Plain ol' Coffee

Back to coffee after yesterday's tea.

Today's Effort: Regular hot coffee today with cream (or was it milk?) and sugar at L'Express this afternoon.

Verdict: Not bad. I finished my cup, and I didn't even resort to a second (or third) packet of sugar.

Neighborhood Note: Grabbed lunch at Terakawa Ramen before my coffee stop. It's a hole in the wall with shockingly bad service for a Japanese joint, but the ramen hits the spot.

Caffeine Search Continues

Took a day off from coffee and tried tea this morning.

Today's Effort: Iced Chai from The Bean near Union Square.

Verdict: Tastes like pumpkin pie with whipped cream. I thought it was delicious at first, but I didn't end up finishing it.

Extra Crunch: The baby cockroach creeping up the wall as I sipped my tea concoction certainly didn't help anything.

Finding Coffee

I've never been a coffee drinker. I used to only drink coffee in Europe and Asia, but I thought I could use a little more caffeine in my life. Coke wasn't doing it, and everyone seems to enjoy coffee. I thought I'd give it a shot.

Turns out I don't like the taste of coffee. I've been trying various coffee-ish drinks from Starbucks for the last couple weeks, trying to find something I enjoy.

Today's effort: Grande Iced Caffe Mocha

Verdict: Blech. I haven't been able to drink more than a third of it.

Silver Lining: Starbucks' glazed old fashioned donut isn't half bad, and it brings back memories of Colonial Donuts on Lakeshore Ave back home.

If you have a suggestion for a delicious high-caffeine drink I might enjoy, please leave me a comment.

Ghosts of Bubbles Past

Brilliant, and timely:

To highlight this point, consider the absurd example of a Web-based company whose core service is to sell dollars for $0.85 each. This company could obviously achieve record visitors and page views at its Web Site. Revenue growth would easily set records, and it is quite conceivable that sales could reach into the billions within the first few quarters of operation. Apply even the most conservative Internet price-to-revenue multiple to this franchise and we are talking about a multi-billion dollar market cap.

...from 13 years ago. @bgurley via @cenedella

Notes on the Groupon S-1

Full filing available from the SEC: http://sec.gov/Archives/edgar/data/1490281/000104746911005613/a2203913zs-1.htm

Couple notes:

• Growth has been preposterously good.
• Groupon spent $180mm on customer acquisition in Q1 '11 and grew by a net of 33mm subscribers. That's $5.45 per net subscriber.
• Their margins are 42%, and not the 50% they so often claim. Now that their average take is public, will they still be able to talk people into giving them 50%?
• Rob Solomon earned 6.8% of the company for about a year's work. What the hell kind of vesting schedule was that? Was he going to earn 25% of the company if he stuck around for a normal 4-year vesting schedule? Or was Groupon generous enough to vest 100% of his shares after only a year? Seems ludicrous.
• I find it more than a little odd that they ignore their marketing expenses when determining CSOI - one of the three key metrics they watch.
• More than half their revenue is from their International operations
• "We also offered several national deals to generate revenue and increase brand awareness, which reduced our gross margin."
• "We have focused the majority of our marketing spend online, particularly on social networking websites and search engines as part of our new subscriber acquisition strategy."
• In an effort to find some negative numbers in the Groupon filing, I see the following: Percent of subscribers who have ever purchased is down 25% from Q1'10 to Q1'11; revenue per merchant is down 25%; Groupons sold per merchant are down 18%; average Groupon price is down 9% to $23.
• In the last quarter, Groupon's net cash from operations was $18mm. The biggest factor there was "a $121.2 million increase in our merchant payables, due to the growth in the number of Groupons sold". Holy cash flow!
• "For example, in December 2010, we partnered with Redbox to offer a daily deal to their user base and we acquired over 200,000 new customers through that offer and in March 2011, we partnered with eBay to offer a daily deal to their user base and we acquired over 290,000 new customers through that offer." Big deals!
• 7,000-person headcount includes 3,500 sales people, 410 "city planners", 925 editorial staff, 277 merchant services personnel, 825 customer service reps, 253 in Tech
• "As of March 31, 2011, we had 1,724 employees in our North America segment, consisting of 811 corporate and operational staff, 661 sales representatives and 252 customer service representatives"
• Groupon's new COO is making a killing. $500k base, $500k bonus, 1.1mm shares (300k of which vest immediately)

The following bullet is going to deserve its own section:

• "The Q2 2010 cohort included 3.7 million subscribers that we initially spent $18.0 million in online marketing to acquire in the second quarter of 2010. In that quarter, we generated $29.8 million in revenue and $12.8 million in gross profit from the sale of approximately 1.2 million Groupons to these subscribers. Through March 31, 2011, we generated an aggregate of $145.3 million in revenue and $61.7 million in gross profit from the sale of approximately 6.3 million Groupons to the Q2 2010 cohort. In summary, we spent $18.0 million in online marketing expense to acquire subscribers in the Q2 2010 cohort and generated $61.7 million in gross profit from this group of subscribers over four quarters."
• From the bullet above, we can extrapolate that it took about four months for Groupon to make their money back on a per-subscriber basis.
• The average new member cost $4.86 and delivered $3.46 in gross profit during Q2'10, nearly paying off immediately. Over the next three quarters, that same group of people delivered an average gross profit of $4.41 per quarter for a total first year gross profit (ignoring acquisition cost) of $16.68.
• Groupon members seem to be spending more the longer they're members. (Although the Q2 profit/member metric might look unduly low because of members who joined at the very end of Q2, leaving themselves little time to contribute to those Q2 profit numbers. Wouldn't it be helpful if Groupon shared the profit per member during the member's first 90 days - instead of the arbitrary Q2...?)

In summary, Groupon's S-1 filing is a fascinating document about a fascinating company. Lots to learn from in there...

Inbox Zero?

I currently have 273 emails in my work inbox and 180 in my home inbox. I've got a lot of work to do to get back to zero, but I'm going to do so by 12/31/10.

What's a Groupon Really Worth?

I spent a little time this last week looking at Groupon’s excellent GrouponWorks site. It’s the site they’ve built to help merchants understand how Groupon works. They also have a nice section about what merchants should do in preparation for their deal running on Groupon. The best part of that section is a 30 minute video: Merchant Preparation Webinar.

In the video, one of the points they make is that merchants should set the value of their Groupons so that customers will end up spending more in their first visit. The example they use is that restaurants should set the value of their Groupon at 1.5 times the price of an entrée. The assumption is that people won’t dine alone, and that they’ll immediately spend more.

Let’s dig into that a little more for a made-up restaurant that has $20 entrees. At that price point, Groupon would recommend a $30 Groupon that they’d sell for $15. For the customer, that looks great: 50% off. And for the restaurant, it doesn’t look so hot, because Groupon keeps 50% of the $15: The restaurant gets $7.50 when they’d normally get $30.

But remember, the customer is unlikely to actually spend just $30. That’s the whole point of setting the price. Let’s say you go to dinner with your friend and order an appetizer ($10), two entrees (2 x $20 = $40) and two drinks (2 x $7). At those prices, the total bill would be $64. The customer would redeem their Groupon for $30 and owe $34 out of pocket. Now, the customer has paid $15 + $34 = $49 to get a $64 dinner, a savings of 23%. The flip side is that the merchant is getting that $7.50 + $34 = $41.50 when they’d normally get $64 - a 35% haircut for them.

At those numbers, the customer is still getting a good deal, but it’s not even half of the 50% discount they were advertised. And the restaurant is only really discounting their prices by 35% - a far cry from the 75% discount they appeared to be giving away at first.

It gets to the heart of what Groupon is: a clever marketing trick. The trick is on the naïve customer who thinks they’re getting a 50% discount when they’re only getting 23% off – OR – the trick is on the merchant falling prey to savvy customers who spend only the exact value of the Groupon, forcing the merchant to give up 75% of their normal bill.