Tech Fads Will Continue to Sink
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Today Groupon (NASDAQ: GRPN) is restating it's first public earnings release (downwards). To me this isn't much of a surprise, and I think the Groupon's best days, sadly are already behind it. In the same boat as Groupon is Pandora (NYSE: P), and the "titan" of the group, Netflix (NASDAQ: NFLX).
It's a simple strategy, but buy what you know. And my question is, who do you know that is truly in love with or obsessed with any of these services? At one point in time ... yes. I had Netflix, I've used Groupon, I listened to Pandora ... but now, I wouldn't give them a second glance. The barriers to entry are too low, and there are far too many alternatives that are cheaper and often better.
Groupon I think is in the worst position. It's business model has been replicated by several smaller companies such as Scoutmob and Living Social, but now some of the big boys are getting involved too. Amazon (NASDAQ: AMZN) and Open Table both offer deals in similar fashion. Unfortunately for Groupon it's just too easy of a business model to replicate. Scoutmob has the added bonus of not even having to buy anything, you simply show them your phone and you're done! I don't see Groupon changing their game plan in a meaningful way. Their retention of both users (and business partners) leaves much to be desired and it's only a matter of time before they are bought up in a fire sale or simply crash and burn.
Pandora was certainly a great App when it came out. It definitely (in my opinion) helped pave the way for internet radio and gave people the ability to create their own stations rather than listen to the repetitive nonsense that's on the radio now. Making money off this innovation however, has proved to be a bit of a problem. Pandora has to pay for content ... but users generally don't want to pay to hear it, just ask the folks over at Sirius/XM. Once Pandora switched to a Pay to Play (or listen to commercials), other Apps started appearing replicating Pandora's model but keeping the cost to the user down. Jango is the most direct comparison but iHeartRadio is also making strong inroads. Again, Pandora has yet to find a way to make money off their product ... and I don't see them finding a way anytime soon.
Lastly there's Netflix. They've been around the longest, are profitable, and have a wide subscriber base. They were very smart to lock in some great deals for digital content with the movie studios for the first few years ... but have become a victim of their own success. Seeing how valuable the digital rights were to their content, movie and production studios now want a great deal more for the same rights. It's not easy for Netflix to keep the subscription price the same when their costs increase 10 fold ... as we saw when they tried to create 2 different prices for Digital and Physical subscribers. Anyone who has Netflix now probably sees that the number of movies and shows has decreased somewhat as deals with various studios have expired and have not been renegotiated. While Netflix is certainly the strongest company of the bunch, with competition from even bigger companies such as Apple (NASDAQ: AAPL) and Amazon and Microsoft by way of the Xbox, I don't see a way for Netflix to survive on it's own. It's digital only subscribers will ultimately leave and the folks who want to be mailed DVDs will be better served at a retail location or by Redbox ... until DVDs go the way of VHS.
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