rocky agrawal

Algorithms should normalize signals. If a post from [Robert] Scoble gets only 20 comments, that’s a post that is probably not very important. If a post from one of my close friends gets 20 comments, that’s a Really Big Deal—it’s likely a birth, wedding announcement or job change. Those are the things that I really want to know about.

It’s Not Scoble’s Fault, It’s The Algorithm’s

TechCrunch’s Rocky Agrawal Discusses Google+’s Noise Issue

What Groupon tells all start-ups looking to monetize

A series of posts by Rocky Agrawal(@rakeshlobster) at TechCrunch got me really interested in a company that I had really only looked at from the periphery - Groupon.  In the series, Rocky makes a pretty passionate case that GroupOn’s business model - and therefore the model being copied by all the new entrants to the local deals sector - really ends up hurting the businesses that it intends to help.  But how could this be?

Groupon has exploded into an estimated $25 Billion valuation and growth into markets all over the world.  Can a concept so toxic really hurt its customers so bad?  And why?

The answer is most definitely yes, and really the answer why is very simple.  The concept is easy to grasp, it’s positive effects are readily visible, and the negative effects are not so visible.  And why else?  The deals are made on the terms set by Groupon’s salespeople, not on the terms that benefit the client.  And salespeople are there to make sales, it’s that simple.  Especially for a company that is looking to dramatically raise revenues for an imminent IPO.

And like Rocky said, that’s not to say that Andrew Mason and crew are bad people or are looking to screw their clients.  They obviously believe in their model.  It is in a businesses best interest to have their clients have the best possible experience with their product or service and to refer other clients as well as return their business as well.  Unless Mr. Mason - who I admittedly know little about - believes that investors are the most naive people on the planet, he could not possibly hope to just blow revenues(and apparently losses) through the roof to set the stage for a huge IPO and then subsequently watch the model crumble.  There is no exit strategy there.

So if malfeasance is not the motive, then what is going on, and what can we learn from Groupon’s mistakes?

Growth driven by sales vs. Sales driven by demand

Groupon is following a tried and true 20th century model of Growth driven by hard sales.  This is quite different from the web model used to draw in customers.  The web - and mobile - model is to build a solid product, get the word out through organic forms of advertising, and support and iterate your product over time.  The sales are driven by the quality of the product and the demand for that product.

Groupon doesn’t just want attention and mind share, they want the damn deal closed, and closed right now.  They believe that despite useful metrics, usage tracking, and lack of yield management, a good businessperson will be able to overcome and prosper on Groupon’s terms.

If Groupon created strong leads to their product, and offered a more flexible product that customers could tailor to suit their actual needs - not to mention offered metrics that allowed them to see how a Groupon would affect their business over the life of the deal - there would be a lot less news in a particular business not executing the deal well.  Good metrics could also help a customer during a passive sales approach in designing the deal that will work the best for them - even though it might not necessarily drive the most hard revenue.

The lesson to be learned

Local is not an area of expertise of even special attention for me.  But at the end of the day, Groupon’s folly can hold great wisdom for any entrepreneur looking to make moves in the technology industry.  Here is a summary as I see it.

  • The focus is the product
  • The product should serve the customer’s interest in the best possible way
  • Equip the customer with the knowledge to make the product work for them
  • Strong leads and mind share will lead to outstanding growth if you have an outstanding product
  • Always make a WIN-WIN
  • Track every metric that is useful for you and your customers
  • Never let sales drive your product, let your product drive sales
  • Iterate, innovate, and support
  • Learn about your customers failures, and learn ways to mitigate them in the future

If you are looking to monetize a cool product or service - follow the same instincts that allowed you to develop your product.  Innovation is key.  But you have to learn to look at more than bug reports.  Metrics and feedback are the lifeblood that you need to iterate your product.  As long as you are a leader in innovation and support, you can monetize without pushing the hard sale.

So maybe they were right when they said, “If you build, they will come.”

Note: Edit made to correct Groupon’s valuation ahead of IPO.  I incorrectly stated $1 Billion, which is in fact the value of their latest round of funding.