Groupons and the Quest for Incremental Diners

It’s trendy to bash Groupons these days, but they still deserve credit for solving a local merchant discount problem that none of their predecessors could figure out.  Now, they are tackling an old nemesis of mine; reservation-based discounts.

Groupon’s “Reserve”, launched on July 1st, offers discounts off restaurant checks without requiring customer pre-payment or vouchers.   Hey, that sounds familiar.

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Reservation-based discounting puts Groupons a step closer to the ultimate challenge they must face if Groupons is going to succeed: proving to merchants that they really provide incremental customers.   

When we launch DinnerBroker in 2000, we tried to solve this incremental diner value prop to merchants before we tackled the consumer value prop.   We were the first company to offer online off peak discounts at restaurants and increasing the discount amount the more off-peak it was (for example; Monday at 5PM versus Thursday at 6PM).    An increase in off-peak dining without a decrease in peak hour dining proved incremental value.   It was “dynamic pricing for restaurants”, a cool concept that, it turns out, needed about thirteen more years to percolate.

Groupons solved the value prop to consumers first, and this turned out to be a better strategy.   Arguably, most merchants they worked with early on proceeded without any clear measurement of the long-term financial impact of the program.    It was a FOMO (fear of missing out) frenzy from merchants based on consumer email penetration.

DinnerBroker retreated from online restaurant discounts in 2006.  We licensed the business to American Express, and focused our attention on the emerging food blogger market and our Foodbuzz initiative.  It was a decision based to some degree on frustration, but thankfully it ended up in a successful 4-year run and an eventual sale to Federated Media in 2010.   I will always wonder what would have happened if we had stuck it out in the restaurant discount market and copied the nuances of Groupons’ strategy.

DinnerBroker’s flirtation with discounts and reasons for remorse pale in comparison to some bigger players who were even better positioned to do restaurant discounts.  Here’s the post-mortem on what I think went wrong:

Rewards Network

  • In 2006 they were a public company worth about $250M with over 2,000 restaurants offering discounts nationally.
  • They got distracted with Hotels.  A different market.
  • They had the discount model slightly wrong (20%) with far too many auto-enrolled free-riders who did not even know they were receiving discounts
  • They had too much distressed inventory and a sales force compensated for getting more.

Restaurant.com

  • In 2006 they had over 1,000 restaurants offering 50% off for dining certificates.  The closest thing to Groupons, and maybe the company that should have the most remorse.   They even had the up-front purchase and the discount amount right.
  • They never figured out distribution.  They had a great deal with eBay early on and a great advantage in SEO with their url, but they did not figure out the city-specific email.

OpenTable

For all their success, I still feel like OpenTable blew it with discounts.  As a potential business partner, I lobbied hard for them to use our discount platform, but they were laser focused on the US reservation market at that time, even thought the discount market was ten times bigger.    I still think OT’s future is in discounts.

Google

If you were trying to raise money in 2006, you would have been asked to answer the question, “why wouldn’t Google do this without you”.   It turns out that Google could have done ANYTHING better than you, since they had and still have a monopoly on search.   But in reality, they could not do EVERYTHING; they had to choose.   The fact that they had to buy Zagat is comical considering how many people told me “Google was going to kill Zagat”.   Google’s monopoly in search extended to local search and should give them an unfair advantage in local merchant marketing.   They still may be a buyer in this market.

DinnerBroker

In 2006, DinnerBroker had 500 restaurants offering 20% discounts for off-peak time slots.

  • We tried to launch in too many markets (50) instead of focusing on early adopting markets only (SF and NYC).
  • Discounts of 20% were not deep enough.  We surveyed customers, and they told us 50%, but we didn’t listen.  We assumed restaurants would never go that deep instead of trying to solve the problem as stated (how to get restaurants to do 50%)
  • We tried to lever existing marketing channels (Yahoo, Citysearch, Google, Visa) instead of investing in our own marketing channel…even with Daily Candy staring us in the face.

What Groupon Did Right!

1) Number of restaurants per market:  conventional wisdom said that critical mass was 20 restaurants in 20 major cities.   I can’t tell you how many times Google, Yahoo et al told me that.   The right answer, it turns out, was one PER DAY per city.

2) Depth of discounts.   50% discounts.  That’s a lot deeper than everyone else with the exception of restaurant.com

3) Value prop to restaurants:  Tipping point model, you don’t pay if we don’t hit threshold.    Find one restaurant per day desperate for volume, and promise them performance.

4) Mobile:  Mobile was always the right distribution point for restaurant inventory., it just was not ready in 2000.   We saw early on with Dinnerbroker that the desktop was NOT the right platform.   Users would research and make reservations for travel via the desktop, but not reserve tables.    The only company building successful online traffic for restaurants was Opentable.  And I would argue that their traffic was being diverted from the restaurants’ own websites and telephone answering machines.

6) Viral:   Everyone knew about the success of Daily Candy, and everyone said they wanted to be the “Daily Candy for Restaurants” , but only Groupons put together a meaningful daily email with an ‘exploding offer’.

1)   one offer per city

2)   deep discount

3)   viral motivation to tell a friend.

4)   Buy now or it goes away

In honesty, Dinnerbroker and the rest missed big on this.   We thought that sending a daily email out with several restaurants to choose from at 20% discount would work.   In retrospect, consumers had no compelling reason to act immediately OR spread the word.   I NEVER considered trying to sell 1 restaurant 100 times per day, I was stuck on trying to sell 100 restaurants 1 per day each.   Oops.

So that is how a lot of companies with a lot more inventory and a lot more restaurant and distribution relationships than Groupon did not succeed like Groupon.   And I do view Groupon as an enormous success.    Its pre-IPO revenue growth was rumored to be the fastest in Silicon Valley history.

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Today Groupons has a market cap of around $6B which is 25% off its peak but still 4x time OpenTable’s.    The performance since its IPO is more a function of poor tactical execution by management in failure to deliver more valuable offers to consumers on a daily basis, or to provide better CRM to merchants.   I really think they should focus on those two things.

Merchants can only offer deep discounts if it increases the lifetime value of the customer for merchants.   That formula is very different for a yoga studio (with no variable cost and high potential for repeat business) than for restaurant (over 30% variable cost and lower repeat frequency).  Its different for fine dining versus casual dining and its different for a tourist versus a local, etc…

At DinnerBroker, a lot of time and measurement resources where put into proving that customers were incremental, and that was before “Big Data”.  See this White Paper on Revenue Management. Groupons will eventually have to prove it, too.   And if they can, its not too late for this to be a great company and a respected (not ridiculed) consumer brand.

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Why scoring Philanthropy could save the planet…or at least your marriage.

If you look at philanthropic giving over the past few decades, you will see that it has been relatively flat as a percentage of GDP at around 2%; that’s a problem worth pondering.

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I wonder if philanthropy is keeping pace with other online initiatives? While there are some great philanthropic websites and philanthrocapitalism is now a word, its just tough to compete for screentime with Angry Birds and all the $250k per app incubators creating competitive timesinks. So while philanthropy is moving online, can it really keep up?

Social networks supposedly thrive in markets where the Internet allows for aggregation of like-minded people, crowdsourced curation of content, and easy measurement of data. Just aggregate, curate and measure. Philanthropy should be one of these markets, allowing efficient access to alumni groups or others with similar backgrounds and interests.

While there are some great, well-funded companies out there;

Causes.com: $16M in funding: The leader with 186 million members, but only $5m in contributions through the platform
Crowdrise.com: Ed Norton funded
Fundly.com: $8M in funding
Rally.org: $8M in funding

Are online philanthropic investment and innovation keeping pace?

How much VC is going into platforms for philanthropy globally; not more than 2% I’m guessing? Are there any open source game changers out there? What would the category killer look like…one of the sites listed above, or something more ubiquitous and elemental?

I went to a conference on philanthropy at Stanford last year, and the big take away — for me at least, –was that the companies presenting were not looking at social media as a disruptive technology for philanthropy. Instead, they were just using the Internet to be more efficient. In order to change the “2% problem”, there needs to be a more fundamental change in the status quo model of “nice people who have time soliciting nice people who have money”. We need to raise the visibility and the rewards/repercussions of being/not being a player in that equation.

At Therapydia, we are spending a lot of time scoring wellness professionals in social media. Scoring visibility is a pivotal part of our business model. It has made me wonder if a “nice person” score is going to evolve online. Would it change things if there were one exchange or platform that could measure all philanthropic activity and score participation and influence? Swaylo is one possibility. Klout is another more established one, at least in the blogosphere.

I see the big play in philanthropy being a convergence of “nice” scoring, visibility and gaming across social platforms. So, I guess what I am saying is that maybe the reason why philanthropic giving has not taken off above 2% of GDP, isn’t because there aren’t enough 501c3 companies out there (there are over 1 million) or because there aren’t enough convenient crowd-funding sites, its because we need a scoring platform to change visibility and add a reward system.

“Catch and Release” Philanthropy
Looking at a recent list of top Bay Area philanthropist, its hard to relate or compare to people with billions in assets. Obviously, you would have to donate hundreds of millions to be on the list, and it would really be interesting to see who isn’t on this list. At what point do we expect and compel the super wealthy to “Catch and Release” everything like Warren Buffet and Bill Gates have seemingly done.

Then there is scoring for the rest of us, which shouldn’t be based solely on dollars contributed. Hey, don’t judge me until I get my kids through college, then we can talk. In the meantime, can someone measure how much time I spend reading up on topics, or using contacts to spread the word? Can we score that? Should we make it cool for donations to be celebrated and publicized (not anonymous). One of the most thought provoking comments on the topic I have heard was that many donors felt like the process of writing a check for charity was “lonely”.

If you are rich, are you skimping if you don’t pick a charity and give 10% of your net income?
If you are a celebrity, are you a jerk if you don’t pick a charity and encourage your Twitter followers and Facebook friends to spread the word.
If you are a brand, are you irresponsible if you don’t align your company around a cause, especially if you should be compensating for something nasty you are doing to the planet?

Would your spouse have married you (or stay married to you) if they knew your Philanthropy score? Should the companies we work for, the products we buy, and the celebrities we idolize be based more on what those organizations or individuals give back? Of course they should!

In the past ten years, we’ve watched consumer brands and even dictators bend to the pressures of social media driven by the ability for crowds to organize swiftly and effectively online to make the world better. Social networks create social pressure, and that can be a great thing for philanthropy.

iPad envy? You know you want one…for the office!

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I just got a new iPad 3, and even convinced my wife to buy one for her PT office.    You may have noticed that we have an iPad giveaway contest on Therapydia, so you may have guessed that I am a fan. While the iPad 3 is not really that different from the iPad 2, the PT-related apps are getting better and the video capability, coupled with the higher resolution display, is a really great feature for PTs who want to work video into their treatment programs.

Since I am spending so much time trying to understand trends in the Physical Therapy market, it is interesting to look at the iPad from the perspective of a PT, or any other wellness professional, who has held off on buying one for office use. I think four things really stand out:

1)   After a slow start, there are now a lot of apps for PTs:  64 for the iPad and 89 for the iPhone.  27 of the iPad apps are free with the rest ranging from $1 to $80.  Also, many useful apps like Pocket Body exist in the broader “Health and Fitness” category.  As a patient, I would much rather a PT walk me through the 3D layered images on Pocket Body than show me a poster on the wall. I remember looking at iPad apps for PT two years ago, and loading some of those on my old iPad. There wasn’t much to choose from, and the apps were marginally functional. Now, it would be a serious challenge to review all of the useful apps. Luckily, I think the community does a pretty good job of that.   You can sort under relevance by “most popular” and “customer rating” to see what others are using/buying.

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2)   Other advanced apps for managing your personal and professional lives are taking off, and the higher volume means they are getting REALLY good.  If you haven’t heard of Dropbox, and you don’t know what the “Cloud” is, it will all come together when Apple bombards you with iCloud marketing in the upcoming months. It will be very seductive;  “Own an iPhone, an iPad, AND an iMac/MacBook! Store files ‘in-the-cloud’ and share them across all your devices whenever you need them.”  OK for Mac super users, but  for those of you who  have other non-Apple devices, and for better sharing features, I highly recommend Dropbox.  just bought 100 GB of storage with Dropbox for $10/month!  I can remember what XDrive charged for 1 MB back in 1999, and what Akamai charged to host website photos in 2005 so this feels like quite the bargain, no?

3) Video! PT is an industry made for video! It is crazy how easy it is to take a great video on the iPad and display it immediately to someone (say, a patient like me), and email it to someone (say, a patient like me). It’s even easier to store videos, and add videos to your personal video library accessible from almost anywhere. I wonder if video will do for wellness blogging what photos did for food blogging? The food blogging environment changed drastically when cheap digital cameras and enough bandwidth to store the photos for free came together in 2007.

4) Voice interface. On the new iPad keyboard, you will see a little microphone icon right next to the space bar on the keypad.  If you put the cursor in almost any application requiring text input and then hit the microphone button, you can dictate text. For professions where your hands are occupied and you want to take notes, this is pretty cool.  I don’t know if this is going to transform the way PTs take down their notes, but I do think that PTs are pretty good candidates to be early adopters of this feature. Like most new technology, speech to text functionality takes a little getting used to. If you are like me, you will spend the first few sessions with this feature wondering how anyone can understand what you are saying in the first place, and considering diction lessons. And ultimately, contemplating the future of voice interface, worrying when you or someone you know is going to end a sentence with “Period, Paragraph”

Not convinced? Here are some iPad-related numbers as Apple eyes a $1 Trillion market cap (today, it is the most valuable US company with a market cap of $700 Billion).

Tablets will pass personal computers in units sold per year by 2015:

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Already over 84M iPads sold in just two years; a faster uptake rate than either iPods or iPhones.

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2 Million iPhone 5 pre-orders on launch day September 21, 2012.

Which all amounts to enormous peer pressure to buy one or all of these devices.  So, feel fortunate if you have a legitimate professional reason to buy one!

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Why Now is a Great Time to be a PT!

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Full disclosure:  My wife is a PT.     We started dating when she was in PT school at UCSF.  At that time I did not know what “P.T.” stood for, and I could not imagine why anyone would leave a job with Morgan Stanley to become a one.   Especially when becoming a PT meant three years of very expensive graduate school.   The average PT currently graduates with a Doctorate and over $96,149 in debt. I doubt that any profession has that level of disparity in average debt versus starting salary.  According to the census, PTs makes $76,310 per year (not a starting salary, but an AVERAGE salary). I challenge you to find a profession with a higher debt/salary ratio than 1.26!

Even faced with those numbers, my wife wanted to help people and wanted to learn more about the human body.    Who can argue with that?   So, 14 years later, she has her own successful PT practice, and here I am, building an online physical therapy community.

And, I really do think that now is a great time to be a PT!

If you are a PT, there are at least three big trends working in your favor;  Demand, Reform and Technology.

Demand (and Supply)

The Bureau of Labor Statistics estimates that PT will grow 39% from 2010 to 2020. Ranking #20 in growth out of 796 categories that the Bureau tracks -from 198,000 thousand PTs in 2010 to 276,000 in 2020.   Is there really a farm system in place that can add 77,400 PTs over 10 years?   With 211 PT schools and average class sizes of 40 students (according to the APTA) in the US, this could only happen if NOBOBY ever retired.   A 1 in 30 annual retirement rate would almost nullify the inflow of new grads.    So, either 1) the US will be a net importer of PT jobs or 2) schools will need to get bigger or 3) PTs will need to work longer, or 4) all of the above.

On top of that, I don’t think the BLS is being very sophisticated with their estimates.  Their estimates only seem to mirror the growth in the population 65 and older over the same period; 36%.   In addition to that, the new 65 year olds are a lot more active and are anticipating a longer lifespan than in previous generations; replacing hips and tearing tendons with abandon.   IMHO, they are going to spend a lot more of their disposable income on wellness.   This appears to be a trend across all ages.   We are spending more on wellness.  It is like coming to grips with the fact that you are going to own your Audi for more than 10 years, so you better add oil, rotate your tires, replace the water pump etc…

So, supply and demand are on your side, PT.    And, you are in a “hands on” profession:  Your job is not moving offshore.    That $94k in debt doesn’t look so bad if it comes with 40 years of guaranteed employment!

Reform

There are three legislative movements that are going to have a big positive impact on the PT profession.

First, the Patient Protection and Affordable Care Act is going to add 30 million insured Americans to the demand side of the equation.   In case you have been in Ibiza for the last month, or hiding in a closet full of Thera-bands, the Supreme Court upheld this Act in a somewhat surprising decision on June 28 of this year.   So, more debt for the country, but good news for PTs.

Second, there has been a systematic trend toward allowing Direct Access to PT.    By the APTA’s count, 46 of 50 states have some form of Direct Access now; up from 35 in 2002. And those states with limited Direct Access are working towards getting unlimited access.   California is tantalizingly close:  SB924 passed through the Assembly Business and Professional Committee on June 26th, and goes to the Assembly Appropriations Committee on August 8th.  Anyone up for an Egypt-style flash-mob in Sacramento?    Seriously, I don’t think PTs have really begun to see the full impact of the Direct Access movement.  The real benefit will be over the next ten years when consumer awareness kicks in and consumers strive to fully utilize their healthcare policies.

Third, the HITECH ACT of 2009 is about to start working in PT’s favor.  I know that is hard to believe given the fact that PTs were excluded from the initial Meaningful-Use cash giveaway.  Even Chiropractors got $44k for scanning their charts.   But in 2014, the carrot will become a stick, and Doctors will get 1% lower Medicare re-imbursement if they don’t have EHR.   PTs may not have to comply by law, but they should if they are opportunistic.  The ones that do, and fit into the process flow of their referring physicians, will see something interesting take place:  Doctors will need to track outcomes, and they don’t have the time to do it.   Know anyone else who might be qualified?  Congratulations, PT, your time has come.

Technology

When my wife started her practice just three years ago, I imagine that the process was twice as easy as it was ten years before, mainly because of the Internet.  If you are starting a practice today, it is probably twice as easy as it was just three years ago.  Need to incorporate?  Try LegalZoom. Need to accept credit cards? Try Square.  And it is more of the same across all services from scheduling to accounting; cheap if not free solutions.

The rest of the business world has been upgrading technology incrementally.  Physical Therapists, as super late adopters, are positioned to make a telescopic leap right into cloud-based services and touch-pad tablets.    It is like China going straight to cell phones and not worrying about the landlines.

The amount of cost that is about to be taken out of the system, and the amount of efficiency that is about to be added, are unparalleled in any other service industry that I can think of.  It is not that hard to imagine a PT office where a patient taps a screen to announce their arrival, their insurance is automatically billed, a PT records their evaluation on a iPad, they are given a video home exercise program that is interactive, their course of treatment is automatically tracked online for doctors to see, their satisfaction and outcomes are monitored regularly, and it all ties into accounting and business analytics, real time.

Count me in.

Therapydia Launch Press Release