GigaOM » group buying

Startup Togather thinks crowdsourcing is key to profitable author book tours

Laura Hazard Owen — Mon, 06 Aug 2012 13:00:04 +0000

It has never been clear whether author book tours are a worthwhile investment. Fewer publishers are shelling out to send their authors across the country these days — what’s the point if you’re going to sit in an empty bookstore for hours and only sell three copies? — and BookTour.com shut down last year, conceding that “fewer author tours and changes in book marketing budgets have made our company financially unviable.”

Now Brooklyn-based startup Togather (which is not related to this company) hopes to make author book tours more of a sure thing by adding a group-buying dynamic that requires people to commit and buy a book before an author event takes place.

Togather’s founder is 34-year-old Andrew Kessler, author of the book Martian Summer: Robot Arms, Cowboy Spacemen, and My 90 Days with the Phoenix Mars Mission, which was published by independent publisher Pegasus Books in 2011. Kessler, then the creative director at Brooklyn-based digital agency Huge — which is funding Togather through Huge Labs, its startup incubator for employee projects — says he got a lot of attention for the book (for example, he opened a West Village pop-up bookstore that sold only his book) but “getting a massive amount of media didn’t translate into sales. There was no one thing that, the more I did it, the more copies the book sold. Social media felt successful, but I wasn’t selling books.” So he had the idea of a Groupon-like model for author tours, where if a certain number of people commit to buying a book or attending an event, the event is on.

“This essentially closes the loop on all the social stuff everyone’s doing and turns it into book sales,” Kessler says. “It’s outbound marketing that has a sale at the end of it.”

Togather focuses on three types of events: “Book purchase” events where everyone buys a book in advance; free events where an author doesn’t necessarily have to sell books but wants to know how many people will be there; and ticketed events where the host charges a fee for attendance but doesn’t necessarily require a book purchase.

Anyone — an individual, community group (like a reading group) or organization like a bookstore — can serve as a “host,” put together an event proposal and send it to an author who is on Togather. The author can negotiate — for, say, a stipend or for travel costs to be covered in addition to books bought — and once the author and host agree on the proposal, the host is responsible for getting it out to the community. When enough people agree to come, buy a book in advance or do whatever else is required, the event is on and the author attends.

It’s conceivable that Togather could be used for other types of events, but it is focused on authors for now, in part because a key component of its revenue model is that it acts as a bookstore. Togather has a fulfillment deal with Ingram, where it is buying authors’ books wholesale, selling them at list price and shipping them to buyers. Let’s say an author on Togather agrees to hold a local author event if 25 people buy books in advance. Once 25 people have agreed and put down their credit card numbers, the deal is on and Togather ships the books to customers in advance of the event. It makes revenue from the books, and also takes five percent of sales for ticketed events.

“We want authors to be able to make a living and sell more books through an activity that they control or that their publicist can help them with,” Kessler says. “This is our focus for now.”

At launch today, Togather is still fairly small and is primarily a tool for authors. “You can sign up as a fan on Monday, but you will only be able to book or attend events with the select group of authors already on board,” Kessler says. He says Togather is adding more authors as it can, but “we need to build up the author base and reach critical mass before it becomes fun and has a lot of variety.”

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NewNet Q4: Platform mania and social commerce shakeout

Thu, 19 Jan 2012 20:39:31 +0000

The fourth quarter may have lacked a dominating big-event product announcement like Q3’s Facebook platform extension or Q2’s unveiling of Google+, but the NewNet world continued to buzz along. In the battle for mind share, everyone wanted to be a platform. Meanwhile, consumer and social technologies continued to gain momentum, and new vehicles for content and service discovery presented both challenges and opportunities for NewNet companies. And it is hard to ignore the overcrowded but growing world of daily deals. This quarterly report analyzes these trends and others, and it also provides a near-term outlook of trends, technologies and companies to watch in 2012. Companies mentioned in the report include Amazon, Facebook and Socialcast. For a full list of companies, and to read the full report, sign up for a free trial.

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All the Groupon IPO really proves is that the bubble is back

Mathew Ingram — Fri, 04 Nov 2011 16:31:05 +0000

After a wave of reports that Groupon would have to drop the price on its initial public offering or even cancel it altogether because of skepticism about the company and its business model, the pendulum of optimism swung back again by Friday and the shares listed at $20 — well above the range Groupon was originally planning — and jumped as high as $30 when they first opened. So what happened? Did Groupon’s business suddenly improve? No, it’s still as questionable as ever. What happened says a lot more about the current bubble-style investment climate and an overheated market than it does about the potential value of the group-buying company.

In a practical sense, what caused the stock to be priced higher than the original range — and to jump when it was first listed — was a simple case of supply and demand. Even though there continue to be widespread concerns about the company’s viability, which we have written about a number of times at GigaOM, analysts say there was a huge amount of interest in the stock from institutional investors, in part because there has been a long-term shortage of high-profile stock offerings in the technology sector until very recently when LinkedIn went public.

Huge demand and a tiny float of public stock

That and the kind of double-digit revenue growth Groupon has been generating — despite its conspicuous lack of profitability and high costs — created such massive demand for the shares (including reports that the issue was oversubscribed by 10 times) that they were almost guaranteed to move up. The second factor creating this mini-bubble for Groupon was the tiny amount of stock the company offered: just 4.7 percent of the total outstanding shares were floated in the IPO, which is the smallest public float for any newly traded company in more than a decade (LinkedIn issued almost twice as much, at 8.6 percent, and Google issued 7.2 percent of its stock).

In an interview on Bloomberg television before the issue started trading, financial analyst Paul Kedrosky called the process “transparently cynical” and a “public-relations exercise” more than anything else, and said the IPO price tells investors very little about the actual value of the company. A clip from the interview is embedded below:

Watch this video for free on GigaOM

Although the IPO has brought in more than $700 million for Groupon — and made Co-Founder and CEO Andrew Mason a paper billionaire thanks to his stake in the company — it doesn’t change any of the fundamental issues that have made many analysts and investors skeptical about Groupon’s long-term viability. Among other things, the $700 million the company just got by going public is still less than the estimated $900 million or so that insiders and early investors (including management and directors of the company) pocketed for themselves after a financing round earlier this year.

Concerns remain about the viability of the model

Some observers believe this effectively forced the company to go public whether it wanted to or not, because it has such massive cash demands. Since it has to win over new customers in order to keep its email coupon business growing, Groupon spends hundreds of millions of dollars on marketing — and as a result has been losing tens of millions of dollars, and functioning at what amounts to negative cash flow.

Mason says the company will be able to reduce those marketing costs to virtually nothing over time while continuing to generate revenue from the customers on its email lists, but there’s a substantial amount of skepticism about whether that’s true. The company has been adding new products such as Groupon Now and a Groupon travel offering, to try to boost the amount of money it makes from each user, but results from markets in which it has been operating for some time seem to show that the value of a user drops off fairly dramatically the longer they’ve been a Groupon member.

In its “roadshow” presentation to potential investors before the IPO, Mason and other senior executives of the company argued that Groupon is similar to Amazon, which was also criticized for spending heavily and not being profitable and now has a market value of $98 billion. But many analysts are skeptical of this comparison as well, because Groupon’s model involves far higher marketing costs and generates what appears to be a much lower profit margin on every sale. Unless the company can boost the value of those sales by adding other things (which some have argued that it can) or reduce its costs dramatically, it doesn’t look like a business that has long-term growth prospects.

If you want to come to your own conclusions about the value of Groupon’s business, the roadshow presentation is embedded below:

Watch this video for free on GigaOM

Post and thumbnail photos courtesy of Flickr users Thing Three and Groupon

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Foodspotting spots daily deals with Scoutmob

Erica Ogg — Tue, 13 Sep 2011 17:00:37 +0000

Foodspotting, the app for finding and rating restaurant dishes, is getting in on the daily deals action. The San Francisco startup plans to announce Tuesday that it is hooking up with Atlanta-based local daily deals purveyor Scoutmob. It’s the first partnership for Scoutmob, and a sign that Foodspotting is testing the waters of the boiling-hot daily deals space.

Starting Tuesday in 13 major U.S. cities, users of Foodspotting’s iOS app will automatically see local deals from Scoutmob when they search for dishes that are nearby. Those cities are: Seattle, Portland, San Francisco, Los Angeles, Denver, Austin, Dallas, Chicago, Nashville, Atlanta, Boston, New York City and Washington, D.C.

The Foodspotting crew went with Scoutmob because they like their philosophy better than those of other daily deals companies, according to co-founder Ted Grubb. Scoutmob “believes that the ability to stumble onto a deal is a little more interesting than buying deals up front,” he said in an interview last week, seemingly drawing a distinction between Scoutmob and other group-buying sites like Groupon, Living Social and Yelp’s (now scaled back) Deals.Scoutmob coupons, which generally range from 50 percent to 100 percent off, reverses the process that Groupon or LivingSocial users are probably used to by now. Rather than being offered a deal for a restaurant via e-mail, buying it, and having to remember to use it, this doesn’t require much advance planning. Scoutmob works best with Foodspotting, according to Grubb, because “you discover deals as you’re trying to find food.”

Though Foodspotting is trying out this feature because they have an inkling their users will like it, Grubb also indicated that Foodspotting is very interested in learning more about the business of daily deals, potentially for more future opportunities. Said Grubb:

The deal space is something that’s exploding right now. There’s going to be a shakeout, so before we go full steam, we really want to understand it and see how our users react to it. Whether it’s creating our own deals–we don’t have a salesforce, but we’re very user experience and research-driven, so we want to understand the landscape before we make any decisions. For Scoutmob, they want to know what distributing their deals looks like.

Foodspotting launched in early 2010, and has more than 1.5 million downloads of the app and 800,000 reviews and photos uploaded since then. The Scoutmob partnership is available for iOS users only right now, though Grubb said to expect the Android version to roll out in “about a week.”

To learn more about high-engagement apps, the connection between mobile, social and location, and much more, don’t forget to sign up for Mobilize 2011, which runs September 26 and 27 in San Francisco.

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Is Groupon a bubble stock or the new Amazon?

Mathew Ingram — Wed, 07 Sep 2011 04:25:01 +0000

Ever since it emerged from Chicago’s small startup community in 2008, Groupon has had nothing short of a spectacular story in terms of its growth: With estimated annual revenues of more than $4 billion after just three years of existence, the poster child for the “group buying” phenomenon is now one of the fastest-growing companies in recent memory. But with the company now reconsidering its IPO and its security filings raising questions, whether or not Groupon’s business model will ever become profitable remains an unknown.

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Is Groupon killing its IPO, or is it dying of natural causes?

Mathew Ingram — Tue, 06 Sep 2011 22:03:25 +0000

According to a report in the Wall Street Journal, the company behind one of the most highly anticipated initial public offerings in recent memory — Chicago-based group-buying pioneer Groupon — is reconsidering its decision to go public due to the recent volatility in the stock market. While the IPO hasn’t been cancelled, a source told the WSJ that it has been postponed indefinitely, and the pre-IPO roadshow has ben cancelled. But was it market volatility that pulled the rug out from under Groupon’s public debut, or the repeated missteps by the company and its CEO, combined with growing skepticism about the viability of its business model?

There’s no question that global stock markets have been in upheaval recently, in part because of uncertainty about the financial health of European nations such as Greece, and how their instability could affect the euro and other global currencies. The Dow Jones Industrial Average is down by about 1,000 points, or roughly 10 percent, since Groupon first filed its S-1 securities document with regulators in early June, and August was reportedly the worst month for failed IPOs in more than a decade.

SEC inquiry into leaked memo

That said, however, the Groupon IPO has been facing a number of other significant headwinds as well, and these have a lot more to do with the Chicago startup’s business than with economic conditions. One of them is a Securities and Exchange Commission inquiry into the circumstances surrounding a leaked memo by Co-Founder and CEO Andrew Mason that made its way online recently. According to the WSJ, the regulator has been asking questions about the leak, since discussing the financial status of the company is a breach of what has come to be known as the pre-IPO “quiet period.”

That’s the second time the SEC has shown a more than passing interest in Groupon. After the company filed its S-1, the regulator also had discussions with the startup about its use of a controversial — and non-standard — financial metric called “adjusted consolidated segment operating income.” Although Groupon argued that this was justified by the way its business operates, using this metric made the company’s financial results look significantly better than they would have otherwise: instead of a $450-million loss in 2010, for example, Groupon showed an $60-million operating profit.

In his cheerleading internal memo, Mason defended the use of the ACSOI benchmark (which effectively removed the majority of the company’s marketing costs from its operating results), saying it reflects the fact that Groupon spends a lot on marketing its business — i.e., in acquiring new customers for its email group-buying offers — but that these costs aren’t important because they aren’t repeated. Said Mason:

Our marketing — at least the customer acquisition marketing that we remove from ACSOI — is designed to add people to our own long-term marketing channel — our daily email list. Once we have a customer’s email, we can continually market to them at no additional cost.

Not everyone buys this rose-colored vision of the company’s future, however — a future in which Groupon simply has to build a giant email list and then market offers to those subscribers at virtually no cost. The company’s many critics, including David Heinemeier Hansson of 37 signals, have noted that instead of going down as the operation grows larger, some of Groupon’s costs continue to climb as it grows larger.

If it doesn’t go public, Groupon will need more cash

And rather than staying steady or growing, business in some of Groupon’s mature markets shows signs of declining — which means more marketing might be necessary to keep current growth rates alive. For more analysis on that topic, please see the recent GigaOM Pro report I wrote about Groupon (subscription required).

If it does decide to cancel its IPO — which was expected to give the company a market value as high as $30 billion — the biggest issue for Groupon will be coming up with the financing required to keep its massive growth machine moving. According to some recent estimates, the company is close to running out of cash, because it is spending so much to hire new salespeople, market its services and acquire Groupon clones in foreign markets. And while the startup raised close to $1 billion in venture financing earlier this year, the majority of those funds went to early investors in the company as well as management, leaving virtually nothing for Groupon to use to fund its operations.

That was a risky bet when the IPO looked like a sure thing, but it seems even riskier now that the public offering could be on hold indefinitely — or even cancelled. If it doesn’t ultimately tap the public markets, Groupon could be saved from having to prove to the world how its business can become the kind of cash-generating perpetual-motion machine that Mason describes in his memo. But without that cash, it may never get the chance.

Post and thumbnail photos courtesy of Flickr users Groupon and Tracy O

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Daily deals platform Group Commerce buys Socialight

Colleen Taylor — Tue, 23 Aug 2011 17:32:02 +0000

Exclusive: Group Commerce, a New York City-based company that sells a software platform to let publishers host their own daily deal applications, has acquired geo-location startup Socialight.

The Socialight team and technology will be put toward fleshing out Group Commerce’s mobile strategy, Group Commerce CEO Jonty Kelt and Socialight founder Dan Melinger told me in a joint interview this week. Terms of the deal are not being disclosed.

Group Commerce was founded in early 2010 by Kelt, David Rosenblatt and Andrew Glenn, all of whom are former Google and DoubleClick executives. The company has raised $18 million in venture capital to date, and currently has a staff of 85 people. It expects to have 100 employees by year end.

While daily deals sites such as Groupon and Living Social serve audiences they have built up themselves, Group Commerce provides a white-label platform to let publishing brands target deals to their existing readerships. Currently, Group Commerce powers daily deals applications for Hearst Magazines, The New York Times, Daily Candy, Thrillist, and others. As Kelt told me,

“When we saw the emergence of this group buying deals market, we were struck by how big it was so quickly, and by how perfect it was for publishers and media companies to participate in. There are three things required for success in that industry: an audience, deals and technology know-how. Publishers have audiences and sales forces to source deals, and we have the know-how and technology to stitch it all together.”

The Socialight acquisition will power Group Commerce’s forthcoming mobile-focused products, Kelt said. “Thus far we’ve been very focused just on the web experience. At one point we were recruiting for good mobile leadership and developers, but then we came across [Socialight founder] Dan Melinger and his team and we had a meeting of the minds.” In particular, the Socialight team will work on incorporating location-aware features to Group Commerce’s mobile offerings.

Melinger, who founded Socialight in 2005, said he and his team are looking forward to working within a larger firm that still has a startup vibe. “When we were looking at the next steps for our company we talked to a lot of [potential buyers], both public and private,” he said. Ultimately, he decided that the idea of selling to a larger public company to “rest and vest” was unattractive. “I’m the kind of guy that can’t rest, and I just want to get to the next level. Group Commerce is a really strong startup, and I think we’re on the cusp of something really huge.”

Learn more about the intersection between location, mobile and commerce at the Mobilize conference, coming up on Sept. 26 and 27 in San Francisco.

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Is Groupon a financial train wreck waiting to happen?

Mathew Ingram — Thu, 18 Aug 2011 17:03:06 +0000

Ever since Groupon turned down a $6-billion takeover offer from Google earlier this year, the markets have been eagerly awaiting an IPO filing from the group-buying sensation, one of the fastest-growing companies in recent memory. But not everyone liked what they saw when Groupon filed a prospectus for its initial public offering — which could value the startup as high as $20 billion. Some critics say the company is close to being insolvent and that its business model is a kind of elaborate Ponzi scheme, disguised by accounting tricks. One thing seems clear: The pressure is mounting for Groupon to prove that it isn’t just a late-1990s-style hype machine.

There’s no question that Groupon is growing at an incredible rate when it comes to both revenue and subscribers: In its most recent securities filing, the company said its revenue in the second quarter rose by 36 percent, to $878 million, more than twice what it generated in the same period a year earlier. Producing almost a billion dollars in revenue in a single quarter after less than five years in existence is almost unheard of. If Groupon continues to grow at that rate, it could generate revenue in 2011 of more than $5 billion. And the number of subscribers is also growing rapidly: The company now has over 115 million, or twice what it had in December of last year.

Profitability remains a question

That’s the good news. The bad news, as more than one critic has pointed out, is that Groupon’s ability to actually make any money on all of this growth remains a gigantic question. In a recent post at the Harvard Business Review site, Rob Wheeler — a fellow with Harvard’s forum for growth and innovation — said that Groupon’s business model doesn’t appear to be viable, in the sense that it may never actually make money, despite all the growth in revenue and subscribers.

If anything, the fact that Groupon is witnessing decreasing revenue per merchant and fewer Groupon purchases per subscriber in its maturing markets suggests that growth may actually decrease Groupon’s value to its customers.

The company has also received a lot of criticism for painting its business with too favorable a brush by using its own customized accounting methods. When Groupon filed its S-1 regulatory documents, critics quickly latched on to the company’s use of an unusual financial metric it called “adjusted consolidated segment operating income,” or ACSOI. This effectively allowed it to exclude subscriber-acquisition costs, including the hundreds of millions of marketing dollars that are spent to promote Groupon deals.

The impact on the company’s financial health was miraculous: Using its own benchmark, Groupon said it had operating income of $60 million for 2010 and $81 million for the first quarter of 2011. Using standard financial methods, however, the company actually had an operating loss of almost half a billion dollars in 2010 and lost a further $100 million in the first quarter of this year.

“Fairy-tale” accounting and big cash payouts

After some discussion with the Securities and Exchange Commission and a substantial amount of criticism of what some described as its “fairy-tale” accounting methods, Groupon filed an amended prospectus that played down the more favorable benchmark — which CEO Andrew Mason admitted was “unconventional” — and substituted generally agreed-upon standards. The company has also been criticized for paying out more than $800 million from a recent financing round to early investors and Groupon management when the business is still losing money at a tremendous rate.

Former Wall Street analyst Henry Blodget — who played a key role in the first tech-stock bubble in the late 1990s and now runs the site Business Insider — argues in a recent blog post that Groupon is only going public because it is close to running out of money and needs the cash. Blodget says that while the company is technically cash-flow positive, it is operating under a “working-capital deficit,” meaning its assets are insufficient to meet its obligations, which amount to $680 million and include close to $400 million that it has to pay to the merchants who signed up to offer Groupon discounts. Says Blodget:

As long as Groupon sells enough new Groupons in one quarter to pay all the bills it racked up in the prior quarter, it will not need additional cash. But if the company’s growth stumbles, or if competitive pressure leads to Groupon’s gross profit margin getting squeezed, look out.

Fans of Groupon, of which there are still a few — including David Pakman, a venture capitalist with Venrock — argue that there are other companies that have also lost money for a considerable amount of time and gone on to become business powerhouses. Facebook, for example, spent a long time growing its user base and expanding into different markets, and there was a lot of speculation that it would never make money, as there was with Amazon. Google is another famous example of a company that had many skeptics and no obvious business model, until it discovered advertising based on search keywords (an idea pioneered by Bill Gross at Overture).

But Groupon does have a business model. The question is, is it a model that takes time to prove itself, like Facebook’s, or is it a flawed model?

A lack of network effects?

So is Groupon a similar kind of business? Wheeler doesn’t think so. In his HBR post, he argues that Facebook and Amazon were able to focus on growth and then generate profits later because they benefited from network effects — in other words, early adopters helped the business grow, and the value of those services increased with more users. Although it is a “group-buying” business that relies on user numbers to trigger deals, Wheeler says that Groupon doesn’t really benefit from network effects at all, and there are growing signs that its value may actually be decreasing rather than increasing as it gains more users. He even makes a comparison to Pets.com, the poster child for dot-com bubble excess.

Groupon CEO Andrew Mason has said that the hundreds of millions of dollars being spent on marketing and expanding the user base are not a loss but an investment and that this will start to pay off once Groupon achieves a certain scale. But that is looking to some like an increasingly risky bet. Will Groupon be able to prove the doubters wrong, or will it become the new millennium’s version of Pets.com?

Post and thumbnail photos courtesy of Flickr users Groupon and Refracted Moments

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NewNet Q2: Google closes the quarter with a bang

Tue, 12 Jul 2011 07:01:05 +0000

For once, the biggest news in social media and real-time technologies didn’t come from Facebook. Rather, it was Google that, at the end of the second quarter, introduced an innovative collection of technologies, under the Google+ label. Another big headline was the return of digital music: Pandora filed a successful IPO, and Google and Apple unrolled cloud-based music offerings. Meanwhile, other social networks generated valuable lessons about technology and business strategies. LinkedIn went public, while Myspace was sold. And Apple essentially appointed Twitter its mobile social network infrastructure supplier. Additional companies mentioned in this report include Skype, Groupon, Turntable.fm and Amazon. For a full list of companies, and to read the full report, sign up for a free trial.

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Does Groupon’s e-mail outage expose a lack of brand loyalty?

Derrick Harris — Mon, 11 Jul 2011 19:29:49 +0000

Exact Target, the service provider responsible for Groupon’s daily e-mail deals, suffered a server outage this weekend that looks to have had a staggering effect on Groupon sales in several cities. The news was reported and confirmed by DailyDealMedia’s Boyan Josic, a blogger who noted painfully slow sales for morning deals today in Austin and Abilene, Texas, and San Jose, Calif., among other cities. This seems to play up Groupon’s overall dependence on emails, which can be a problem when things go down with a third-party provider but which also seems to indicate that people have no other pattern of interacting with Groupon outside of those e-mails.

The crux of the situation is that some of ExactTarget‘s servers went down, resulting in an inability for many Groupon subscribers to click through on the links on their daily e-mails to actually review and make purchases. Josic explained to me that customers only engage with Groupon’s servers after ExactTarget processes the initial mouse click, so if that service is down, customers never make it to the Groupon site. He said the outage appears to have begun some time on Saturday, although Groupon confirmed with him that it has been resolved as of this morning. Indeed, the low numbers that Josic cited when posting have picked up — sometimes only minimally — throughout the morning.

However, they still weren’t up to par as of around 9 a.m. PDT, said Josic, whose site tracks the group-buying space very closely. He thinks this means one of two things: either ExactTarget’s service is still not fixed, or scorned customers aren’t checking back in to see if they’re able to access their deals now. The latter, said Josic, is a particularly troubling proposition for Groupon.

What’s certain is that Groupon subscribers could have accessed the deals directly through Groupon at any time since the outage began simply by visiting Groupon.com. Groupon’s official response, both to me and to Josic, is, “We weren’t the only clients affected by the outage. While some customers may not have been able to click through the e-mail to the website, they could always go to Groupon.com to purchase.” In fact, DealFind, another ExactTarget customer, appears to be suffering from slow sales, too.

That subscribers could have, but didn’t, visit the sites leads Josic to believe that “the brand almost means nothing; it’s all about the subscriber.” Subscribers, it seems, are willing to consider deals that come to them, but aren’t necessarily willing to do the legwork to track them down themselves, even if it means the relatively pain-free task of visiting the Groupon site. I don’t know if this affects Groupon’s fate as its IPO approaches, but it certainly says something about the fickleness of its customers’ buying habits if Josic’s assessment is accurate. Groupon and other group-buying services might need to figure out a way to engage with customers on its site without relying on the e-mail middleman.

Josic said the outage likely led to significant revenue losses in the cities affected. DailyDealMedia is in the process of analyzing the weekend’s numbers against its existing set of Groupon sales data to estimate the ultimate effect.

Of course, this situation also says something about the inherent risk in outsourcing any critical business processes to a third party. We saw an even larger-scale outage in April regarding Amazon Web Services’ cloud computing platform, which downed many popular web sites almost completely for days. Performing a service isn’t inherently more reliable and probably requires a lot more effort, but at least companies have a modicum of control when it comes to resolving this type of performance issue. Josic noted, though, that Exact Target doesn’t have a history of service interruptions as far as he’s aware.

That means Groupon’s biggest problem probably isn’t keeping its services up and running, but getting customers to view it as something more than a daily e-mail coupon.

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