When people talk about hot trends on the web, Groupon is on the list, but for all the noise they’re making, the experts say that Groupon isn’t turning a profit and may have a hard time doing so in the future.
Now, it’s Pandora’s turn in the spotlight thanks to their announced IPO and hey, lookee there, they’re not making any money either. How can that be?
The generally accepted theory is, the more users you have, the more money you make, right? Not so. In Pandora’s case, more users means they have to spend more on music licensing, which should be off-set by more advertisers, but it’s not happening.
Groupon is having similar issues, some of which has to be due to all the competition in the field. On an average day, I get daily deal emails from five sites and that’s just a small sampling of what’s out there.
On the other end is LinkedIn, whose recent IPO brought a rise in users and a rise in profits. But then LinkedIn doesn’t have much competition and they aren’t caught in a space where they have to pay out third party fees in order to stay in business.
Remember the days of the dotcom boom when every guy with HTML skills could make a buck by building a website? Those days are not only gone, but it seems like it’s getting harder and harder for even great, original concepts to make a profit.
So what’s to be done about it? Maybe the answer is to lessen the noise. Maybe Groupon, in particular would have been better off sliding in slowly and under the radar, amassing a strong base of users and advertisers before shouting about it to the world. Then again, it’s kind of chicken or the egg, isn’t it? Can’t get users or charge high dollars for ads if the site is under the radar.
What do you think? Will throwing more money at these hot sites make them winners? Tell us your thoughts, then check back in six months and see if you were right.