill the bottom line.

Given the current deflationary pricing pressures and the advent of cost-saving disruptive technologies, deals are an obvious choice as a marketing tool for small businesses. However, the prevailing “daily” deals platforms have exploited small businesses, with their draconian terms, instead of delivering meaningful value. This is what precisely Trolion likes to change. It is our belief that for every dollar in commission we charge businesses, we need to add at least one dollar in value to that business, if not two. In this spirit, Trolion developed an advanced marketing and BI platform called Rush49, which has the right business model and technology to genuinely serve both merchants and consumers.

We foresee the commodification of deals industry and in such an environment only the cost-leadership models thrive, but with only one exception. If the competitor, despite not having a low cost model, has a big bank balance, and that balance could be used to destroy competition. Rush49 has a lot of differentiating factors like DIY,advanced analytics and AI tools, to thrive in the industry, but I wouldn’t like Groupon to have an IPO, given its bankrupt business model, and hope to see it quietly fade away into oblivion. The stock market doesn’t need another Enron now.

Talking about differentiating factors, Rush49 has been working on these advanced tools for almost an year now and will be having the beta version roll out very soon. Deals business is just a tip of the local commerce “iceberg” as we believe the bigger mission for Trolion is to match Internet consumers with local merchants (separate signal from noise) in real time, and facilitate the complete end-to-end shopping experience (discovery, purchase, reservation, redemption and reviews).

Also in the same vein, last week saw the announcement of a daily deals platform Group Commerce buy Socialight. This platform on the surface seems like a god-sent-gift to cash-strapped publishers but it isn’t! The platform can only push deals to the subscribers but once the deal fatigue sets in (which is already happening) the platform is useless! Also, I seriously doubt if it has the option to manage user preferences, tastes, merchant DIY tools and a redemption technology. This might still work for some sites with niche audience but main stream news papers won’t be able to add much value. While the platform is “white label”, the deal sourcing is not and still requires an expensive salesforce. Daily deals might save the day for these big publishers commodification sets in the deal industry, I do not see how they can compete! Publishers interests might be best served in the long term by remaining as affiliates and/or by serving display ads. This could benefit their editorial independence too.

Talking about startups in general, the “momentum” of certain platforms reminds me of what Dave Binetti (lean startup evangelist) said about the 3 false prophets that make great news on TechCrunch but could potentially kill them,
1) Product
2) Funding
3) Vanity metrics

I would add a couple more items to the above list- “customers” and “revenues”. No business can survive without “customers” or “revenues”, but I feel that they themselves do not validate a repeatable and scalable model. It is our goal at Trolion to create a scalable startup and only one thing matters to us, “IP AND SWITCHING COSTS”. The latest patent fights between tech majors more than prove our hypothesis. Also, the term “switching costs”, in a broad sense means social components, preferences, usage history, loyalty status and (most importantly) brand affinity that can help retain customers in the long term.

Intellectual Property

Intellectual Property


And as a first step, in what looks like a marathon to me, Rush49 is going to validate the customer with a minimum viable product, and bring a semblance of fairness to local deals in LA. Stay tuned for innovative online attribution to offline local commerce.

p.s: I have made some big statements in this blog without substantiating them. Rush49 is currently in stealth mode, but I will throw more light on the product soon. And, I sincerely hope that our platform will speak louder than anything I can possibly say!

 
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Posted by on September 2, 2011 in Uncategorized

 

It looked like Christmas came early this year for Groupon!

Summary
Groupon is an Internet based voucher distribution company which has seen astronomical growth in revenue in its short 24 months of existence. Google is the Internet giant whose very name has become synonymous with Internet searching. Over the years, Google has not gotten much traction promoting local searches for small businesses, which is thought to be a growing and lucrative market!

There have been mailing lists and deals from the beginning of time (figuratively speaking), so the Groupon model is not defensible per se, however in their short existence they have had runaway success in multiplying revenue month after month. This exponential growth rate has naturally attracted the interest of all the major Internet players, including recent multi billion dollar takeover offers from both Yahoo and Google!
What puzzles me is that the next biggest player in this market, “LivingSocial.com”, is not far behind Groupon in revenue and has been raising prodigal capital through private equity. Just last week, Amazon infused $175 million for what is rumored to be a 10% stake in the company. In fact there are nearly 200 Groupon clones in the US and over 500 worldwide. So much for a defensible business model!

Judging by the amount of the recent buyout offer made by Google, Groupon, while being younger than many toddlers, has a perceived valuation of $6 Billion. This valuation hints at an impending bubble in valuations for recent startups. Most of the post-war time in the US, the rule of thumb has been that the price of a home should not exceed 3-4 times the homeowner’s income. This principal was not followed for the past decade and resulted in the most severe recession in over 80 years. Similarly, the generally accepted P/E or Valuation to revenue ratio, which has traditionally been a multiple of 3, has gone out of the window in recent times. Groupon is widely expected to have $800 million in revenue this year, so a $6 billion price tag would give us a revenue multiple of 7.5.

Another big concern relating to the valuation is the quality of Groupon’s revenues. Do the IPO’s of pets.com, webvan.com, and AOL.com ring any bells? If history says anything it is that people don’t learn from history!
Groupon-like companies are offering less than 10 deals per day for even metros as big as Los Angeles. The market is in its infancy stage and there is a long way to go before consolidation. It might make some sense for companies like Google or Facebook to offer high valuations for Groupon because of the potential synergy that might be realized, which could lead to its ability to sustain if not exceed current growth! Groupon, by having decided to go it alone, has lost out on the added value of having an industry leading partner and has thus chosen a difficult path, potentially spawning new competitors without having a defensible business model that can stand on its own. The market is too big to ignore and it is growing very fast!

Ultimately, Groupon did a huge favor to Google and huge disfavor to itself by rejecting the $6 billion offer! According to recent news reports, Groupon is apparently considering an IPO in 2011, but in light of their rejection of Google’s offer, they had best pray that current and rampant valuation bubble doesn’t burst before then!


Introduction

Coupons are supposed to be difficult to obtain or use, so that only very motivated or needy shoppers will use them. While not offering coupons in the traditional sense, Groupon’s online offering of bulk coupon-like discounts has shaken up the industry and met with runaway success. Given that Groupon takes a hefty commission, in addition to the eye-popping discounts, businesses are puzzled as to what to make of this new phenomenon of frictionless distribution of coupons/vouchers!

Groupon started in late 2008 as a side project for ThePoint.com but rapidly took on a life of its own. It offers a daily deal in each market in which it operates, but each deal is conditioned upon reaching a specific minimum number of customers before any of them can purchase it! The idea had wild success and after nearly 35 million subscribers and numerous acquisitions of competitive sites around the world, it is poised to rake in more than $800 million in revenues this year alone!
So effective is this group purchasing model that Andrew Mason, Groupon’s founder, claims Groupon now has 35,000 companies eager to make the deals. Wanting to have an offering on the site, however, is not enough to meet Groupon’s criteria as only one in eight applicants make the cut. The vendor must already be well reviewed on online review sites such as Yelp, CitySearch and TripAdvisor, the deals must offer a substantial discount from normal prices, and finally they must not be similar to other promotions regularly offered by the vendor.
Mason has aggressive plans to scale up and the capital to back it up. Groupon now posts 100 deals per day in the U.S. and that number is set to go up to 400 by January 2011. This should quadruple the number of vendors served to 5000 per city. To meet these targets, the company’s sales staff will be increased by 80% (200 people) and deal writers by 100% (70 people).
If one takes a look at the wildly successful 8-hour sale of 19,822 tickets to a Chicago boat tour, it raises questions of the general sustainability of Groupon deals. The same is true with The Gap’s one day Groupon sale of $11 million worth of “50% off” vouchers. Are other retailers with a strong brand willing to give similar steep discounts and then give a cut to Groupon for bringing in the business? The gag works only until these businesses realize that vast majority of these customers are not coming back, but are instead chasing the next deal elsewhere!

It’s not every day that a 2 year old company, started from scratch, would command a $6 billion offer and have the nerve to reject it! Is this daily deal website really looking for a better deal than that? This started me on a quest to estimate a reasonable price for Groupon and also to analyze the sustainability of growth for the entire online coupon market.


Google

All searches are not created equal. Some searches are more easily monetized than others, and local searches are that kind. Most searches are for information seeking or researching, and the ads that Google sells for these are not very lucrative. Many local searches are for keywords like “Restaurant”, “Dentist” or “Hotels”, so the ads that go with these are lucrative!

Google might be a man-made 8th wonder with a major role in shaping the Internet as it is today, and most likely for a long time to come. However, Google has been having problems getting traction in the local search business. A local restaurant that I own has received a $100 Google search credit in the mail 5 times in the last 6 months. Only after the 5th credit voucher showed up did I finally decide to take advantage of the offer. The process requires a little technical knowhow and it is likely that many local business owners are intimidated by the whole process of selecting key words, writing up an ad, choosing a daily budget and deciding on a proper price-per-click!

Groupon is that missing piece in the puzzle connecting local customers to local businesses! The idea behind the acquisition would likely have been to deploy Groupon technology all across Google’s platform. People search when they need something, so why not entice them with a Groupon coupon?! A note of caution is that since Groupon deals change daily, this would require tight integration with Adword/Adsense servers, however if done properly could generate vastly more revenues for Google.

An easy extension would be to use Groupon ads with Google maps, as millions of users use this service to look up directions and traffic. I can imagine a scenario where Google pushes deal updates dynamically to a user’s phone depending on their location! (you heard here first !)


Acquisition Analysis

It is estimated that Groupon will post $800 million in revenues this year with a very straightforward revenue model. Groupon sells vouchers on behalf of small businesses (vendors), keeps its cut and passes on the remainder to the vendor. But it is prudent to note that certain controversy exists whenever pass-through revenue is recognized! An interesting fact here is that Groupon is assumed to be operating capital negative due to this reason.
As a typical deal involves 50-50 split between merchant and Groupon, we can assume a $400 million gross margin for 2010. Now it is safe to think that after accounting for operational expenses, Groupon would have $200 million in EBITDA. The EBITDA multiples of some major Internet players are Ebay.com (11.92), Google.com (13.62), Yahoo.com (13.3) Amazon.com (40.32). If we use an EBITDA multiple of 15, we come only at a valuation of $3B. How does Google plan to squeeze more value by acquiring at double this price? We have not even talked about quality of revenues for Groupon. If the company is generating so much cash, then why the need to raise 135 million back in April? Was that all used for foreign acquisitions? Also, even a $3 Billion valuation is very generous to Groupon as free cash flow arguably is lower than EBITDA (because of less amortization/depreciation in Internet business)

The revenue multiple is high even for a new business. The industry average is 3 times revenue, and for high-margin, high-growth companies, it is 6. But this number comes up to nearly 8 for Groupon and the kind of revenue used to calculate this number is pass-through revenue! The margin on revenue recognized from Gap-like offers can be assumed to be wafer-thin! Pets.com and Webvan.com all had revenue but were losing on each sale. Many companies like these went bust during the dot-com bubble, ultimately evaporating billions of dollars of investors’ capital.
We cannot use CAPM model to calculate required rate of return, as we have the beta neither for Groupon nor for any publicly traded company in the same market as Groupon! An important question to ask here is why not issue debt? Debt is very profitable for stockholders as it is cheaper than equity and comes with a tax shield, but with increased financial risk. This raises a red flag!

These are groupon statistics visible on its homepage !
12/4/10 1:30 pm
Total dollars saved
$804,640,273
Total Groupons bought
18,664,813
12/7/10 1:50 pm
• Total dollars saved
$814,932,477
Total Groupons bought
18,914,735

If we take the numbers on its face, 3days= ~$10.3 mil= ~$3.4 mill savings a day- this is the savings but you can backtrack and calculate revenues! As deals on Groupon save an average of 60%, we can assume that revenues equal to savings! Mind you, this is a big ”IF”, but given lack of public financial data, this is a decent assumption! Even if you discount for the fact that it’s holiday season, the company might be still on target for $800 million in yearly sales!
Google’s realized return on equity is 21%, so I don’t know how much patience it would exercise, if they had acquired Groupon! Even if Groupon generates value year after year, that value is already priced into $6B deal. Groupon is very far away from fully returning $6B in free cash flow, adjusted for time value of money and Google has to generate 21% value per year on top of this value.

The deal’s breakup seems $6.3B cash $.7b in performance (weak earnout provision), the performance part is good but at least some part of $6.3B should have been in stock (learning from AOLs acquisition of Time Warner in stock!)
By rejecting Google’s offer, Groupon potentially spawned a competitor; this is too big a market and is growing fast! Google has practically unlimited resources, very talented people and lots of patience (read Youtube buyout!) Groupon claims to have 35 million subscribers, and this number is less than the total number of groupons ever bought! We can safely conclude that many members never bought a groupon and the vast majority never bought a second one!
Myspace had 150 million users at its peak and had terrible time monetizing the site. Myspace did spawn the creation of Youtube and Flickr, so let us hope that something good comes of Groupon too! Also, this is good time revisit Yahoo’s statement about the 1999’s $3.6 billion acquisition of GeoCities, “This is a very substantial and very strategic acquisition for us. This will help us accelerate our company’s leadership position.” Yahoo ended up winding up Geocities operation in 2009, and the other notable acquisition Broadcast.com for $5.7B with similar fate. It is important to note that not all acquisitions by Yahoo were failures. Overture.com acquisiton has been a great success, and indeed Yahoo still licenses this lucrative technology to Google!

I have a feeling that Google was thinking on the same lines of Yahoo circa 1999! Are these the same people who revolutionized search and brought us street view maps? Is it safe to conclude that the “gung-ho” factor is out from Google! I should have got the hint when they gave 10% raise across the board to stem the outflow of employees! However you slice or dice Groupon numbers, “make” option seems to better for Google than “buy” option (I am sure they have a Groupon clone already in the pipeline!). However Google needs to bring in small business experts to weigh on the local coupon model! Right now it seems to do anything to stop employees from employees jumping into the flavor the year (month?) companies!! (read, MS to Google, Google to FB, and now FB to Groupon?)


Facebook/ Twitter
Facebook can arguably not content with 500 million members (no reason to!) as there are more than 6 billion people on our dear planet and the majority of existing members are not active! FB too might be a logical fit for Groupon. With its treasure trove of demographic/ lifestyle information, FB can leverage that to target members with laser like precision. It can go one more step further and create deals based on the users’ preferences. Hyper location specific deals can also be implemented in conjunction with the deals above. FB can show what their friends have purchased and create trust and or peer pressure! This would result in increased usage of the social network by its members and potentially entice more people to sign up.

Actually FB is already pushing location based deals but only limited to fans of that business and that too free of any FB fees!
http://www.allfacebook.com/facebook-hopes-to-end-business-as-usual-with-location-based-deals-2010-11

It is interesting to note that Groupon’s highly successful Gap deal took off because of Groupon’s ads on Facebook/Twitter, so doesn’t that make a natural place for Groupon here? No discussion about FB is complete without the mention of Facebook Connect. The new thinking at FB is not to hoard information, but to share with 3rd party websites (Google,Twitter all been doing it). The information sharing is only for one user at a time and happens only when the person consents the website/app. FB keeps the complete demographics information close to its chest (and its marketers arguably!)

Linkedin also is a good fit as the average person on it is high-incomer comparing to the average member on FB. Similar cases can be made for Twitter/MSN.

Competitors
Groupon is not only one of the fastest growing companies ever but also the highly copied business model ever. There are approximately 212 in the US (1106 worldwide and growing by the hour!). Here are some web traffic statistics I pulled from Alexa.com,
Groupon 95 in us (500 worldwide)
LivingSocial 187 in US (1035 worldwide)
Buywithme 4056 in us (8127 worldwide)- no app
Tippr 9176 in us (31424 worldwide)- has app

Traffic rankings are not indicative of only clicks and not revenue. Some of these sites have extensive informational only sections which are not e-commerce related!
LivingSocial is the closest competitor to Groupon and not too far behind Groupon in the race, judging by Amazon’s investment in the company. One advantage going for LS is that area experts are on the ground well familiar with each market unlike Groupon, where all of the salespeople are centrally located in Chicago. While both Groupon and LS have apps for customers, LS doesn’t have a merchant app yet! Both of them have been promising hyper-local deals for a while but area experts are the bottleneck here. This can never be completely automated. It takes human expertise to vet businesses and their offers.

If a competitor can get around this problem, it can see explosion of revenues. Crowd sourcing of offer leads is a good idea but not just any crowd sourcing! Some discrimination should be made based on followers on review sites like Yelp/Citysearch etc. The people to be crowd sourcing from have to be well connected socially, and trusted to be an authority on that business. Also, the idea of dynamically pushing deals to customers can be implemented by anyone, as long as it has the right connections to GPS/smartphones! (you heard here first )
Yelp or Citysearch are also trying to become big players in this market. I’ve been getting deals from Yelp for past 6 months, but have not played much attention to them. Yelp must take initiative to solicit subscribers to give their preferences as to the deals newsletter instead of mass mailing to all members! This way Yelp can expect higher click-thru rate, and also adjust frequency suitably (currently Yelp indiscriminately emails everyone weekly)

A friend of mine is starting a Groupon competitor called Yeshtu and I sincerely hope that he stays ahead of the curve in this business and gets lot of traction. I hope the new entrants use less draconian split than 50-50 with the merchant (which Groupon is notorious for!). Groupon signs up merchants on two-year exclusivity deals, but Groupon suing a small business over an exclusivity clause would be a PR nightmare! Would Groupon sign a reverse exclusivity clause with a restaurant that they wouldn’t sign up another restaurant in the same area for 2 years?

Groupon has to do more to motivate members to stick and not move to deals in LivingSocial, etc. Pyramid system like Amway is a good idea where a tiered membership exists and continued loyalty is rewarded. Some kind of better value proposition like managing members spending, marketing, collective buying, or credit for merchants own use. Some of the extensions can be personalized coupons, flash deals, extra discount for members who “Like” their Facebook page/ share the deal on Twitter/ or write a Yelp review!

The demographics for this market seem to be educated, female, young, and metro dwellers. New entrants should target different demographics. A metro like LA has more than 100,000 businesses and 15 million people patronizing them. The market is large enough to go around for everyone.

Without preaching I believe these are some of the pros and cons for consolidation being far off in this market,
Pros//
Small businesses open and close, so only the deal websites that stay most updated can survive
An incident like recalls can shake off even well respected brands like Toyota. How trustworthy is the Groupon/ Living Social brand?
Low barrier for entry into the market
Not much of IP in this segment
Unlike enterprise customers, consumers are fickle with constant change in preferences/tastes!
Cons//
Google has something like 77% of search market, how about that for consolidation?
Master/visa card have 90% of credit/debit card processing market between them, and they serve millions of small businesses (this is where Groupon,LS etc. are aiming for,right?)
Customers are creatures of habit (how many people use Bing.com/Ask.com even though most search results are almost as good?)


Conclusion

The growth of the industry coincides with recession time, when people are looking for deals, and willing to grab anything and everything they can save on! As the economy recovers, would customers be equally enthusiastic to save, or more importantly, would businesses continue to offer eye-popping deals? When coupon fatigue sets in, consumers will demand higher discount, or move to the next fad!

My finger is always itching to click on some of the deals that these websites offer. But my pet peeve is that the vast majority of these deals serves wants and not needs. How about discount on must-need things like OJ and eggs. For the last 4 months, my restaurant has been solicited everyday from Groupon-like companies, to offer them special deals! From a business point of view there is limited appeal to friction-less vouchers/coupon distribution. Actually some of the businesses are unable to handle the business brought by Groupon-like companies! Groupon will be sorry to reject Google’s offer. Given the barrier-less entry into this market, Google, with it is seemingly unlimited resources can easily “make” a Groupon competitor!

p.s: I have not explored the idea that Groupon spurned Google more out of desire to stay independent, and less to do with supposed under valuation! Groupon might want to be counted among Internet elite like Google, Facebook, Amazon, and that is perfectly fine! Google might still come back with a bigger offer when there is less annoyance of antitrust concerns! Talking about hyper over valuations, FB valuation went from $6.9B last August to $60B today! Will FB have the fastest $100B valuation ever?? Happy Holidays!


References//
http://seekingalpha.com/article/239979-groupon-turns-down-google-what-just-happened-here?source=hp_latest_articles
http://seekingalpha.com/article/239646-in-defense-of-google-s-groupon-acquisition
http://www.forbes.com/forbes/2010/0830/entrepreneurs-groupon-facebook-twitter-next-web-phenom.html
http://www.groupon.com/pages/press-kit
http://www.allfacebook.com/facebook-hopes-to-end-business-as-usual-with-location-based-deals-2010-11
http://www.alexa.com/search?q=groupon.com&r=home_home&p=bigtop
http://www.marketwatch.com/story/googles-groupon-deal-a-sign-of-net-bubble-2010-12-03?reflink=MW_news_stmp
http://www.Finance.Yahoo.com
http://xedant.com/researches/top_500_adsense_keywords

 
1 Comment

Posted by on December 18, 2010 in Uncategorized

 

Party all, dancing in September !

(This blog is not a thinly veiled attempt to build a shrine for my ego and any such incidence is purely coincidental!)

It’s Oktoberfest already, but I have bitter-sweet memories of September (mostly sweet though! ). I hope you’ll indulge me this one time, as I reflect on a very eventful September. I had a chance to revisit some old memories and create some more fond ones. So I am dividing this September blog into 3 acts !

The CWG council shamed Indian government at the quality of facilities and preparations were finalized on war footing, by no other but the Indian army! Before I get into the details, I ask why the hell are we celebrating this nonsense called “colonial heritage”? $7B spent on comprehensive sports/ infrastructure upgrade in Delhi. In a country where many people makes only a couple of dollars a day, what a colossal waste of money? It is yet another excuse to defraud and rob tax payers! If anything, the games are a fitting homage to political nepotism!
India need not be another nouveau rich nation clamoring for recognition in all the wrong areas. Aping our northern neighbor’s 2008 Olympic games performance doesn’t make us a dragon. But unlike Beijing Olympics, people who have been forced out have not been adequately rehabilitated during Delhi CWG. I am resigning to hope that at least the new sports infrastructure would serve well for India’s promising sportsmen. It makes me think that a better way for India is to look inwards. Why stop at cricket IPL? Let us have leagues for hockey, soccer and basketball too! (A note of caution that there be no incestuous relationship between organizers and team owners!) Death to Commonwealth Games!

Having said that, you have to give the devil his due! The “ability” to speak English has served Indians as a blessing! I see tremendous potential from today’s youngsters. Let this decade pave under privileged Indians a path from working class to middle class. English is helping India transform from an agricultural economy to knowledge economy. While Indian babus are busying themselves with stuffing swiss bank accounts, I look for inspiration elsewhere!
http://blogs.hbr.org/govindarajan/2010/08/the-300-house-a-hands-on-lab-f.html

Vijay Govindarajan isa celebrated professor at Dartmouth and we need more people like him! Go reverse innovation! A good inspiration for Indians would be Jews! They make up only two tenths of a per cent of the world’s population, and yet, they have claimed twenty per cent of Nobel prizes. Let’s do the calculation for Indians or may be not! Given Obama got a Nobel, you can discount the Nobel, but can not ignore it! Jews may be at the extreme end of human performance, but we still need to up our game! India needs some role models and heroes (and I am not talking of bollywood type! )! As a dissenting patriot, I renounced, a longtime ago, the motto”my country right or wrong!”, and embraced “right my country’s wrongs, so I can always be proud of it”. If my comments have hurt anyone, it’s only to spur them into action

It’s now time to talk about my adopted homeland- the land of the brave and the home of the free- US. Americans go on a limp to pronounce correctly, the words borrowed from European languages. But when it comes to Indian languages, they take all kind of liberty. I am glad Avatar, an Indian word was used for the most successful Hollywood movie of all time. Couldn’t Cameroon have done a little work to find out the actual pronunciation? The same is true for almost any Indian word, be it Guru/ Pandit/Himalayas/Basmati are only a few examples! At least we speak the same way we spell! At times western languages seem unworthy of their global dominance. Selectively skipping pronunciations and then sneering over anyone, who dares to question such idiocy! I want Sanskrit to be a strong contender for being a major international language! If Hebrew can be revived from death, in post worldwar II Israel, as the national language, then so can be Sanskrit, but this time for the rebirth of Indian pride!

Recently there has been a lot of hullabaloo about the discovery of earth-like planet, 20 light-years away. Scientists have been searching for intelligent life in the universe for decades, yet their efforts have been futile until now (apparently)! In all likeliness, they have been avoiding us! Who would want to come here to watch so many reality shows or listen to rap music? I am keeping my fingers (and toes) crossed that they have far superior entertainment, and are willing to share with us! Actually, intelligence is a vastly overrated character. I personally like copying (I mean inspired) better!

Discovery of earthlike planets might be only half the task, as the real work is to conclusively verify the presence of water! It is only a few years ago that Mars rover was able to find water conclusively, now don’t we all think that planet X rover is a little too far away?? I personally feel that we should let other planets be alone. Mankind’s track record with Earth is not so good (read plastic filled islands, BP disaster, climate change). One doesn’t need to look far to find proof. As if smog is not enough bother in LA, I just found out that our pacific ocean is eminently polluted. One would think ocean to be seemingly infinite in its capacity to feed and nurture, and can withstand anything! But man with the aid of technology has achieved the impossible! And to add insult to injury, the most common particles found in LA’s tap water are toilet paper and tampons!

I recently had the opportunity to participate in World Medical tourism conference, held right here at La La Land. I met a lot of providers and made some cool friends too! The three day event has been stressful, with having to attend all one-on-one meetings and also had to take care of my current business. I am lucky to have the conference held at LA, but next year it is going to be in Chicago  Sleeping in one’s own bed is a perk, given most of the attendees flew from half way across the world to attend this conference. Given the conference fees and actual costs on the ground, I can’t help but ask some difficult questions. Who the heck elected the MTA president? and who is auditing the expenses? It’s supposedly nonprofit, but let’s not put all nonprofits on pedestals. Some of them are just a cunning way to run a business with little government oversight, while rewarding the officers 6 figure salaries and obscene perks!

Having just turned 30, it made me think if it is a meaningless milestone or not? Good or bad, Franzen, in his own admission, has turned adult only at age 50, so what’s the hurry? At least physically not very much, but intellectually and emotionally it’s a positive milestone. I believe if you are over 30 and a guy, you need not have your shit figured out AND be married AND have kids. For a girl, either you are a career minded shrew OR a husband hunter. This is a false dichotomy! It doesn’t matter if are a guy or a girl, just have your shit figured out! Life is not about finding your PERFECT partner, but rather knowing that there is none, and be realistic about it! So, if marriages are mostly hit-or-miss, weddings are always fun. After a really long time, I attended a charming, elegant wedding at a very cute garden café! Congratulations to Alfredo and Lucy for making that leap of faith, and may be I can learn something from them. I certainly noticed that the couple is very much passionate about each other! I am certainly thankful for being part of a joyous occasion.

Talking about auspicious things, September 17 was very auspicious, as Oprah finally mended fences with Franzen. She allowed Freedom into her book club! Franzen mania has taken the fiction world by storm. It took me some courage to actually PAY for a book, but such is Franzen mania. I’ve ended up buying the e-book. What’s better than having the celebrated author narrate the story in his own voice! I promised myself that this is not going to happen again. What are Barnes&Noble and public library created for?? This book made me reevaluate my life’s goals. It made me aware of broken families in America and created somewhat premature regrets about my own future. The next logical step would be to read “The Corrections”, the book that got Franzen National Book award in 2001.

Incidentally I snagged an invitation to Final Draft Screenwriting awards, and this year’s award is being awarded to Aaron Sorkin. So I dragged my friend Sunil (again) to the opening of the movie TSN. As we all might/should/must know, Sorkin wrote the screenplay for TSN. I heard all the talk about TSN being the top Oscar contender but now I know why! Watching TSN movie is the one of the few spur-of-the-moment decisions that I do not regret! The movie had the discipline to stick mostly to the facts, though some dramatization seems understandable, to appeal to the romcom addicted audience. The movie’s premise is fantastic, given FB is at its peak of popularity.

Most people on FB have no clue about the origins of the portal that they visit zillions of times. The majority of people on social networks are clueless when it comes to privacy, both theirs and others. The recent suicide of a Rutgers undergrad student, Tyler clement, is just one of the many ugly faces of social networks. For FB/twitter generation, where does privacy begin? Not only everyone is a celebrity but also a paparazzi/voyeur. FB has become a never ending high school popularity contest, and something gotta give! It is just not peer pressure to have a FB profile but also be judged by the number of friends , and the number of postings on the wall. In good ole days, you can forget any undesirable “friends”, but here you are in virgin territory. Who to add? Whose posts to comment on? And who to invite to events? On the other hand, FB takes burden off us, by giving great tools to manage acquaintances and organize social life. So we have more time to manage actual friends in the real world!

No story of FB is complete without the talk of FB’s valuation of $33B. The valuation seems very high, as similar .coms had difficulty monetizing. It’s not like Google 2003, as analysts would like us to believe, which provided very valuable service. Google is in no small extent responsible for the success of entrepreneurs like me! It made a lot of information disposable. Why memorize it when you can search (I mean Google) it! These days you can Google anything under the sun/stars/moon! One conclusion from Zuckerburg’s tale is that one is one’s own painter of life. It’s no ordinary feat to go from nobody to 500m friends in just a few years. All one has to decide is, how do you want your portrait done? I just wanted to be a millionaire when I turned 30 and this guy is already a billionaire, and he is not even 30!!!
Tune in this for this page, as I update on AR Rehman concert, Vegas trip and development in developing nations !

(This blog is not a thinly veiled attempt to build a shrine for my ego and any such incidence is purely coincidental!)

 
2 Comments

Posted by on October 8, 2010 in Uncategorized

 

Party all, dancing in September !

It’s Oktoberfest already, but I have bitter-sweet memories of September (mostly sweet though! ). I hope you’ll indulge me this one time, as I reflect on a very eventful September. I had a chance to revisit some old memories and create some more fond ones. So I am dividing this September blog into 3 acts !
The CWG council shamed Indian government at the quality of facilities and preparations were finalized on war footing, by no others but by the Indian army! Before I get into the details, I ask why the hell are we celebrating this nonsense called colonial heritage? $7B spent on comprehensive sports/ infrastructure upgrade in Delhi. In a country where many people makes only a couple of dollars a day, what a colossal waste of money? Just another reason to defraud and rob tax payers! If anything, the games are a homage to Nepotism.
India need not be another nouveau rich nation clamoring for recognition in all the wrong areas. Aping our northern neighbor’s2008 Olympic games performance doesn’t make us a dragon . India is like an elephant , a one that can dance. But unlike Beijing Olympics, people who have been forced out have not been adequately rehabilitated. I hope the sports complex would serve good for India’s promising sportsmen. I think India should stop trying to impress other countries, and rather look inwards. Why stop at cricket IPL? Let us have leagues for hockey, soccer and basketball too! (A note of caution that there be no incestuous relationship between organizers and team owners!) Death to Commonwealth Games i.e The Shame Games!
Having said that, you have to give the devil his due! The “ability” to speak English has served Indians as a blessing! I see tremendous potential from today’s youngsters. Let this decade pave under privileged Indians a path from working class to middle class. English is helping India transform from an agricultural economy to knowledge economy. While Indian babus are busying themselves with stuffing swiss bank accounts, I look for inspiration elsewhere!
http://blogs.hbr.org/govindarajan/2010/08/the-300-house-a-hands-on-lab-f.html
Vijay Govindarajan isa celebrated professor at Dartmouth and we need more people like him! Go reverse innovation! A good inspiration for Indians would be Jews! They make up only two tenths of a per cent of the world’s population, and yet, they have claimed twenty per cent of Nobel prizes. Let’s do the calculation for Indians or may be not! Well, jews may be at the extreme end of human performance, but we still need to up our game! India needs some role models and heroes (and I am not talking of bollywood type! )! As a dissenting patriot, I renounced, a longtime ago, the motto”my country right or wrong!” and embraced “right my country’s wrongs, so I can always be proud of it”. If my comments have hurt anyone, it’s only to spur them into action
It’s now time to talk about my adopted homeland- the land of the brave and the home of the free- US. Americans go on a limp to pronounce correctly, the words borrowed from European languages. But when it comes to Indian languages, they take all kind of liberty . I am glad Avatar, an Indian word was used for the most successful Hollywood movie of all time. Couldn’t Cameroon have done a little work to find out the actual pronunciation? The same is true for almost any Indian word, be it Guru/ Pandit/Himalayas/Basmati are only a few examples! Idiotic European words, which seem to take all kind of liberty with spelling, are spoken correctly then why not with Indian words? At least we speak the same way we spell! At times western languages seem unworthy of their global dominance. Selectively skipping pronunciations and then sneering over anyone who dares to question such idiocy! I want Sanskrit to be a strong contender for being a major international language! If Hebrew can be revived from death, in post worldwar II Israel, as national language, so can be Sanskrit- but this time for the rebirth of Indian pride!
Recently there has been a lot hullabaloo about the discovery of earth-like planet, 20 light-years away. Scientists have been searching for intelligent life in the universe for decades, yet their efforts have been futile until now (apparently)! In all likeliness, they have been avoiding us! Who would want to come here to watch so many reality shows or listen to rap music? I am keeping my fingers (and toes) crossed that they have far superior entertainment, and are willing to share with us! Actually, intelligence is a vastly overrated character. NASA is trying to get more funding. I personally like copying (I mean inspired) better!
Discovery of earthlike planets might be only half the task, the real work is to verify the presence of water! It is only a few years ago that Mars rover was able to find water on conclusively, now don’t we all think that planet X rover is a little too far away?? I personally feel that we should let other planets be alone. Mankind’s track record with Earth is not so good (read plastic filled islands, BP disaster, climate change). One doesn’t need to look far to find proof. As if smog is not enough bother in LA, I just found out that our pacific ocean is eminently polluted. One would think ocean to be seemingly infinite in its capacity to feed and nurture, and can withstand anything! But, man with the aid of technology has achieved the impossible! And to add insult to injury, the most common particles found in LA’s tap water are toilet paper and tampons!
September 17 has been auspicious as Oprah finally mended fences with Franzen, and Freedom was allowed into her book club! Franzen mania has taken the fiction world by storm. I’ve ended up buying the e-book. What’s better than having the celebrated author narrate the story in his own voice! The book made me reevaluate my life’s goals. It made me aware of broken families in America and created somewhat premature regrets about my own future. The next logical step would be to read “The Corrections”, the book that got Franzen National Book award in 2001.
Having just turned 30, it made me think if it is a meaningless milestone or not? Good or bad, Franzen, in his own admission, has turned adult only at age 50, so what’s the hurry? At least physically not very much, but intellectually and emotionally it’s a positive milestone. I believe if you are over 30 and a guy, you need not have your shit figured out AND be married AND have kids. For a girl, either you are a career minded shrew OR a husband hunter. This is a false dichotomy. It doesn’t matter if are a guy or a girl, just have your shit figured out! Life is not about finding your PERFECT partner, it is rather knowing that there is none, and be realistic about it!
So, marriages are mostly hit-or-miss, but weddings are always fun. After a really long time, I attended a charming, elegant wedding at a cute garden café ! Congratulations to Alfredo and Lucy for trusting each other with life! I certainly noticed that the couple is very much passionate about each other! Very thankful for being part of a joyous occasion.
I recently had the opportunity to participate in World Medical tourism conference, held at La La Land. I met a lot of providers and made some cool friends too! The three day event has been stressful, with having to attend all one-on-one meetings and also had to take care of my current business. I am lucky to have the conference held at LA, but next year it is going to be in Chicago  Sleeping in one’s own bed is a perk, given most of the attendees flew from half way across the world to attend the conference.
Given the conference fees and actual costs on the ground, I can’t help but ask some difficult questions. Who the heck elected the MTA president and who is auditing the expenses? It’s nonprofit, but let’s not put all nonprofits on pedestals. Some of them are just a cunning way to run business with little government oversight, while rewarding the officers 6 figure salaries and obscene perks!
I heard all the talk about TSN being the top Oscar contender but now I know why! Watching TSN movie is the one of the few spur-of-the-moment decisions I do not regret! The movie had the discipline to stick to the facts, though some dramatization seems understandable for romcom addicted audience. The movie’s premise is interesting, given FB is at its peak of popularity. Most people on FB have no clue about the actual very origins of the portal that they visit zillions of times.
For FB/twitter generation, where does privacy begin? Everyone is a celebrity and also a paparazzi. FB has become a never ending high school popularity contest, and something gotta give!It is just not peer pressure to have a FB profile but also be judged by the number of friends , and the number of postings on the wall. In good ole days, you can forget any undesirable “friends”, but here you are in virgin territory. Who to add? Whose posts to comment on? And, who to invite to events? On the other hand, FB takes burden off us, by giving great tools to manage acquaintances and organize social life. So we have more time to manage actual friends in the real world!
No story of FB is complete without the talk of FB’s valuation of $33B. The valuation seems very high, as similar .coms had difficulty monetizing. It’s not like Google 2003, as analysts would like us to believe, which provided very valuable service. Google is in no small extent responsible for the success of entrepreneurs like me! It made a lot of information disposable. Why memorize it when you can search (I mean Google) it! These days you can search (I mean google) anything under the sun/stars/moon! One conclusion from Zuckerburg’s tale is that one is one’s own painter of life. It’s no ordinary feat to go from nobody to 500m friends in a few years. All one has to decide is, how do portrait done? I just wanted to be a millionaire when I turned 30 and this guy is already a billionaire, and he is not even 30!!!
Tune in this for this page, as I update on AR Rehman concert, Vegas trip and development in developing nations !
This blog is not a thinly veiled attempt to build a shrine for my ego and any such incidence is purely coincidental!

 
Leave a comment

Posted by on October 8, 2010 in Uncategorized