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"like most of the working class, I’ve developed a locust morality."
April 11, 2013 2:50 PM   Subscribe

The Locust Economy
I was picking the brain of a restauranteur for insight into things like Groupon. He confirmed what we all understand in the abstract: that these deals are terrible for the businesses that offer them; that they draw in nomadic deal hunters from a vast surrounding region who are unlikely to ever return; that most deal-hunters carefully ensure that they spend just the deal amount or slightly more; that a badly designed offer can bankrupt a small business. He added one little factoid I did not know: offering a Groupon deal is by now so strongly associated with a desperate, dying restaurant that professional food critics tend to write off any restaurant that offers one without even trying it.

...
Locust swarms are aggressively and energetically social. Remind you of any contemporary pattern of human behavior?
"It isn’t the 1% fat cats who are becoming victims of the new economy. It is the little capitalist in the middle."

REVIEW: The Locust And The Bee: Predators And Creators In Capitalism's Future
posted by the man of twists and turns (73 comments total) 32 users marked this as a favorite

 
Amazingly, Groupon is still valued at over $4 billion. At one point, it was valued at nearly $15 billion. Of all the crazy social networking stocks, Groupon has always seemed to me to be the craziest. I can't even begin to understand how a company like that would end up being profitable (of course, this is quite possibly simply a failure of imagination on my part).
posted by (Arsenio) Hall and (Warren) Oates at 2:56 PM on April 11, 2013 [4 favorites]


Feeding on the desperation of others is a growth industry!
posted by LogicalDash at 2:59 PM on April 11, 2013 [10 favorites]


That's true about the Groupon thing. I love Groupon because it gives me the chance to try out new places I might not otherwise check out, but I hate Groupon because a lot of the time, I end up liking the place, and then they go out of business a month later. I've also used Groupon for things other than restaurants, like archery lessons, and have now discovered that I absolutely love archery.
posted by infinitywaltz at 2:59 PM on April 11, 2013 [8 favorites]


I can't even begin to understand how a company like that would end up being profitable (of course, this is quite possibly simply a failure of imagination on my part).

First, they offer discounts on underpants. Then, they steal all the underpants.
posted by It's Raining Florence Henderson at 3:00 PM on April 11, 2013 [15 favorites]


With meaning to derail, Foursquare is crazier. They just raised $41M and declined to provide a valuation. "This allows us to get closer to being able to prove that there’s a real business here," said the CEO of a "$600M" company.
posted by 2bucksplus at 3:01 PM on April 11, 2013 [4 favorites]


Maybe it's regional, but it just is not true that restaurants offering Groupons are on their last gasp. Quite a few are established, high-volume sellers looking to establish new customers and willing to cannibalize some sales to do that. While I'm sure it's true that many business owners got burned by Groupon's model and would never do it again, at this point, I've got to imagine most businesses know about that danger and enter into it believing it to to be a worthwhile risk. I love bagging on Groupon, and will never do business with them again, but this is an overly bleak picture, I think.
posted by skewed at 3:02 PM on April 11, 2013 [2 favorites]


offering a Groupon deal is by now so strongly associated with a desperate, dying restaurant that professional food critics tend to write off any restaurant that offers one without even trying it.

I am no food critic but I do this. "Hey, there's a restaurant I've never heard of ... why is this so cheap?"

Pretty much the only thing I use Groupon for is drycleaning, using the same cleaner I would have gone to anyway. My cleaner has offered so many deals that if they were getting screwed I figure they'd stop doing it.
posted by desjardins at 3:05 PM on April 11, 2013 [2 favorites]


skewed, did you do business with them as a retailer? I'd be interested to hear some more details if you're willing to share.
posted by boo_radley at 3:06 PM on April 11, 2013


No, just as a buyer, had bad experiences with groupon-businesses not being able to reasonably perform the services they offered and Groupon wouldn't refund despite their "Groupon Guarantee" or whatever they call it.
posted by skewed at 3:09 PM on April 11, 2013 [1 favorite]


I know quite a few small business owners, Groupon has been a disaster for everyone who doesn't have aubsurdly huge margins so they still make money. Restraunts are shit out of luck.
posted by The Whelk at 3:11 PM on April 11, 2013 [2 favorites]


I am not especially familiar with Groupon, but I have taken advantage of it once with a friend who, to be fair, lives in an expensive city, has a newborn and is kind of stretched thin financially. We went to a moderately expensive restaurant, each had dinner and a drink, and the tab came to nine bucks or something of the sort. There is no way on earth I can see any business thriving on this sort of thing.
posted by ricochet biscuit at 3:17 PM on April 11, 2013 [1 favorite]


I don't really get his lumping Airbnb and Zipcar in with Groupon. Groupon is clearly a charlatan, while the other two are just slightly exotic versions of existing business models.
posted by sriracha at 3:18 PM on April 11, 2013 [10 favorites]


On one hand, I understand (in an abstract sort of way, given that I am not a business owner) that merchants offer promotions with the goal of strengthening their businesses, and that they expect promotions to have some sort of lasting payoff.

On the other hand, I personally and viscerally dislike it when merchants express feelings of betrayal or being taken advantage of by consumers when a promotion backfires or is ineffective. It's a calculated risk. You don't have to take it. No "honor code" makes customers feel empathy for businesses.
posted by Nomyte at 3:20 PM on April 11, 2013 [26 favorites]


Richochet, the restaurant also got a cut of the Groupon purchase price (around 50% I believe?). So if the Groupon was a typical $25 for $50 worth of food at Joe's, and the bill came to $59, you'd have to pay $9 out of your pocket. The restaurant keeps the $9 and $12.50, so they get $21.50 for the meal. Depending on the restaurant's business model that could be worthwhile profitable, worthwhile but costly, or disastrous.
posted by skewed at 3:21 PM on April 11, 2013 [1 favorite]


Yeah, I think the locust metaphor was interesting for Groupon, but I'm not clear why it would apply to Zipcar. There is something really unpleasant about AirBnB to me, but I can't quite put my finger on it, and I'm not sure if it relates to what makes Groupon bad.
posted by skewed at 3:26 PM on April 11, 2013 [1 favorite]


The problems with Groupon are pretty well publicized, and theoretically business owners are able to do basic arithmetic, so I don't feel especially bad for businesses who use it.
posted by desjardins at 3:26 PM on April 11, 2013 [5 favorites]


Was I the only one who was hoping that this was an article about restaurants making use of the upcoming east coast locust swarm?
posted by Phredward at 3:34 PM on April 11, 2013 [7 favorites]


I don't know about airbnb, but I have a family member who uses vrbo, which I think has the same set up, and she makes a nice bit of side money through it. It's completely up & up with regards to taxes etc, and it's a GREAT alternative to hotels if you have a bunch of people or are staying long enough that going down to the corner for Chinese will no longer appeal.
posted by small_ruminant at 3:38 PM on April 11, 2013


I feel dumber every day. Nothing in this makes any sense to me.

Why would a business owner offer up a groupon deal that actually loses them money on each coupon used? Businesses do that? I'd always thought the deals were balanced so as to be a tiny profit on the dinner, and then a substantial profit on any drinks or overages. Who is dumb enough to offer a deal where they lose money on every cover?

How does his coffee shop example relate this at all? What does a coffee shop (not called out as offering coupons) suffer particularly from the locusts?

And what does either have to do with AirBnB or ZipCar? Even if he's just saying that those services have to offer lower prices than traditional cabs and hotels in order to get business, so what?
posted by tyllwin at 3:44 PM on April 11, 2013 [2 favorites]


What people don't realize about Groupon is they're mostly (by headcount) a telemarketing company that calls (and calls and calls) small businesses promising them foot traffic, providing their own figures showing what a great deal a Groupon would be. It's pure call center sales and not every small business owner is savvy.
posted by 2bucksplus at 3:53 PM on April 11, 2013 [22 favorites]


Times must be tough if successful bloggers with PHDs think they're in the working class...
posted by Halogenhat at 3:54 PM on April 11, 2013 [4 favorites]


This article would have done better to stick with the criticism of deal sites like Groupon. They have nothing to do with the Sharing Economy. Likewise, there's nothing locusty about AirBnB or ZipCar.
posted by the jam at 3:55 PM on April 11, 2013 [3 favorites]


Why would a business owner offer up a groupon deal that actually loses them money on each coupon used?

We lose money on every transaction, but at least we make it up in volume!
posted by the man of twists and turns at 4:04 PM on April 11, 2013 [1 favorite]


I worked at a restaurant that did a promotion with a company similar to groupon. You don't necessarily make money on the promotion itself- you make the money when people buy the coupon, and then lose it, never go, or miss the expiration date.
posted by BuddhaInABucket at 4:04 PM on April 11, 2013 [8 favorites]


To clarify: you "make" the "money"
posted by BuddhaInABucket at 4:05 PM on April 11, 2013 [4 favorites]


VRBO is subscription based (for advertisers) where airbnb is commission based, charging both travelers and advertisers a fee per transaction.
posted by ejoey at 4:26 PM on April 11, 2013


Businesses, particularly restaurants, make money by repeat customers.

it's for the same reason haircut places offer "1/2 price for new customer" - they want you to like it and become a full-paying regular. Restaurants being notoriously difficult to run successfully, I have to imagine they are looking to create repeat customers any way they can.
posted by drjimmy11 at 4:27 PM on April 11, 2013


Also, "good food" being such an amazingly subjective thing, I bet many owners are able to talk themselves into thinking, "If they just try our awesome food once, they'll be hooked and we'll profit long-term."
posted by drjimmy11 at 4:28 PM on April 11, 2013


I've enjoyed Venkat's pieces in the past, but I felt this one was way off the market. Putting aside the fact that the metaphor of a locust swarm is stretched beyond usefulness ("a swarming platform “organizer” player who efficiently disseminates information about transient, local resource surpluses"?), I thought that a lot of the objections basically boiled down to 'sharing resources is annoying'.

Let's take Airbnb as an example. Right now, I'm on holiday. There exists a fairly decent flat in London that is empty. I would be very happy for someone to stay in it; I don't even need that much money. Yes, there are all sorts of inconveniences that would be involved in making that happen, like cleaning, security, deposit, payment, etc, but if I either work through them myself or they are automated/outsourced (in a fair manner) then I don't see how it's a bad thing that we basically save a fraction of the resources involved in building yet another expensive hotel room in London.

The same applies for car sharing; there are significant environmental benefits across the board, from the manufacture of cars to emissions. Yes, it's 'annoying' to organise trips, but it's getting less annoying every single year.

I'll agree that it is a shame that there are a lot of cafes going out of business. It has always been thus - business is hard, especially these days. But I don't think this has anything to do with Groupon; most cafes don't use it. Most people don't use Foursquare either. The reason people (like me, unfortunately) go to Starbucks is because they have a certain minimum level of quality and we care more about that than any interesting/unique/moral benefits from going to indie cafes. But that's changing as well. I actually think that Starbucks is a big business - a coffee publisher, if you will - that is ripe for disintermediation.

Now, I do have a problem with the fact that Airbnb, Zipcar, and all these other social sharing services, are run by for-profit companies. The same goes for sites like Amazon and Apple and Google that I believe do a good service in helping authors and developers reach a much bigger market with much less bureaucracy than previously. You know, it's possible that these companies can do good things and bad things simultaneously. The author touches on this too briefly. It seems a shame that these companies are making so much money out of this; I would much prefer that these things were run as non-profits. A worthwhile project for the future.

Anyways, it's pretty clear that we need some kind of basic minimum income now that jobs are disappearing everywhere.
posted by adrianhon at 4:33 PM on April 11, 2013 [3 favorites]


I've never used Groupon but I've used restaurant.com, which seems like a similar model (buy $25 GCs for $10, or during their seemingly ubiquitous discount deals for as low as $2). Looking at my hometown now, I see a number of Perfectly Good Restaurants that are currently available there. I also notice a number of restaurants who were on the site but are no longer there. That's because one of three things happened:

1) The restaurant throttled the number of GCs that could be sold severely, so that all of the reasonably tempting denominations are sold out most of the time.

2) The restaurant put enough conditions on the GC -- dine-in only, minimum purchase of $X, 18% gratuity added before discount applied, must purchase N entrees at regular price, temperature must be between 40 and 45 degrees Fahrenheit outside, customer's name must be Leroy or Abigail -- that it really isn't worth the effort.

3) The restaurant now has a sign that says "We are no longer accepting restaurant.com GCs as of such-and-such," which I've seen several times recently.

The scary thing about Groupon is that, by definition, it DOESN'T let the restaurant throttle the number of discounts easily; on the contrary, nobody gets the benefits unless a large number of people get the benefits. That's a good way to make any small businessperson hesitate.
posted by delfin at 4:35 PM on April 11, 2013


Just to add to my previous comment, I note that Venkat has responded to comments like mine in his blog by saying that Airbnb, Zipcar, et al, are merely in the 'cannibilistic' phase of the locust cycle - which someone astutely pointed out is indistinguishable from increasing efficiency anyway. He claimed that we'll enter the crash as and when the quality Airbnb rooms jack up their prices, but that it's not as noticeable as other sectors because some people are more price flexible, or something. I remain unconvinced: Groupon is qualitatively different and worse than Airbnb-style enterprises, and I see see little use in mashing them together in a metaphor.
posted by adrianhon at 4:49 PM on April 11, 2013


Airbnb makes money through convenience...they are brokers between room seekers and people with rooms. I've used them twice and had great results. It seems like a perfectly sustainable model to me. Another company could easily replicate it if they went crazy and jacked up their rates, and people with rooms have no reason to do so.
posted by emjaybee at 5:06 PM on April 11, 2013 [1 favorite]


Hey, Groupon should be thanked. Nowadays it's cool to have a failing restaurant. How else are you going to get Gordon Ramsey to visit your dive, try your shitty food, and offer free consultation and restaurant remodeling?
posted by FJT at 5:23 PM on April 11, 2013 [1 favorite]


Re Zipcar and AirBnB: It seems like the author's notion here is that they're similar to Groupon because (a) they take advantage of the power of modern information technology, (b) they appeal to people's desire to save money, and (c) they destroy previously-existing businesses. But if Zipcar and AirBnB destroy businesses, it's because they're competing with them successfully -- displacing them, replacing them with something more efficient (for some measure of efficiency). If a disastrous Groupon deal puts a restaurant out of business, Groupon doesn't offer its own restaurant services as a replacement.

Put it this way: Amazon also takes advantage of modern information technology, appeals to people's desire to save money, and has had a devastating effect on bricks-and-mortar bookstore chains. He doesn't list it in the article because comparing Amazon to Groupon would be more obviously ludicrous, but it has more in common with Zipcar and AirBnB than Groupon does.
posted by baf at 5:37 PM on April 11, 2013 [6 favorites]


Here in LA, I doubt that any professional critic is paying attention to a Groupon deal if they're going to review a place. it's usually little mom 'n' pop places that do the deal--higher end places do Blackboard Eats.
For me, the worst thing about Groupon are their pathetic attempts to be clever and/or funny in the descriptions. Not cute, not amusing, just stupid.
posted by Ideefixe at 5:43 PM on April 11, 2013 [2 favorites]


Why would a business owner offer up a groupon deal that actually loses them money on each coupon used?

Because there are depressingly large number of small business owners that don't actually understand their own business model. The kind of people who open restaurants are generally the kind of people that like to cook and entertain. Unfortunately, actually operating a restaurant has very little to do with that. It's mostly a matter of creating (from scratch) and operating a ridiculously complicated just-in-time logistics system with dozens to hundreds of items with varying degrees of perishability, plus participating in the most drama-prone, high-turnover workforce in the economy.

Oh, and then there's marketing. The value of which is devilishly hard to calculate for corporations like Proctor & Gamble, let alone one-off small businesses, many of which would be doing pretty well if they could give you a profit-loss statement of any kind. So it doesn't come as much of a surprise that a lot of small business owners have gotten into trouble with Groupon deals. Thing is, they were probably already in trouble, they just didn't know it.
posted by valkyryn at 5:53 PM on April 11, 2013 [32 favorites]


Nomyte: "On the other hand, I personally and viscerally dislike it when merchants express feelings of betrayal or being taken advantage of by consumers when a promotion backfires or is ineffective. It's a calculated risk. You don't have to take it. No "honor code" makes customers feel empathy for businesses."

Oh, then you'd love the "Hurting eSports" meme that's been flying all around the professional video gaming scene-turned-industry. It's part and parcel of the commoditization of geek culture, where the corporations and customers are not always well distinguished, because the corporations emerged from the fandom community, and link themselves back as members of it to create solidarity.

"Support the community by buying our merchandise!" and stuff like that.
posted by I-Write-Essays at 5:54 PM on April 11, 2013


I feel dumber for having read that article. Yes, Groupon users can be likened to locusts in that they descend upon and deplete the resources of the businesses they patronize through it. The difference is that the businesses invited them to do so. If Groupon leaves businesses worse off, they'll stop using it. That's the central metaphor done for.

Then we have things like:

"But during hard times, the paycheck middle class turns into the locust class in both production and consumption behaviors." I'm sorry, but how and what do locusts produce? (Locust poop?)

"Whether it is underutilized inventory of living space, coupons, parked cars or anything else, for most of the people, most of the time, if you have enough of the market navigation information, and are willing to travel a little further than you normally do, you can always find a deal." Supply? Demand? Heard of 'em?

"The Jeffersonian middle is the place where decency, goodness, hard work, an admirable work ethic, modest and non-predatory entrepreneurial ambitions and mainstream culture live. This is not the regular middle class but the Jeffersonian middle class that idealistically seeks an autonomous, meaningful existence.

The typical member of this class does not want to either build a billion dollar company or live off a passive-income lifestyle business based on exploitative arbitrage. He or she wants to work hard at a meaningful activity and asks only to be left alone to be content with modest rewards and economic autonomy.

These are the Clueless of the economy."
Excuse me? There are people out there who don't want to own billion-dollar companies or live on free money?

I'm sorry, but this guy is worse than Thomas Friedman.
posted by sensate at 5:56 PM on April 11, 2013 [1 favorite]


I read a lot about the problems with Groupon and we've bought two from restaurants that went out of business before we could use them (One of which had been in business for 30 years and was always busy). But the vast majority of Groupons we buy are for restaurants in our (Chicago) neighborhood that we often go to, with or without Groupons, and the only thing we notice is how busy it is the night before the Groupon expires.

So, my experience of Groupon bears absolutely no relation to what I hear and read about Groupon. This strikes me as very interesting.

I have no experience of either AirBnB or Zipcar. This is an interesting thought: Now, I do have a problem with the fact that Airbnb, Zipcar, and all these other social sharing services, are run by for-profit companies. that I'm not sure I agree with. People, it seems, need an incentive to share resources. It costs time and money to market a sharing service in a way that makes people want to participate. And it costs time and money to create an efficient sharing service. It costs time and money to keep shared resources in good condition. These are the incentives (a desire to be the sort of person who uses the share resource, efficiency in time and money to using a shared resource rather than owning the resource, a good quality shared resource--perhaps higher quality than the one I could own) and I don't see what's necessarily creating the incentives, even when what it is selling is an "altruistic" product, like a shared car, through a for-profit company. I see why a co-operative company might be preferable (man, I remember when Whole Foods was a co-op), but I don't see why a profit model should be abhorrent.

Also, I don't know what it has to do with Groupon.
posted by crush-onastick at 6:16 PM on April 11, 2013 [1 favorite]


The term "locust morality" to me conjures a sort of race-to-the-bottom attitude -- you know that the way you're doing things is totally unsustainable, and participating in it is accelerating that outcome; but the personal cost of disengagement is so high, and does so little to improve things, that it's very hard to not join in.

It's the dystopian side of the prisoner's dilemma, a world where everyone defects. Everyone recognizes that this is a poor outcome, and bemoans the state of things. But as long as you're basically guaranteed that the other guy is going to try to screw you over, you'd be a fool not to try to get there first. The swarm is on, and you better be part of it -- sure, the food will all be gone soon, but if you don't grab as much as you can right now you'll accomplish nothing but pointless starvation.

I can see this applied to Groupon, since it can present businesses with the choice of "lose money on customers by taking a terrible deal" and "lose customers entirely because some other guy is willing to lose money on them." At the end of the day, both businesses lose, and both probably know that they're losing, but neither really has a viable way out.

Alas, it seems like this article sort of starts off with this idea, but then it seems to just veer off the rails into econospeak and weird invective about sharing economies.

Which is too bad, because I feel like this is really part of a broader phenomenon, which touches on a lot of the world today. Jobs are scarce, and while it would help if everyone were to increase demand by buying more things, and particularly by buying more high-quality local things, nobody's going to do that when their own job might disappear tomorrow. People buy guns because it's dangerous with all the guns out there, and (until it became just too expensive) people bought giant SUVs because you need one to protect yourself from all the giant SUVs out on the road. There was a recent article about the music streaming business roughly characterizing it as a series of startups using VC funding to provide something for free and put the established players under, until the day they have to build an actual business plan, at which point the next VC-funded startup with no need for a real business plan offers the stuff for free and puts them under.

(Okay, that last one actually warms the cockles of my heart, but I suspect that might really be a symptom of the problem.)
posted by bjrubble at 7:07 PM on April 11, 2013 [7 favorites]


There was that BBC test a couple of weeks back about the new social castes, and where you fit in. I (along with many people I know) fit most closely into the "Emergent Service Worker" caste, which is kind of a clunky way of saying, "hipster" but not exactly.

The point is, the main signifier of this class is, "not a lot of income or savings, but knows a ton of people and does a ton of different things."

While I have never used Groupon, it should not be surprising that I know a lot of people who do. It is a service aimed at my "caste," and appears to be predatory of businesses that, well, want our business.

I can see it being very worthwhile for businesses whose numbers are stable enough to ensure that they are just letting potential future customers get a taste for things they will be more able to frequent in their hypothetical greater financial security in the future. Those are mostly going to be major corporations, though, and that doesn't seem to be who Groupon is marketing towards right now.

VRBO, however, is pretty great. Does what it says it will do, does it well, works out for everyone, makes things easier. Just plainly a good business model.
posted by Navelgazer at 7:14 PM on April 11, 2013


Am I the only person on the planet who only buys Groupons for local businesses I either already patronize or am genuinely interested in trying out, Groupon or not, with an eye toward paying full price in future if the Groupon goes well?

Yeah?

Ok.
posted by Sara C. at 7:31 PM on April 11, 2013 [2 favorites]


Groupon is just ValPak without the stigma of slowly turning into your parents.
posted by Ad hominem at 7:32 PM on April 11, 2013 [11 favorites]


Now, I do have a problem with the fact that Airbnb, Zipcar, and all these other social sharing services, are run by for-profit companies.

That makes no sense to me. They're businesses, just like Hertz and Hyatt, that appeal to certain people under certain circumstances. I have a friend that rents rooms in her condo via Airbnb and it's been tremendously helpful in keeping her afloat and it gives her renters a nice play to stay, a win-win for everyone. That Airbnb makes a profit seems only reasonable. I was a huge fan of Zipcar in San Francisco. Having a car for a few hours at a reasonable price gave me tremendous mobility. Getting to certain parts of the City can be a pain on public transportation, as is having lots of things to carry. I made more trips to the beach, could buy groceries more comfortably, and have a more active social life thanks to Zipcar. Taxis and rental cars have their place and Zipcar doesn't necessarily replace them. Again, making a profit seems reasonable to me.
posted by shoesietart at 7:35 PM on April 11, 2013 [1 favorite]


Zipcar sort of makes sense as a locust business because it is a lot like a regular car rental company but with fewer service employees.

Today, the consumer demand for low prices is effectively a demand for companies to reduce their labor costs by replacing workers with technology. Wages are reduced, so workers seek out lower prices — in that sense it's cannibalistic.
posted by AlsoMike at 8:18 PM on April 11, 2013 [1 favorite]


This is great. I'm gonna "think locust" when taking advantage of the soc-media-based marketing industry.
posted by telstar at 9:02 PM on April 11, 2013


The kind of people who open restaurants are generally the kind of people that like to cook and entertain. Unfortunately, actually operating a restaurant has very little to do with that. It's mostly a matter of creating (from scratch) and operating a ridiculously complicated just-in-time logistics system with dozens to hundreds of items with varying degrees of perishability, plus participating in the most drama-prone, high-turnover workforce in the economy.

Quoted for truth.
posted by elwoodwiles at 9:37 PM on April 11, 2013 [5 favorites]


The article has some great points that get lost in its own haze. What's interesting about Groupon is that it destroys companies, but doesn't in itself replace them or otherwise create value. It's purely exploitative. It's no surprise that restaurants are often the target, as they are often the least able to deal with the realities of being in business in the first place (see valkyryn's astute comment above.)

Generally it goes down like this: a friendly salesperson will call a restaurant over and over and over, offering a "partnership" that will be great for creating foot-traffic. They say "think of it as marketing." "Do you advertise in local papers?" they ask. "Don't." Finally, some business owners give in and do the deal. The results are already widely known.

To make matters worse there are a million little start-ups trying to replicate Groupon. Each has a different angle but they all end up the same. (Even google has jumped into the fray and dealing with their salespeople definitely lowered my trust in that company overall.) I can't think of a business sector with a worse margin that has as large of a parasitic business population as restaurants.

But I digress...

The point is this: Creative Destruction isn't always creative, but it is always destructive. We're seeing business models spring up that remove value from the economy - the small business economy in particular - without creating any value themselves. The writer is right: the smart move is either wage slavery or going big. There's no value being in the middle - you just become a resource to be bled dry. The locusts have won.

So I figure we have 3 options: get comfortable living as lowly wage earners, start companies and grow them, ruthlessly, or drop out and learn to farm (but I'd stock up on firearms too.)
posted by elwoodwiles at 9:54 PM on April 11, 2013 [4 favorites]


The owner of restaurant I was managing was pretty out of touch, and desperately wanted to do a Groupon. I told him again and again that people who use Groupon are customers of Groupon, not of the restaurants they go to. That's where their loyalty lies. Then the salesperson started to talking to him directly.

We lost about a month of revenue in a day. I don't think I ever saw one of those people come back.
posted by OrangeDrink at 10:06 PM on April 11, 2013 [9 favorites]


We lost about a month of revenue in a day.

Holy crap. What a scam. And all Groupon has to do is run a website.
posted by His thoughts were red thoughts at 10:40 PM on April 11, 2013


> "The typical member of this class does not want to either build a billion dollar company or live off a passive-income lifestyle business based on exploitative arbitrage. He or she wants to work hard at a meaningful activity and asks only to be left alone to be content with modest rewards and economic autonomy. These are the Clueless of the economy."
Excuse me? There are people out there who don't want to own billion-dollar companies or live on free money?

For what it's worth, "Clueless" is a term of art, explained in a separate series of posts on organizational culture.
posted by ecmendenhall at 11:46 PM on April 11, 2013 [1 favorite]


I've been on the receiving end of Groupon's deceptive* hard sell tactics. Actually, my wife was the contact point, and they were doing a good job of browbeating her, so I quite enjoyed it as I was free to be verbally merciless by the time I was in the room with them.

Actually, I like them in theory, but their strategy seems to be to crowbar their business into other businesses with no regard for whether or not it will do harm. So screw those guys. Of the players here, they are at least as culpable as naïve business owners.

* "Do you want twenty extra clients?" The name Groupon was not mentioned until we met them in person, and we only met them in person because we wanted to explain that we couldn't handle all of them, but we would be happy to give recommendations...
posted by Wrinkled Stumpskin at 12:09 AM on April 12, 2013 [1 favorite]


On the other hand, I personally and viscerally dislike it when merchants express feelings of betrayal or being taken advantage of by consumers when a promotion backfires or is ineffective. It's a calculated risk. You don't have to take it. No "honor code" makes customers feel empathy for businesses.

http://www.metafilter.com/12512/
posted by ActingTheGoat at 1:05 AM on April 12, 2013


If running a Groupon deal is a mark of desperation by a retail outlet - and one report doesn't make it so - then it's not without precedent.

In theatre, Macbeth is unlucky - famously, you mustn't mention it by name but call it The Scottish Play. (A tradition largely observed in the breach, I think, but it's there). The reason is, Macbeth was always seen as a sure-fire hit - witchcraft, violence, treachery, and teh sexeh Lady MacB playing out all sorts of psychosexual jollies. When a theatre was in dire straits, the banker was to put on the play.

The trouble is, by the time things got that bad for a troupe even Shakespeare's racier efforts couldn't do the trick, so Macbeth ended up as the death knell. Again and again. It's a bit like the prime minister going on the telly to say they had complete faith in a particular minister: you can start measuring for the coffin.

Doesn't take much of that sort of thing for a bad name to stick. If it happened to Groupon, I would be sad for the businesses that got dragged down in the vortex, but not for the loss of the company itself.
posted by Devonian at 1:15 AM on April 12, 2013 [4 favorites]


It's not exactly false, but the thing is that "locust" capitalism is exactly how the creative destruction of capitalism is supposed to work. There is supposed to be competition. Profit margins are supposed to be squeezed. All but the most efficient businesses are supposed to go bust, leaving the remainder to provide goods and services at the lowest possible cost for a given quality.

The big questions are:

1. Why doesn't it always work like that?

2. Why don't we expect it to work like that?

We certainly don't expect it. If you look at the winamp thread for example, our view is that if a market leader loses dominance, they must have mismanaged things stupidly. We don't really believe that a competently managed market leader could just be overtaken by several slightly-superior competitors.

Marx doesn't explain it. Marx expected the rate of profit to fall, he thought that profit margins be competitively squeezed until the whole system broke down.

The big question at the heart of modern capitalism is why large companies seem to be immune from the squeezing of profit margins. The answers are probably a complex mixture of economies of scale, cartel and monopoly power, and state and regulatory capture.

This guy is angry because he's been sold a lie, that small businesses are profitable and beneficial in an advanced economy. But I think his anger is misdirected: he's blaming consumers for not acting as the lie said they would, rather than angry at the people who lied to him.
posted by TheophileEscargot at 2:01 AM on April 12, 2013 [9 favorites]


I actually think that Starbucks is a big business - a coffee publisher, if you will - that is ripe for disintermediation.

OK, sign up on my website. You make coffee. Strangers who have paid online come to your kitchen and drink it. I keep 30%, you get the rest. Make sure you buy the best disintermediators for your coffee maker!
I'm actually scared someone will come and post that this exists.

I think his anger is misdirected: he's blaming consumers for not acting as the lie said they would, rather than angry at the people who lied to him.

Spot on. Really, looking for a bargain is human nature (We have cameras). Consider things like how the trade in stolen bicycles or car radios makes it easier for us to replace them when, well, stolen. There are many ways in which we participate in the ruination of our own societies, especially long term. This, however, is better framed as choices than as morality, at least broadly. It's a very troubling problem that we seem to be speeding towards a dystopian future where there aren't enough making-things jobs to make up for the loss of middle-class income in service jobs, and of course the corporate structure of even a mixed economy allows for enormous wealth inequities to build up. On the other hand, none of us actually owes rental car agencies, restaurants, or buggy whip manufacturers the right to exist.

Does AirBnB disintermediate the hotel industry? Sure it does. Does it disintermediate the residential zoning process? Sure it does. I think we need the latter more than we need the former, of course, unless you want to count the jobs in hospitality.

Look at farming. It's been a century or two of headlong hurtling toward fewer people making much more food for the rest of us. It empties rural hamlets, privileges corporate farming, and squeezes out a fantasy of a certain way of life for which we have probably undue nostalgia. Meanwhile, we both feed the world (a good thing) and make farming a lonelier existence, verging on hardscrabble (which it often has been historically anyway). We can blame McDonald's and Kraft, but that's a little bit of a dodge, because it's us demanding lower prices and immediately availability on beef and milk and cheese.
posted by dhartung at 2:15 AM on April 12, 2013 [5 favorites]


I see many businesses using Groupon and its clones with great success. It's ridiculously easy to hone a Groupon to produce marginal gross profit, or recognize that you can't do it and decline to do one. If Groupon enables some savvy customers to get an edge on some bad at math merchants, that's even better ... circle of life, baby.
posted by MattD at 4:15 AM on April 12, 2013


If Groupon enables some savvy customers to get an edge on some bad at math merchants, that's even better

This model incentivizes the exploitation of small businesses. I don't really see how punishing business owners for being bad at math—math being a skill that doesn't necessarily have anything to do with running a business—is good for anyone in the long run.
posted by tychotesla at 4:38 AM on April 12, 2013


math being a skill that doesn't necessarily have anything to do with running a business

????

Do you mean that one can run a business without having any sort of math sense, so long as another member of the business is the "math person"? Or are you saying that nobody in a business needs any sort of math ability for the business to succeed?
posted by (Arsenio) Hall and (Warren) Oates at 5:17 AM on April 12, 2013 [1 favorite]


Does AirBnB disintermediate the hotel industry? Sure it does. Does it disintermediate the residential zoning process? Sure it does. I think we need the latter more than we need the former, of course, unless you want to count the jobs in hospitality.


You mean "violate."
posted by benbenson at 5:22 AM on April 12, 2013 [2 favorites]


If Groupon enables some savvy customers to get an edge on some bad at math merchants, that's even better

Replace "savvy" with "greedy", and "bad at math" with "inexperienced", and your sentence becomes accurate. Groupon's business model adds zero value to the surrounding economy, and instead actively devalues the goods and services that are sold by its clients to the detriment of all. The sooner they disappear, the better.
posted by Strange Interlude at 5:33 AM on April 12, 2013


Do you mean that one can run a business without having any sort of math sense, so long as another member of the business is the "math person"? Or are you saying that nobody in a business needs any sort of math ability for the business to succeed?

I mean that there are plenty of small business people who learn how to run a business by, for example, watching a previous boss run a business and then take over by not fixing what ain't broke. Middle school math + a little experience (which side of the column to put expenses) is enough to get by on. So yeah, math is required, technically. I just wouldn't call that math skill in colloquial conversation unless we were talking about grade schoolers.

Wheras modeling the impact of Groupons requires some small skills in abstraction and math far beyond the minimum necessary to run a successful business. You can be an idiot and run a decent business, you need to be reasonably intelligent with breadth of knowledge to have a chance at understanding whether Groupon makes economic sense for you. And yet plenty of intelligent good-at-math people still failed at that.

Which is why as much as I'm agnostic on the question of whether Groupon is a bad idea, I don't think it's a good idea to view the failure of businesspeople to understand how Groupon works as a positive result of the market.
posted by tychotesla at 6:24 AM on April 12, 2013 [3 favorites]


Once locusts acquire an informed kind of market mobility through better discovery mechanisms, they can range over a much larger area of wheat fields or restaurants.

This explains why locust swarms always steal people's copies of the Wall Street Journal.
posted by wolfdreams01 at 6:39 AM on April 12, 2013 [1 favorite]


You can be an idiot and run a decent business, you need to be reasonably intelligent with breadth of knowledge to have a chance at understanding whether Groupon makes economic sense for you.

More than that, you need a pretty thorough grasp of the math of your own business, which someone who learned by experience or example may well not have.

I think this is what a lot of people who complain about hedge funds doing leveraged buyouts of what appeared to be more-or-less functional businesses sometimes miss. True, the result is terrible for the employees of the company, who usually wind up jobless. But like with Groupon, the model of locusts descending on otherwise profitable businesses and driving them under for selfish gain fails to capture the full picture.

I think vultures are probably a better model. Or maybe hyenas.

Why? Both are scavengers that almost never prey upon healthy animals but do occasionally provide the little push needed to turn ailing animals into corpses. Companies that are targeted for leveraged buyouts tend to be in trouble. Many of them are on the verge of bankruptcy, but a few are modestly profitable, and it's these that get the bad press. What the hedge fund operator sees, and what the press, public, owners, and employees frequently do not, is that the company is usually getting a very, very low return on its capital, e.g., its physical plant, real property, IP portfolio, whatever. This suggests that the business is actually in a lot more trouble than a simple look at the bottom line would indicate. Reasons for this under-performance vary, but usually involve legacy costs, e.g., maintaining old equipment or unsustainable labor contracts. Because getting rid of the latter winds up hurting a lot of employees, this winds up being very unpopular. But the thing to remember is that in many cases, those legacy costs were probably going to drive the company under at some point anyway. If the business hadn't been in distress, it wouldn't have been an attractive target for the hedge fund.

Groupon doesn't really work this way, because they're more than happy to do business with anyone. Starbucks and Old Navy have offered Groupons from time to time, and they presumably know their business.* They wouldn't do these things if it was going to cost them money they couldn't afford to spend, but Groupon doesn't care one way or the other. But I think the structural analysis with hedge funds is useful when applied to small businesses like restaurants. If the business was doing okay, losing money on a Groupon probably wouldn't kill it. But if the business was doing okay, the owner/manager would probably have enough insight to structure the deal in such a way that they wouldn't lose money in the first place.

Or think about it this way: a business that goes under because of a Groupon deal was almost certainly doing the business equivalent of living paycheck to paycheck. Plenty of people do it, but if you ask them about it, they'll all say that it's miserable. A depressingly large number of people in America are little more than one paycheck away from homelessness. But businesses don't become homeless, they just go out of business. If Groupon was the push that sent it under, it's likely that there was something else that could have done it just as easily.

For example, I know of one restaurant that had just opened and was doing fantastic business that wound up closing inside a year because it had the bad luck to open its doors just before the city decided to close the intersection at which it was located. Closure lasted for about three months and was part of some larger urban renewal plan. But it could be anything, really. Maybe there's a fire. If customers get used to going somewhere else for the six months it takes to renovate, they may never come back. Or a screwup in the delivery schedule that causes you to miss most of a Saturday night. Or a supplier raising prices unexpectedly. Or a breakdown of a key piece of equipment. Or a sustained power outage. Or heck, a hurricane. All of these are risks to businesses. A business that fails because of Groupon could easily fail because of one of these too. But a business that could survive one of these would probably do okay with Groupon, however the deal worked out.

*I'm also assuming that they have enough muscle to get a better deal out of Groupon, as small businesses frequently pay double-digit percentages, up to 50% in some cases, for the "privilege" of Groupon's involvement. I don't have those facts, but my point stands either way.
posted by valkyryn at 7:01 AM on April 12, 2013 [2 favorites]


I approached a Groupon-like business and was, at first, excited when they said they would offer my products as a deal. They made all sorts of proposals. Then they came back and said they couldn't make those work for their business model, but here were some better options that worked for them. And suddenly they wanted to offer my products for 2/3 off - my high end products. I told them I was willing to offer my entry-level products only, as my intent was to generate leads. They kept insisting that offering my high end products on discount would generate tons of leads for me, because those people would tell their friends and also go back and buy my lower end products. I told them that was inane...that's not how a product ladder or lead generation model typically works. I explained that offering your highest value products on mega discount erodes the perceived value of those goods and, also, that Groupon-type customers are deal hunters, so they're not likely to want to pay full value for lower end items when they have already got the higher end items for cheap.

I explained the (very good) deals I was willing to offer with my entry level products. I told them that it was in their company's interest to help me offer a sustainable deal that would keep me coming back, over and over. They told me that's not how their business model works and that they want volume. I tried to explain that a happy client who comes back over and over is actually the goal of most businesses and the more sustainable model, because customer acquisition and word of mouth are incredibly valuable. But I could tell the sales manager did not have a clue what I was talking about. They kept emphasizing the size of their list, but would not tell me their open rate, click through rate, sales rate, share rate or even the amount of click through traffic to a page after the deal ends. Yet they kept telling me they were a modern advertising company and that I was going to get great CPM.

In the end, I felt like what they were offering me was a bait and switch and that they did not have my best interests at heart, nor did they care if I was happy and came back to them over and over. I have worked in business for years and I run a successful business, but I can see that someone with less experience or understanding of these Groupon-like businesses would get into hot water. There's no point in doing any of these deals unless you can create a great list, add on to the original deal, cross sell or upsell. And they weren't willing to help me do any of those things.
posted by Chaussette and the Pussy Cats at 8:24 AM on April 12, 2013 [7 favorites]


It is interesting to compare this thread to the one on metafilter about his Gervais Principle post(s). The locust model is forced, but not worthless. This sentence poked out:

If you’re not a top professor at a top university, or a long-tail independent provider of some sort of personalized education (such as bloggers offering courses on a very small scale — a game I am trying to get into), you’re in deep trouble.

I wonder what his financials look like. I wonder if he is burning savings from his previous career as a clueless guy and he ain't ever going to make the painless transition into entrepeneur he seems to be hoping for. WTF is the business of a blogger offering courses?
posted by bukvich at 8:39 AM on April 12, 2013 [1 favorite]


bukvich: I wonder that too. I don't know much about this particular blogger, so this may not apply here, but I have a deep distrust of entrepreneurs whose business is to teach potential entrepreneurs how to become more entrepreneurial.
posted by elwoodwiles at 9:10 AM on April 12, 2013 [3 favorites]


Metaphors don't typically make for good economic models.
posted by outlandishmarxist at 9:57 AM on April 13, 2013


WTF is the business of a blogger offering courses?

It's usually a small-potatoes way to monetize. Often it's packaging information available for free on the blog (spread out over lots of entries and confined to the web) in a more accessible way (like a series of weekly "courses"), with a little bit of exclusive information, for a nominal fee. The idea is supposed to be that it's basically passive income, because it recycles previously developed evergreen content in a way that people are willing to pay for.

Usually you're not Offering Courses like a university does, it's more like "sign up for my six-week Bike Maintenance Bootcamp". Your "students" get a series of PDFs or an exclusive weekly video or the like.

My guess is that this is a way to drum up a little bit of cash to cover the cost of hosting, not a way to get rich.
posted by Sara C. at 10:26 AM on April 13, 2013


Metaphors don't typically make for good economic models.

Exactly. The problem is that economic models are metaphors. Inherently. The problem is that people forget this and act as if they are fundamental principles of the universe instead of metaphors.
posted by valkyryn at 2:52 PM on April 14, 2013


Today, the consumer demand for low prices is effectively a demand for companies to reduce their labor costs by replacing workers with technology.

Today? Hasn't the US always used tech to replace labor? The only time in US history in which that wasn't the case was slavery.
posted by FJT at 3:54 AM on April 15, 2013 [1 favorite]


Hasn't the US always used tech to replace labor?

More to the point, every culture ever has used technology to replace labor. Even slave cultures. That's what technology is, to no small degree. The only difference is that we're better at it than we used to be.
posted by valkyryn at 4:17 AM on April 15, 2013 [1 favorite]


Hi MeTa!
posted by 2bucksplus at 3:41 PM on May 3, 2013


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