• Interesting Statistics, Every Day!
• /

## The Mathematics Behind Groupon

Like most people, we were convinced that the Mathematics behind Groupon would be interesting. So when we got an opportunity to use a Groupon at a local restaurant, we decided to do a deep dive into this one offer, and get a blueprint of the economics behind Groupon.

The offer we have considered for this deep dive is this one:

Groupon Banana Leaf Deal

So this is basically an offer where the Groupon buyer pays \$8 for \$16 Worth of Vegetarian Fare and Drinks at Banana Leaf in Columbus.

And here is the fine print:

1. Expires May 18, 2011
2. Limit 1 per person, may buy 2 additional as gifts. Limit 1 per table. Dine-in only. Tax and gratuity not included. Not valid with other offers.

A total of 856 groupons were bought. So the amount collected by Groupon in a single day on this offer was 856*8=6848 USD. 50 percent of this goes to Groupon, and 50 percent goes to Banana Leaf. So the next day, Banana Leaf Restaurant must have collected 6848 / 2 = 3424 USD.

Now from Groupon’s perspective this is a simple profit model – it must be reasonably simple for them to make good margins out of the 3424 USD., given that they must be seeing efficiencies in making deals like this happen (the only other cost being operational costs on running the website etc).

Now let us look at this deal from the perspective of Banana Leaf restaurant, purely from a revenue perspective. At this point, for the next paragraph, we do not make any assumptions on the margins that Banana Leaf is making on each table.

The good thing is, they got an immediate cash inflow of 3424 USDs. Out of the 856 Groupons bought, assuming that 80 percent of Groupons get used, they have a liability of 685 Groupons to be served. Since most of these would be used in Groups, and they allow only one Groupon per table so they can assume that this would bring in an additional revenue of 685*3*12 = 24660 USDs (assuming an average bill of USD 12 per person. But out of this, they would be paid only 13700 USD (since each table would use a Groupon worth 16 USDs). Adding this to the 3424 USDs they collected on the day of the Groupon Offer, the total revenue would come to 17124 USDs. So one easy way of summarizing the Groupon Mathematics from the restaurant’s perspective is this: For a 24660 USD revenue, the marketing cost is – hold your breath – 7536 USDs. 30 Percent !!

Now for the margins. One can easily argue that at such high marketing spends, the restaurant would definitely see a huge hit on margins. So, why will any restaurant (or for that matter, any business) offer anything on Groupon?

There is a simple two-point explanation:

1. If you are running at 30 percent plus margin (that can scale) – Groupon is a tremendous opportunity to get the word out and get busy for a week or so.

2. If you are low on margin, Groupon is an opportunity to “give it your best” and retain the customers who walk in – you are making a bet that the lifetime value of a customer will justify one loss making transaction.

This Just In: Numbers collated from official sources: Facebook serves 620 Million Users, Google is serving 940 Million, and Apple has 120 Million users on its iOS platform.

Why are these numbers significant? Look at it this way: Every sixth person on the planet uses Google, every tenth person is on Facebook, and one in 60 uses Apple products and one in 60 tweets.

Amazing. And the Title? Global ratio of men:women is 1.1 to 1. Roughly Google: Facebook+Apple.

Statistics Source: Morgan Stanley

## 82 Dollars: The Market Value Of An Active Facebook User

One way or the other, Facebook needs to make money off its user base. Based on current valuation of facebook (41 billion USD) and active user numbers (500 million) – Congrats, if you are an active Facebook User, your facebook lifetime is valued at 82 Dollars. Would you sell out?

## 400 Million Users = Just USD 104 Million Revenue?

Well when you are run as a non-profit thats probably what happens. Mozilla, the foundation that owns Firefox, reported its numbers today. The highlights: 400 Million Total Users, 140 Million Active Users, and USD 104 Million in Revenue.

## 17 Years: Time Required For LinkedIn To Become As Big As Facebook

LinkedIn today said they have an 85 million user base and that they are adding “a new member every second”. How big is this really, in the overall context of professional social networking?

We have seen this “every second” trick before: Steve Jobs famously said “we are selling an iPad every 3 seconds”. Lets do a back-of-the-envelope calculation.

At its current growth rate, and assuming that facebook doesnt grow at all for the next few years – how long would it take LinkedIn to become as big as facebook? 17 Years. Thats right. And thats assuming that facebook doesnt grow at all.

Statistics Source: TC

## The economics behind Apple’s iBookstore

[Reproduced with Permission from http://iptiam.com]

From the day of the iPad launch, we have been puzzled by Apple’s pricing decisions specific to the books listed on the iBookstore. One of our “must-do” posts has been this: To take a detailed look at the economics behind the iBookstore. Our analysis below.

1. For our analysis, we have taken the case of a book thats released in hardcover as well as the iBookstore. We have assumed the list prices to be: \$26 for the hardcover, and \$14.99 for the eBook on iBookstore on the iPad.

2. We have assumed that the new “agency model” will be used for all books sold on the iBookstore for split of revenue between Apple and the Publishers.

Note: The “agency” model is based on the idea that the publisher is selling to the consumer and, therefore, setting the price, and any “agent”, which would usually be a retailer but wouldn’t have to be, that creates that sale would get a “commission” from the publisher for doing so.

The wholesale model, on the other hand, is when the publisher “sells” the book to an intermediary (i.e. Amazon, Borders, B&N) based on the publisher’s established retail price and a discount schedule, typically around 50 percent. Then the purchaser resells that e-book at whatever price they like. (Source: ZDNet)

(Pls note that the most important point about the agency model, is who “owns” the sales data – Apple or the Publisher. This is not very clear at this point. As you can imagine, this sales data is the core strength of Amazon at this point)

3. We have not considered any revenue/profit dilution due to piracy, since we assume that the Books in iBookstore would be ‘digitally locked’

4. Royalties used are as follows: approx. 6% is the royalty paid for a paperback, and for eBooks, royalties might be on the way up, but we dont know if this will be a trend. We have taken a 20% royalty on “net proceeds” – basically 20 percent of whatever the publisher receives from the retailer (in our case, this would be 70 percent of the list price on the iBookstore).

5. We have only considered the royalties for the author and not the “advance” because, by definition, this is an advance on future royalties.

6. As expected, we’ll start everything from the list price. (For now, we’ll assume that the new model based on “actual amount received” by the publisher will not be used, and that royalties will continue to be a percentage of the list price).

7. This analysis ONLY considers sales through Apple’s iBookstore. We’ll assume that sales elsewhere will have no impact on our calculations (obviously wrong, but for now, we can go ahead. we’ll cover this particular assumption in a separate post).

Analysis Summary: The \$14.99 price for eBook: Who gets what?

References:

We have used multiple sources of public information for this piece. The most significant ones are listed below.

1. Advances And Royalties: The Business End Of Writing – Susan B Pfeffer
2. Apple pitching its agency model to book publishers – ZDNet

## King Of Smartphones: Not Andriod. Not iOS.

Well, most ppl got it right – its Nokia’s Symbian. 37 percent of all Smartphones ship with Symbian OS. Android has 25 percent, and iOS has 17 percent. Blackberry has 15 percent.

(Apple’s numbers do not count iPad / iPod Touch).

Statistics Source: Morgan Stanley

## Yahoo Serving 18 billion Ads a Day

6 Million FrontPges and 18 Billion Ads a day – the latest numbers disclosed by Yahoo Chief Carol Bartz.
One way to look at that number: 200,000 ads every second. every second. .

Staistics Source: TC

## Fact: Total Tweets Every Second Is Just 1000

The daily volume of twitter is 90 Million. Assuming global participation 24*7 and an average distribution of tweets, this translates to more than 1000 tweets every second.

For some reason, that number sounds low. Don’t you think?

Statistics Source: TC