Now that Groupon (NASDAQ:GRPN) has gone public, questions and gossip about the company continue. One speculation floating around the Web is Groupon?exhibiting all the characteristics of a classic Ponzi scheme.
In a Knewton post prior to Groupon trading as public company, the author stated his with the following:
Groupon (NASDAQ:GRPN) has found that you can get local merchants to try anything once if it brings them new customers. A few local merchants in Chicago get them started, and Groupon shows good revenues. In fact, Groupon immediately remits half of those ��revenues�� back to the local merchant �� they were never Groupon revenues in any meaningful sense of the word. But, optically, Groupon revenues look high �� which they use to raise a financing round at a high valuation. Then they use the proceeds to hire vast armies of salespeople to dig deeper into Chicago��s local merchant community and repeat the trick in other cities.
Unfortunately for merchants, the new customers don’t stick around since the advertised discount is usually a one-time deal. As a result, the merchants usually discontinue using Groupon. Groupon responds by adding new merchants, raising another round of money, and expanding its sales force. This is called a “churn and burn” business model.
Groupon (NASDAQ:GRPN) will work only?if local merchants get something back for the cost of extreme discounts. If they don’t, it’s really a Ponzi scheme.
What does Groupon say?
The company believes it helps local merchants grow and expand their customer base. This is the payment for gaining customers through Groupon (NASDAQ:GRPN), and it is allegedly the sales pitch used to close the deal.
Many people looking for a discount use Groupons for many merchants rather than becoming a new loyal customer for any given business. Groupon gets the money from the merchant; however, some merchants might not get back anything in return after th! e dust s ettles from a deal.
What do you think? Does Groupon sound like a Ponzi scheme to you?
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