Saturday, December 31, 2011

Groupon: Cheap is Not a Brand


OK, Groupon finally got the fancy IPO that has long been waited for. Groupon got the place of big winner in the year-end special edition of Canadian Business. Yet, the name of Groupon do not sound as appealing as Twitter or LinkedIn, not to mention Facebook or Apple.

Some while ago, I read a very persuasive writing by Bruce Philip, a.k.a. Brand Cowboy, a blogger and consultant, who talked about Groupon, in Canadian Business. (This article was published before the IPO.)

Groupon has been a beloved icon of social commerce. When Groupon rejected Google’s billion-dollar buyout offer, the majority opinion was that Groupon was wise to pursue its own way in its golden path, and I was not the exception. But these days, I hear things I’ve been hearing about Reach In Motion, on Groupon. Still, I thought those statements about Groupon was on comparative basis. When I heard that Groupon is running low on cash, I thought that their cash reserve came down to several billions from tens of billions. But Brand Cowboy’s posting corrected my stance about Groupon for good.

In Korea, actually, the business model of social commerce is making a lot of nasty noises. Social credibility, I believe, is one of the society’s maturity indices. In this regard, South Korea is still in par with those countries with lower scores. Consequently, businesses often come up with less than what is promised on the coupons when people come to redeem them. This has been broadcast several times in the mass media, but is not corrected. Nowadays, people seem to think of social commerce as semi-scam, or at best, a raffle of a sort. In short, the business model of social commerce is on the downward path, experts say.

Then what about Groupon? Brand Cowboy says being cheap is not a brand. What Groupon does is not differentiated from myriads of its competitions. Groupon’s argument is you must buy because you don’t want to miss a bargain. I have hoards of things (mostly electronics and boardgames) that sit in the attic of my mom’s house, most of which I spent less than a few days playing with. Sometimes I bought them out of curiosity, but quite often, I bought them because they were on sale. As Brand Cowboy puts it, this is surely a less desirable aspect of human nature. And Groupon’s business model is based on that aspect.

Cheap is not enough. Groupon has first-mover advantages, most notably, larger subscription base than any other followers. But this is not a sustainable strength, because there is no distinct network externality in social commerce. Groupon must find a way to make it to the future, and one way of doing it might lie in building a sustainable brand.

Friday, December 30, 2011

1Q84 - Do NOT read it

I am writing this to save people's time by the tons. 1Q84, by Murakami Haruki, was surely one of those lucky books that took space in many people's reading list this year. But, I will save your time - Do NOT read this terrible book. It took me over a month to finish this book, only to find that I came across the worst book by Murakami, perhaps even worse than Norwegian Wood. It almost feels like I've finished the Twilight saga. Then again, that one made sense at least.

It is pointless to list what are so bad with this book, since I could not really find anything good to mention. Murakami wrote this novel in three parts, publishing books 1 and 2 first and publishing book 3 after about a year. I am not sure - whether he is easily swayed by the public's reception or simply he does not have what it takes to finish what he has started. However, he created a total mess of immature curiosity (I feel sorry for the word curiosity, for goodness's sake), then could not make a plausible meaning out of the havoc.

In conclusion, do NOT read it, and you will save 40+ hours, which can be put to much better use.

Monday, December 19, 2011

Corporate Bond Credit Risk - A Very Long-Term Perspective

The National (of course, American) Bureau of Economic Research recently published a paper titled “Corporate Bond Default Risk: A 150-Year Perspective,” which CBS MoneyWatch summarized in an article. I could not access the paper free of charge because I could not fit in any category, but I believe the summary by CBS is worth noting. So here it goes: my summary of the CBS summary, plus some thoughts of mine for those numbers.

The long-run average default risk, for the period of 1866-2008 is 1.5% - a rather high number if you ask me. They are not just listed companies - but they are powerful enough to issue bonds. During the Great Depression, the default rate was well over 10%, but this is nothing compared to the whopping 36% default during the railroad crisis of 1873-1875. Without these outliers, the average will be smaller.

Default events had weak correlation (about .26) with business downturns. Recession indicators have little predictive ability with regard to corporate defaults. Defaults showed their own patterns over time, and had a cycle of about 3.2 years, which is longer than the business cycle.

The credit spread was only 1.53%. I think this is already quite small, but the realized premium for the spread was only .8%. Realized premium was quite low compared to the yield the bonds had when purchased. This is natural, because the yield is there to compensate for all kinds of risks - default, illiquidity, risks from embedded options if any, etc. Yield never equals expected return, but investors confuse them and keep chasing after high-yield bonds.

This, coupled with the 2012 investment outlook from Canadian Business (dated Jan 23, 2012), perhaps we should go with equities, and entrench ourselves in the long-term perspective, and behave like an institutional investor. Most of the companies listed in NYSE today, I believe, will still be there after 20 years.

Friday, December 9, 2011

You can be cool and save the Earth

There are easy little things we can do to help protect this green planet. Not using garburator ( is one such thing. Another great easy thing to do is cold water laundering.


According to Carbon Conscious Consumers, a US climate campaign body, 90% of energy used in washing laundry is used to heat the water.

Pushing cold/cold when you start the washing machine, instead of hot/warm, saves you carbon footprints equivalent to 9 miles of driving. This might not sound too impressive. Let me give you additional figures.

A standard American household washes 392 loads of laundry every year. Let’s round it to 400. 9 miles multiplied by 400 times of washing... means you can reduce carbon footprint by the amount of 3600 miles of driving.

On average, people drive around 12 to 15,000 miles per year. Using cold water in washing alone is equivalent to three to four months of “no driving.” Anyway, I don’t drive really. I use public transportation, and use Zipcar only when I really need it. For people like me, I should give some other comparable measure.

4 ounces of beef produces green house gases equivalent to 6.6 miles of driving. This means, 9 miles of driving will be equivalent to about 5.5 ounces of beef. This is a lot for me or for my wife, as an amount of beef to be consumed in one meal. Even for average people, a hamburger usually comes with a 4-oz beef patty. Again, 9 miles of driving is not to be taken as too little. However, I do not eat meat on Mondays because I am on the campaign of Meatless Monday anyway. Let’s use some other measure, then.

An average household in San Diego, California, emits about 11.5 thousand pounds of CO2 per year. (I used my old address in San Diego because the site wouldn’t accept a Canadian zip code.) Following this number, 9 miles of driving is equivalent to 6 hours of total abstention of energy use in home! In other words, if you use cold water to wash your clothes than hot and warm water, you can live for 6 hours, consuming the normal amount of energy, at the rate of an average American, the number one ranking citizens in terms of per capita energy use!

Still don’t get it? Now I will use a measure everyone can understand very quickly – dollar amount. If you wash 80% of your laundry in cold water, you can save $60 per year. (Of course this depends on your area. I think it will be something like $100 in San Diego.)

In addition to the environmental benefits, using cold water is better for the fabric. Furthermore, some dirt, notably protein-based dirt like blood or egg, will not go away if you wash them with hot water. Use cold water.


However, there is one caveat in this great advice. Cold water is not as effective as hot water in killing viruses and bacteria. Use hot water for heavily soiled clothes and other clothes that require extra attention in terms of hygiene.


I believe you now understand the benefits of cold water laundering well enough. To make life easier, I will make bullet points to remember for cold water laundering.

- Wash your laundry in cold water whenever possible.
- Pre-soaking or pre-treating enhances the efficiency of washing greatly. For example, I carry this pen-type detergent <show it> wherever possible, so that I can do a first-aid type of treatment when I spill some spaghetti on my Ferragamo tie. This same pen can also be used to pre-treat heavily soiled laundry items, before you put them into the washing machine. Just soaking your laundry in cold water for half an hour can help the washing
Use specific detergents that say “cold water.”
Do not underload or overload your washing machine. Washing with full loads help you save energy.
Front-loading washing machines use less water. Use them.

I will repeat and summarize once more: 1) use cold water whenever possible, 2) pre-treat or pre-soak laundry before washing, 3) use specialized detergents, 4) wash with full loads, and 5) use front-loading washing machine.

This is a small and easy thing to do, but you can save the planet and feel great. Also, you can save some money as well.