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Chicago-based Groupon is certainly one heck of a startup. Like Zynga it sort of came out of nowhere in 2009. Even last December I was sort of only vaguely aware of how fast it was growing.
But it was clear by early 2010 to the whole world that Groupon was on a tear. First a round valuing it at $250 million. Then just a couple of months later it raised new money at a $1.35 billion valuation.
And then in the last few weeks Yahoo offered something even higher for the company – between $1.7 billion on the low side and probably $4 billion on the high side. And Groupon passed.
Revenues are in the $50 million per month range, and the company has roughly 50% gross margins. By some measures, Groupon is the fastest growing company, ever.
Groupon is often said to be the next eBay at Silicon Valley insider dinners and events. But Groupon isn’t going to have the same success eBay has had.
At first blush it seems like a valid comparison. Groupon’s revenues and profits blow the early Ebay results out of the water. When eBay was three years old and going public in 1998 it had revenues of just $4.7 million. Groupon does that much in revenue every three days or so right now.
Today eBay has revenues of a little over $2 billion every three months and is worth around $30 billion. It’s not at all unreasonable to think that Groupon could eventually grow its revenues way beyond $2 billion/quarter – the local products and services category would easily bear that kind of fruit.
But there’s a couple of problems with Groupon. The first is how it scales – it needs a lot of sales people for each market it handles and already probably has more than 2,000 of them on payroll. But the real problem is the complete lack of a network effect to protect its business.
Ebay is expensive. And it has a horrible user interface. Buying stuff is a pain compared with sites like Amazon that have put real effort into making buying painless. It’s also expensive. Everyone would love a better eBay, but after ten years of people trying to kill it, it just keeps going.
Why? Because everyone’s already on eBay. And every new buyer or seller makes eBay more valuable than it was before. Anyone competing with them has to find a way to counter that, and it’s nearly impossible. Even free listings from big companies like Amazon and Yahoo flailed dramatically.
In other words, eBay would have to really work at it to destroy its core business. And since it dominates the market it can continue to charge exorbitant fees and not worry about the user experience.
Groupon has none of that. When Groupon gets a new user that’s great. But that user will quickly leave to Living Social or One Kings Lane or any of thousands of other competing sites for better deals. And when Groupon gets a new “seller,” there’s no reason why that seller won’t also go try out the competitors, too.
There’s just no network effect in Groupon’s business model. Which means competitors can flourish and margins will get crushed.
At TechCrunch Disrupt, Benchmark Capital’s Matt Cohler said he wasn’t sure if Groupon would succeed over the long term. I asked him if he wished he was an investor in Groupon:
That question keeps me up at night. the question for me is…if you look at it from a purely academic point of view, there are neither barriers to entry nor are there switching costs in that product. Typically when a product has those characteristics margins tend to collapse over time. In theory the only thing stopping that from happening is Groupon’s brand…It may turn out that daily deals are ad units, and lots of different products can apply that ad unit.
What can Groupon do to avoid having their margins crushed by competitors? Establish generous revenue sharing relationships with distribution partners, fast. And that appears to be exactly what they’re doing. In the next several weeks the company will likely announce partnerships with Yahoo and CitySearch, we’ve learned.
Oh, and one more partner, too. And that partner will be…eBay.
Update: Great email comment from Alex Rampell:
I actually think Groupon is a “winner take most” market and not winner take all. Amazon has a plurality yet a distinct minority of ecommerce share ($25B in 2009 revenue out of WW ecommerce rev of $600B) yet has a market cap of $74B, 2.5X that of eBay. No barriers to entry.
There are no barriers to entry for online commerce companies — yet Amazon keeps decimating the competition. There are, however, economies of scale. I think Groupon can be the Amazon of Online2Offline commerce, and there’s no reason they can’t get to $25B in annualized revenue like Amazon, but at a much higher margin.
Whether they’ll command the same kind of earnings multiple as Amazon is another story.
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The question comes up often. Many people have been burned by SEO Services, but many have also been rewarded by SEO Services. Like any business transaction or purchase you should only spend your money when you feel comfortable. Your comfort zone should pull from various dependencies, such as how well do you know this business, how long have you been doing business with this person or entity, what is your first impression, how do you personally feel about this person or entity ability to provide this service, and how well have you done your homework.
The truth about SEO services is that it is normally not hard work, but that doesn't mean its easy. It still takes time, dedication, effort, strategy, technique, method, skill, and experience to perform quality SEO services. Anyone can use SEO services because it is within your reach to learn, but not everyone can apply sensible strategy to make SEO work. That is why SEO engineers are needed to accomplish the almost impossible, but the question is how do you know you are making the right choice and not overpaying for SEO services?
I can honestly say for the most part SEO service providers are on the up and up who want nothing more than to do professional business and provide quality SEO services. Identifying every shady SEO service may not be possible, but I have some recommended advice which should help anyone get a fair and quality rate for SEO services.
- Set yourself a "realistic" marketing budget and goal
- Shop around
- Don't buy until you feel comfortable
- Remember "cheap does not always mean better"
- Ask for references / referrals / portfolio
- Verify references / referrals / portfolio
- Ask for statistical growth and progress reports
Set Yourself a Realistic Marketing Budget and Goal
This simply mean do not kid yourself and think you can pay $200 and overnight you will make thousands. Instead, create a budget depending on your marketing needs, competitive industry, projected outcome, and length of time. If you are looking for your website to rank in the Top 10 search engine result page for a particular keyword or keywords then expect to pay in the thousands, often times tens of thousands, for quality, professional, and reliable SEO services, almost always depending on the competitiveness of the keyword. If you want to rank in the top 10 for the keyword "Google", this in most cases impossible, but I am sure there are some SEO companies who will accept the challenge, but will charge in the thousands if not millions to attempt this insane marketing goal.
Shop Around
Find the most appealing SEO services and compare those to other competitive SEO services. Don't settle for "cheap" or "inexpensive", but settle for "effective" and "strategy". Anyone can do SEO work, but not everyone can improve results using SEO services. This is because, SEO is about technique and strategy. It's not about just throwing thousands a links around the web and sitting back waiting for the explosion. Its actually a lot more complicated than that, as it is about having strategy, technique, and competitive edge. You must find SEO services which live by this principle and can offer you the strategic road map you need for success.
Don't Buy Until You Feel Comfortable
You should always feel comfortable with entrusting your money into an SEO service provider paws. If you have special needs such as you want to sign a contract, you want a specific pay schedule, or you have any questions, make sure you get answers and are comfortable with the projected outcome then move forward. I personally suggest getting a contract which outlines the projected outcome and any other bullet points, then also exploring the consequences or possibilities if the projected outcome is not met.
Remember "Cheap Does Not Always Mean Better"
This is a buyer beware notice. When someone offers $20 SEO services or even $200 SEO services, I would say "buyer beware". There may be a handful of highly skilled SEO providers who can offer you SEO services at a discount or for extremely low rates, but most of the time these providers either do not know their service worth or know exactly what they are doing, but may have had a lucky streak. You will have to pay top dollar or aggressively, yet still affordable for quality, strategic, and experienced SEO services. SEO engineers is what I like to call them. These are SEO's who understand the SEO concept, who pioneer SEO methods, and who don't always follow the trend, but know the trends.
Most of the SEO engineers are not going to be cheap, but well worth every dollar spent. If you take into consideration other marketing and advertising platforms, such as television broadcast advertising, print advertising, large tradeshow/fair booth advertising, etc. internet marketing and search engine optimization cost peanuts compared to these other advertising methods and have a farther audience reach. SEO services can easily cost between $5,000-$25,000, it can even be much more than this, depending on your needs, but this is far more inexpensive and cheaper than other advertising platforms. So, next time you think that SEO service cost too much, think about the other methods of advertising and their rates, along with return on investment (ROI). SEO services come out on top every time when compared against these other advertising platforms.
Ask for References / Referrals / Portfolio
Any SEO service provider should be able to point you to their qualifying work. SEO service providers should be able to present you with affectionate websites which they have performed SEO work on. This can even be the SEO service provider personal website, they should be able to point you to their rankings in the search engine as well as some result driven SEO work within the site or across the web.
Verify References / Referrals / Portfolio
Verifying information is not always easy or accomplishable. You should attempt to reach out and verify what you can. If a shady SEO business was going to scam, then I am sure this is where they would start, with testimonials. I suggest verifying what you can, but don't get overwhelmed with referrals because it may be the shady SEO business giving self praise. I actually have some good verification tips, but that's another article all within itself.
Ask for Statistical Growth & Progress Reports
The SEO service campaign should include periodic progress/performance reports so you can track your website progress. Tracking your website progress is important in many ways. First, it tells if the SEO engineer is doing their job. Second, it tells you if the SEO methods, strategy, and technique is working or not. Third, it tells you how well the search engines are reciprocating your SEO efforts. And lastly, it tells you how much progress is being made and at what rate. All of this advanced reporting information and trend tracking can give you an overview of your website potential while giving you the opportunity to design or redesign your landing pages to increase your return on investment (ROI).
Okay, to wrap it up, just be sure you stay out of shabby internet neighborhoods and when making any online transaction, do your homework first. Also, remember "cheap does not equal better". Think about it, would you rather pay in the thousands to one SEO company for quality SEO work, which will produce results and increase your website overall performance or would you rather pay cheap $200 to many different SEO's who don't ever really give you the results you deserve. If an SEO engineer can increase your website sales and exposure by 80% without your site ever reaching the top 10 search results then you still got a good deal. This is the effect of skilled and experienced SEO services. The only difference between your website and the websites in the top 10, is those websites have SEO engineers working for them who understand SEO.
About the Author Ant Onaf is the owner & founder of AntOnaf.com (http://www.antonaf.com), a provider of professional and quality SEO services. AntOnaf.com offers affordable SEO services as well as custom SEO packages to fit your marketing needs. Ant Onaf ingenuity, dedication, and passion for internet marketing & technology has made him an monumental icon across the World Wide Web. Article Source: |
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