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groupon_makeup_class.jpgI believe Groupon is headed for failure.

Even if they somehow survive, I fear they are doomed to be a company we all view with complete indifference.

I don't write this lightly.  I was amazed and sort of proud that they had the balls to turn down Google's $6 billion offer

Founders and senior management becoming fabulously wealthy excepted, there really is no upside to signing away your soul to a giant soulless corporation (take that Manka Bros.!) if you have a solid business or at least unique concept that absolutely cannot fail.

I was rooting for this upstart that had the guts to resist billions.  I signed up and started to get the daily deals that were offered - "40% off a facial ($75 value!)"; "Pay $10 for $20 worth of hair products (not my brand)", etc... these horrible "deals" kept coming and coming and I kept NOT BUYING.  Now I believe they should have sold. 

Groupon is not a terrible business - a little annoying, a notch above Spammer - but it's basically a business that pushes all this crap on people that they don't need (and from my experience, mostly stuff that I don't even want).  The brilliance they have is that they make you think you're getting these amazing deals and you'd better buy soon or they're gone forever.  Consumers will wise up to this fairly quickly.

valpak_hair_coupon.jpgSure, millions are buying (with Groupon keeping well over 50% of the proceeds) and it's probably good for some of the small businesses that are participating (though I have heard of several disaster stories) - but it's really just a sexier online version of Valpak - those blue envelopes of local coupons that we all get in the mail and we mostly ignore.

If Groupon really wanted to add value to my life, they would offer "50% off my Trader Joe's bill"; "$5,000 off a 2011 Prius"; "$10 will get you $20 in cash", etc.  Things like that would be valuable to me.  I would buy those.  But Groupon can't offer these things because Trader Joe's and Toyota would be crazy to do it (and wouldn't even dream of it) and the shit Groupon actually has to offer isn't really... real.  It's just made up facts and figures to make you believe you're getting a great deal.

Let's say I own a Day Spa and offer $50 off a $300 massage.  What makes it a $300 massage?  I own the Spa, I set the price - there is no $50 value to be saved.  I could go to another spa and get a $50 massage and save $200 more than I would have buying the GrouponGroupon's genius is convincing consumers that they are saving money on these great services when, really, the cheapest option is NOT TO BUY GROUPONS.  That costs zero ($0) dollars.

And now, because the business model is so easy to replicate, I'm getting offers from Groupilicious, CouponYou, My Little Deuce Coupon, CouponDeville, Grouper With A Squeeze of Lemon, etc. and it will never stop because local businesses will always try to drum up sales by knocking 40% off a price that they set themselves.  Buy it wholesale, mark up the price 100%, offer a Groupon for 40% off - still make 20% on the sale.  It's not difficult.

Right now Groupon is sexy.  Even sexier after turning down Google.  They are hiring an army of MBAs in their 20s, everybody dresses down - it's a real startup mentality, it's Chicago, it's exciting.  Hell, an IPO is coming!

But I look into the future, and all I see is Valpak.  Ever been to a Valpak office?  Not sexy.  Not exciting.  No roller skates, no ping pong - the only perks there are 20% off bagels when you buy one dozen.

jill_kennedy_small.jpgJill Kennedy - OnMedea

Does this mean an ad will cost $40 million dollars per spot? 

facebook_advertising_spot.jpgSo, I was just on Facebook - along with 500+ million of my friends (soon to be be 7.3 billion) - and couldn't help notice the sidebar banner ad pitch to "Advertise On Facebook" (see left). 

Now, I've never noticed an ad on Facebook.  Not one.  And I don't think I'm alone.

So why would I pay anything to advertise on Facebook?  Because you can't afford NOT to have your product or brand in front of 500 MILLION POTENTIAL CUSTOMERS.  Right? 

Because fear works when you're pitching your platform to advertising agencies - "You need us more than we need you."  So it's better to make an expensive ad buy on Facebook, even though no one will see your ad, than to be left behind. 

Do they think we're idiots?  At least on television, even if the ad is being skipped in fast motion, you see the product.  On Facebook, you don't even notice the ad and, if you did, you wouldn't care because you don't want to see advertising when you're on Facebook.

The only ad tactic that seems to work on Facebook is the one where hot young girls (old dudes pretending to be hot young girls) to "Friend" guys and then post non-stop about how they "LOVE THEIR NEW NISSAN SENTRA" and how much "The New Coke Zero ROX!"

Let I said before, Facebook, unless they start to charge user fees or do those horribly annoying ads that pop right in your face when you log in, is on the road to becoming worthless.

jill_kennedy_small.jpgJill Kennedy - OnMedea
There... that should guarantee about 10,000 hits on this entry.  I originally wanted to call it "Y Combinator Is A Bullshit Idea" (which would have guaranteed about 20,000 hits) but the ads on the side wouldn't have displayed due to the "bullshit" in the title.

So, I just read the Christopher Steiner article "The Disruptor In The Valley" at (which is about Paul Graham and his company Y Combinator) and my immediate thought was of that exchange from "The Simpsons" (Season 12 - Episode 9) when Homer is undergoing medical experiments for money.  He tries an appetite suppressant:

simpsons_pill_make_you_blind_2.jpgHOMER:  "I'm BLIND!"
SCIENTIST #1:  "Who's gonna buy a pill that makes you blind?"
SCIENTIST #2:  "We'll let marketing worry about that!"

Y Combinator is basically offering Silicon Valley a pill that makes them blind (but marketing will fix it). 

They offer a little bit cash to grab a whole lot of equity in all these tiny start-ups - most which are not even close to being ready for that kind of exposure (or financial decision). 

However, with the right spin, PR and influence behind them, they (apparently) ARE ready for the additional money that others might throw their way (for another giant chunk of equity)... if they can manage to get through the summer YC bootcamp.

It's like the YouTube star who gets a shot on "The Big Bang Theory" and can barely speak because they're so nervous and then find out they have no acting skills whatsoever.

This is not to say that there aren't a whole lot of geniuses out there with a lot of great ideas.  There are.  Most are smarter than me (but not as smart as Khan Manka, Jr.). 

But these geniuses (and mostly non-geniuses, let's be serious) are being exploited by Paul Graham and company and tossed to these VC wolves who will eat through many a carcass to get to the next Facebook (which I think is Worthless, by the way). 

(Also Digg is dead - R.I.P. - so is Electus and Comic-Con but I digress....) 

But much like the screenwriter in Los Angeles who will pay people to read their script because they "work at a studio", the chances of success in one of these cattle call models is virtually zero.

Y_Combinator_Logo_400.jpgAs a quick primer, allow me a paragraph (from Wikipedia) to explain Y Combinator to those who may not know what it is:

Y Combinator is an American seed-stage startup funding firm, started in 2005 by Paul Graham, Robert Morris, Trevor Blackwell, and Jessica LivingstonY Combinator provides seed money, advice, and connections at 3-month programs.  In exchange, they take an average of about 6% of the company's equity. 

Compared to other startup funds, Y Combinator provides very little money ($17,000 for startups with two founders and $20,000 for those of three or more).  This reflects Graham's theory that between free software, dynamic languages, the web, and Moore's Law, the cost of founding a startup has greatly decreased.

paul_graham.jpgIn other words, throw a bunch of shit on the wall and see what sticks. 

Great for Paul Graham and company, I suppose (based on his theory, Y Combinator would have gotten $20,000 from Y Combinator), but terrible for almost all of those thousands who apply to his program every year just in the hope of getting the YC stamp of approval (and 60 lbs of chili)  - which supposedly means a lot to VCs and Angel Investors in Silicon Valley.

So Y Combinator is a Venture Capitalist that funds your start-up so that your start-up can get funded by another Venture Capitalist. 

Enough with these f-ing VCs, man. 

Whatever happened to creating a company, becoming successful and growing it based on that initial success.  Success because you have a product that people really (REALLY) want. 

Thousands of techies are just sitting around coffee shops and cafes in all the "Silicon Valleys of the world" trying to think up new ideas that Paul Graham (and others like him) might like.  Not because it's an idea that the start-up founder actually believes in anymore - but because it's one that might get funding. 

I mean, fuck passion, right?  These days it's not whether your company succeeds or fails, it's whether it gets funded in the first place and a mention on TechCrunch.

jill_kennedy_small.jpgJill Kennedy - OnMedea

juan_williams_fox_news.jpgjuan_williams_NPR.jpgRemember, whichever side you are on in this debate, Juan Williams had TWO JOBS during the worst economy since the Great Depression when so many people out there can't even get ONE JOB

I think it was good of NPR to fire Juan Williams if only for the simple fact that they can now hire an out of work Political Commentator who can get off the public dole.

Interesting that Fox News would reward a guy with a $2 million dollar contract who basically said that Muslims who are dressed as their religion requires(!!) make him nervous on an airplane. 

Juan Williams perfectly fits the mold of the "Fox News Liberal".

jill_kennedy_small.jpgJill Kennedy - OnMedea 

Digg - R.I.P.

| | Comments (9) | TrackBacks (0)
digg_rip.jpgLesson #1:  If Google offers you $200 million for a business that has no real focus or vision - TAKE IT.

Lesson #2:  If the due diligence doesn't back up a $200 million valuation and someone else offers you $80 million - TAKE IT.

Lesson #3:  If you ignore Lessons #1 and #2 and decide to redesign your very popular (but unprofitable) website - MAKE SURE IT DOESN'T SUCK.

Lesson #4:  If the redesign of the website sucks and the entire world complains - DO SOMETHING ABOUT IT.

Lesson #5:  If Lesson #4 is ignored and senior management continues to party like its 2006, YOUR COMPANY IS DYING.

Lesson #6:  If your company is dying and you don't have the cure, LET IT DIE WITH DIGNITY AND START OVER.

I'm afraid we're at Lesson #6


kevin_rose_digg_businessweek.jpgIf only the Business Week cover from 2006 were true.

While many of the employees of Digg will find it difficult to start over, the founders and senior management team probably will not.  Especially Kevin Rose, who is an early investor in Twitter and Zynga.  So don't cry for dude.  Dude is fine.

Now I've Dugg many stories over the years - mostly an endless link-fest of Slide Shows and Superhero complaints - but it's time to move on. 

I suppose I'll just have to "Like" instead of "Digg" (until Facebook becomes worthless - and they are on that path!).  After that, I'll probably have to "Shout Out" or "Yeah, Baby" or whatever other little button some company wants me to click whenever I like the new taste of Coke Zero.

"Digg" was cool and nobody can take 2006-2008 away from you guys.  That was your time!

So long Kevin, Matt and Jay - who cares if you're not Billionaires?  Remember, Millionaires can still get chicks and buy drinks at any bar in the world.

jill_kennedy_small.jpgJill Kennedy - OnMedea
OK, it's September.  The power players in the media world have completed their 'summering' and can now return to the passion of their lives - ridding the world of boredom and malaise by producing films, TV shows, games and websites.  So... it's great to be back.

facebook_slide_unique_user_projections.jpgThe title of this blog is truly remarkable and, frankly, bullshit. 

I received the chart to the left from a friend of mine at Facebook (which was pulled from a recent management presentation). 

Takeaway:  The number of Facebook users by 2015 will EXCEED THE EARTH'S POPULATION. 

Sounds impossible I know.  But I suppose nothing is impossible when it comes to Facebook.  Because at Facebook it's not "Impossible", it's "I'm Possible".

A couple of months ago, I wrote a blog titled "Facebook Is Worthless".  I stand by the arguments in that blog (even though I received the wrath of many a Facebook insider who doesn't want to see the value of their stock options go down) because, no matter what Facebook senior management tries to tell the press, no one seriously believes they are profitable.  I believe the real numbers would freak too many people out who are praying for an IPO in the near future.

Just because everyone is on it doesn't mean the future is bright.  Just look at the AOL and Microsoft monopolies in the 1990s.

jill_kennedy_small.jpgJill Kennedy - OnMedea
facebook_mark_zuckerberg.jpgSalacious headline?  Yes.  True?  Also yes. 

This is not a slam against the EXTREME popularity and unprecedented GROWTH story that is Facebook.  This is a reality check of an unsustainable business model. 

Much like a homeowner who can no longer afford an overinflated house purchased during the height of the bubble and decides to walk away, Facebook (with claims that it will hit ONE BILLION users in the not too distant future) has given it all away for free for far to long to change. 

But change it must or Facebook Is Worthless.

Imagine the cable networks at their inception (especially premium channels like HBO) giving the channel to anyone for free at the beginning and then trying to convince customers to pay down the line.  It's a daunting task.  One that Hulu is going through now - but they made the hard decision, and even though traffic and video streams will certainly fall, it will soon be profitable because it wasn't too late to right the ship.

mark_zuckerberg_2.jpgImagine Disney/Pixar putting out Toy Story 3 for free in theaters and trying to make up their costs by throwing up billboards along the walls.  What kind of idiot would do that?  It would never be considered. 

People love (and some actually depend on) Facebook, but it is too late to right the ship - and not just because no one cares or pays any attention to the banner ads that are thrown up against everyone's status updates.  It's because people are starting to get really bored with it. 

There are some late adapters that are still in the ecstasy phase of seeing their old high school friends as they look today (Facebook has ruined surprise factor of high school reunions forever, but I digress), but for the most part - at least in my case - most of my Facebook friends have stopped participating.  They will pop on once a day or so just to see if anyone has posted any new drunken pictures or family photos of the new baby, but that's about it.

My Facebook experience now is basically the same five people posting the same boring crap.
  • The Bored Office Worker who posts about "needing coffee" - and "can't wait for Happy Hour!"
  • The Super Mom who claims every morning - "Went to 8 museums and made banana bread all before 10am!  My kids are awesome and sooooo funny!"
  • The Quoter who searches quotation websites looking for some daily affirmation that will get about 15 "Likes" and a few "I'm going to use that!" replies.
  • The Reviewer who writes stuff like "Smoke Monster?  Shit Monster if you ask me!"
  • The Pissed Off Traveler with daily pearls like "10 hours on the tarmac!" and "Yet another delay, thank you American Airlines!"
And that's about it.  Every day, the same five people and I have over 300 Facebook friends (even though I only see about three friends actually in person in any given month).

mark_zuckerberg_4.jpgThe valuation on Facebook is so high that no one could possibly acquire it now (not even my employer, the insanely deep-pocketed Manka Bros. Studios) especially considering there is really no monetary growth story. 

As it becomes more of a digital dumping ground, costs continue to rise.  It has peaked as a global fascination.  Check the value of Bebo, Myspace, Friendster, etc. and you'll see the future of Facebook.  Even though Mark Zuckerberg claims he's different than all the others.

So here's what Facebook needs to do - start charging every current or new user $0.99/month.  Just ninety-nine cents per user per month to use all the features they currently use.  New services may make it possible to bump that up to a premium fee down the line. 

Millions will leave and start some "Facebook Should Be Free" movement, but other millions (like my five daily posters who feel they need to be heard) will definitely pay.  Because $0.99 is nothing.  It's the purchase price of a pig on Farmville.  There will still be advertising and cross-promotional opportunities and corporate sponsorships, etc. - multi revenue streams. 

But the free culture has to change or Facebook is Worthless

Deep down, at least to me, this seems to be the reason the IPO hasn't happened.  Zuckerberg says he's not interested and will delay the IPO as long as possible.  Yeah, because it's a $15 billion company (so they say) with costs that exceed revenue - and no signs of that ever changing. 

I wouldn't be interested in an IPO either. 

Someone enlighten me and correct my ignorance.

jill_kennedy_small.jpgJill Kennedy - OnMedea

About Jill Kennedy

Jill Kennedy - Blogger - OnMedea Jill Kennedy is an Ivy League MBA / refugee from Lehman Brothers.

Manka Bros. (and the Manka Business Channel) hired her (for a very low sum) to cover the world of media (not the world of Medea) in her own words without corporate interference.

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About Medea

Medea Medea was a real bitch from classical mythology - as most famously dramatized by Euripides.

She was a sorceress and wife of Jason, whom she assisted in obtaining the Golden Fleece. When Jason deserted her, she chopped up their children. One could say, Medea acted as rationally as a major media company.


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