Groupon

Groupon is interesting on a few levels.

First is its business strategy, which has allowed it to grow from 3.4 million subscribers in 2010 to 83.1 million in 2011 by flooding the market and leveraging heavily.

Maybe this will work out, or maybe it will be a disaster. But it’s worth noting that absolutely nobody thinks it’s categorically absurd to think that what a firm needs to do to maximize long-term profits is boost spending over revenues. The idea here is that there are substantial network effects in the online coupon business, such that one dominant player will earn lots of money and the minnows won’t. Under the circumstances you want to spend what it takes to become that dominant player.

The thing is, they received 950 million venture capital in January. And they're hardly alone in the market, which isn't necessarily profitable yet ;x.

On the one hand it seems as far as I can tell a pretty good deal, (indeed, if you can handle a "full inbox", as the msnbc article puts it), and objectively this is the type of thing that helps bridge supply and demand in a way that benefits everyone. These days, especially in western countries, people dont have too much extra cash to spend on things, as privately held, publicly held, and especially household debt has soared. So you create a way people can spend money and stimulate the economy (keep the businesses running, in a sense, and circulate money, giving it a multiplier effect), and people benefit by (ideally), getting things they want.

But in practice, the obvious business model here, if there indeed is one (and of course it works on a certain percentage of subscribers), is to get people to consume more than they otherwise would have, and to want things that they would not otherwise buy. You could argue from a 'pragmatist' standpoint that stimulating more consumption because we exist in a consumer-capitalist economy and it's important to save jobs and get more money into the hands of the lower classes because a better economy is more tax revenue and more job opportunities and yada yada. But of course even a consumer boom wouldn't make up for the structural problems of the accumulation of capital wealth, where it becomes minimally productive except in rare occasions of charity such as the Gates foundation, which is still perfectly debatable. If that money had been immediately taxed and redistributed back to public services, perhaps Africa would have been less benefited in the long run, but aggregate public welfare could have increased much more efficiently.

Finally, I wonder, on a meta level, to what extent discussion about groupon's feasibility as a business and its huge debt-financed growth limits people signing up for groupon. It's similar to the psychology of the adoption of physical technological innovations, like VCRs. If you see it having a future, you buy video tapes. Becoming a member of groupon has, comparatively, a very small barrier of entry, meaning it's easy and free to sign up. But the feeling that a company like Groupon has a viable future still has a certain effect on a choice to use the service (as a consumer) or for companies (the deal offerers) to choose a dominant company (groupon) over other small ones.