Let's stop laughing at Groupon

http://fortune.com/2015/01/26/lets-stop-laughing-at-groupon/

by jasondc • 11 years ago

103 86 11 years ago

api4• 11 years ago

I'm not laughing. I'm just perpetually a tad depressed that stuff like this is apparently more valuable than defeating aging, fixing our economy in fundamental ways, or making life mulitplanetary. Hell, it's usually more more valuable and profitable than even minor and mid tier innovations in the IT sector.

serve_yay• 11 years ago

The point isn't really Groupon, the point is that VCs and other investors are commonly thought of as chasing shiny, stupid things. But in the case of Groupon, public-market investors overvalued Groupon and in that way acted like our caricature of dumb, credulous, bubble-agitating VCs.

notahacker• 11 years ago

Few of the people that called Groupon a pump and dump before it happened ever had much regard for the institutional[1] and retail investors they dumped the stock on. Interestingly enough, one of the founders disagrees with all those listed "buy" ratings to the extent of selling >90% of his shareholding on the open market at well below their price targets at the back end of last week. http://sleekmoney.com/bradley-a-keywell-sells-500000-shares-...

[1]although some of the mutual fund investors the article sniggers at for rushing to buying secondary market shares in the private market probably made out before the post-IPO bubble burst too...

Edit: I stand corrected on the founder share sale, which appears to be part of a more orderly divestment than my source claimed.

gibybo• 11 years ago

stuff like this is apparently more valuable than defeating aging, fixing our economy in fundamental ways, or making life mulitplanetary.

It's not. Groupon is worth $5 billion. Any of those things would be worth trillions.

Kalium• 11 years ago

The difference is that Groupon is many times easier to execute than any of those.

api4• 11 years ago

"Any of those things would be worth trillions."

So where's the investment capital for them then? They're all chronically underfunded.

The difference, I think, is risk. Any one of those would be worth trillions if it worked, but the risk of any approach failing is very high.

savanaly• 11 years ago

Marginal value versus total value, my friend. While those endeavors you mentioned would probably have enormous benefit once achieved, they are so lofty that the marginal usefulness of a dollar put towards them is much less than the marginal usefulness of a dollar put towards a more modest goal.

And it's worth noting that Groupon seems to have a social purpose that I'm not sure most people who aren't economists would be able to articulate: abetting price discrimination, and presumably eeking us closer to the efficiency in those markets that use it.

lurcio2• 11 years ago

Beautifully put. Marginal innovations are like a greedy algo, & its not like the lofty goals are devoid of funding. Progress there feels so slow because the search space is so complex/expansive and there are so many local minima to flounder in.

mikeash2• 11 years ago

Defeating aging? I'd never be able to afford that even if it happened. Fixing our economy? The guys at the top will always find a way to screw me regardless. Making life multiplanetary? I won't be able to go, nor my kids, so what's the point?

Oh, save 50% on a meal at a restaurant I never went to before? Hell yes, sign me up! This will distract me from the depressing reality of life for a good ninety minutes at least.

(This is a parody of the average Joe, not actually my own thoughts.)

lurcio2• 11 years ago

They seem quite rational to me.

ta75757• 11 years ago

It's not more valuable, it's just possible, unlike most (all?) of the things you listed. (Not trying to be a jerk, those things are just virtually impossible with today's technology.)

imgabe• 11 years ago

Google and Fidelity just invested $1 billion [1] for 10% of SpaceX, putting its valuation at $10 billion, or twice that of Groupon, so I'm not sure where you're getting information that things like space exploration are less valued. It would probably be much higher, but at this point space travel is still very risky, so there's a high chance it won't pay off at all, compared to something technologically much easier to accomplish, like emailing people coupons.

Any one pharmaceutical company would be valued a couple of orders of magnitude higher than Groupon, let alone one that actually "defeated aging". Billions and billions are already invested in that. Pfizer for example, has a market cap over $200B. [2]

[1] http://www.nytimes.com/2015/01/21/technology/google-makes-1-...

[2] https://www.google.com/webhp?sourceid=chrome-instant&ion=1&e...

api4• 11 years ago

Well with SpaceX I was thinking more of the WhatsApp comparison. WhatsApp sold for $19 billion.

dominotw• 11 years ago

http://en.wikipedia.org/wiki/Fallacy_of_relative_privation

Why is increasing population indefinitely such a priority. Isn't there enough of us already?

juliangregorian• 11 years ago

http://en.wikipedia.org/wiki/Terror_management_theory

vernie• 11 years ago

Never.

silencio• 11 years ago

Groupon has been growing some non-deals services in the past few years, I wonder if that's what's finally paying off?

My restaurant uses their POS+payments platform moderately successfully (for certain values of success, the POS world is awful). It's a side of Groupon that most people don't know exists, that I think makes sense.

wallyhs• 11 years ago

Our restaurant also uses Groupon's POS and payments system. "Moderately successful" is how I would put it, although version 2 has improved things considerably. There is pressure to find a better POS, but I have yet to see one that I like. Most other point-of-sale systems that I've seen either fall short on everyday things like splitting checks, or they're technologically terrifying. The last demo I saw was of a cloud-based system with online reservations, and it looked alright up until I realized that the terminal was running Windows XP. This was last fall.

josefresco• 11 years ago

The Jury is still out. Groupon is still actively pushing growth strategies which can backfire in big ways.

http://www.fool.com/investing/general/2014/10/06/why-groupon...

danteembermage• 11 years ago

Groupon has lots of debt, just not the long-term kind. Why is having debt due sooner somehow better? For reference check out this http://www.sec.gov/cgi-bin/viewer?action=view&cik=1490281&ac... their current assets and current liabilities are about the same, with cash and what they owe their merchants about the same too.

That said, I always teach Groupon as the quintessential example of the power of having a negative payables cycle. They don't deserve any laughter for the growth engine they created; whether the business itself is sustainable is still an open question, but I'd say the same thing about GM so that comment doesn't really count as derision.

cperciva2• 11 years ago

I always teach Groupon as the quintessential example of the power of having a negative payables cycle.

I thought Amazon was the example everybody always used.

dudurocha• 11 years ago

I think Amazon is quite the opposite, no? I'm really curious...

Groupon receives the money then pays the owners in 30 days. Amazon does not have to pay its suppliers before and sell and receives money after?

blt2• 11 years ago

That page of text with ads took about 10 seconds to load and render on a 50-megabit internet connection with a 3.4 ghz i7 CPU and 16 gb memory. Let's start laughing at Fortune's web development team instead.

azinman2• 11 years ago

Was about 2 seconds on my iPhone and my home cable internet.

Killswitch• 11 years ago

Also pretty quick on my crappy Comcast connection.

acchow• 11 years ago

Try again after clearing cookies and cache. Really slow.

elyrly• 11 years ago

10+ javascript files loading. Nice to know i'm being tracked left right up and down.

pconner• 11 years ago

Use Ghostery (or NoScript if you want the nuclear option)

r00fus• 11 years ago

It's possible you're on a heavily traffic-shaped connection - I've noticed similar at my workplace and to be honest I prefer it that way.

bduerst• 11 years ago

It's tough to tell. Their LP has a bunch of external dependencies and js scripts to load, but this is on par with most other content-providers.

rnhmjoj• 11 years ago

On my computer the page didn't load at all. There is just a top fixed bar and everything else is blank.

blt2• 11 years ago

Keep waiting.

mscrivo• 11 years ago

I have similar specs and connection. Using uBlock (which blocked a full 25% (32 requests) of the page's "content") it loaded in 3 seconds flat and looks far better than the ad-ridden version. Sad, that this is what it has come to.

tehabe2• 11 years ago

I think it is weird that Forbes calls Groupon a "social buying site", even though that just sell coupons online.

pimlottc• 11 years ago

It's always instructive to look at something from a different context, but the value provided by Groupon is not so much in selling coupons but in creating a system to capture and direct a userbase in order to create new coupons that didn't existing already.

wnissen• 11 years ago

That's what it was originally. The idea was that the coupon would only be sold if you got a certain number of people together. So it's sort of like these buying clubs that group a bunch of individuals together and buy from the low bidder. Once Groupon got big there were so many takers for each deal that the buying club aspect fell by the wayside.

tehabe2• 11 years ago

I remember a Dutch company which tried that, if a certain number of people would buy the would be slightly cheaper. But they couldn't really attract a lot of customers despite a huge budget across Europe. So it failed.

alasdair_2• 11 years ago

Remarkably, Massdrop is managing to continue to do exactly this. I wonder if they can scale past their techie/nerd niche.

mathattack• 11 years ago

As long as they find a way to stay a public company, they're a success in my book.

arfliw• 11 years ago

What a fluff job. There was one interesting sentence in the whole article:

Its revenue and EBITDA have consistently climbed in each year since going public, and there is plenty of cash on hand without a single cent of debt.

What about their business? I don't even know what they do today, still daily deals? How is that going, how are the growth prospects? Did they pivot, will they need to?

Asking the writer more than HN. That was crappy 'journalism'.

debacle• 11 years ago

Their EBITDA is their business.

sk5t• 11 years ago

That's slightly less than constructive... the parent post well notes that the article should offer some insight into Groupon's actual earnings-producing operations, strategy, and future outlook on same.

Touche• 11 years ago

I still remember the height of the Groupon hype and a HN commenter saying that they could be bigger than Google.

antimora• 11 years ago

Till Groupon is entirely out of business, you cannot say for sure. Such open end claims should more specific to refute.

bdamm• 11 years ago

Sure we can.

Groupon is Cyber Pennysaver, at best. They can execute well, but it's very competitive. The business is high touch.

Google helps to render or find almost every page on the Internet, thereby shaping reality for a huge number of people. Mind control is a lucrative business.

Ergo, Groupon is a bit player compared to Google, and they always will be as long as the meaning of the businesses stay where they're at.

voronoff• 11 years ago

Groupon itself was the one pushing poor metrics for valuation and hiring a bunch of salespeople they never intended to keep more than a year past IPO. They artificially pumped their price, and should be derided for that even if they made money doing so.

LanceH• 11 years ago

It's a good thing IPO's are professionally underwritten and that the only people with access to IPO shares are the sophisticated investors who surely saw through all of this.

lmm• 11 years ago

It's a public offering; the defining characteristic of an IPO is that it means that the shares are available to be bought by widows, orphans, and general idiots, rather than just accredited investors.

JonFish852• 11 years ago

To be fair, Groupon did a lot of things right.

* They grew insanely fast for several years in a row.

* They had crazy usage numbers.

* They convinced VCs they would go public at a huge valuation.

* They got a huge buyout offer from Google.

* They IPOed, giving the company a $12B valuation and bringing in billions in cash while giving investors high multiples of their investment.

All of those things are tremendous successes, not worth laughing at. Now from an outside perspective, they're not a traditionally successful company. They're currently worth about 1/4 of their day 2 stock price. They're trying to find a better business model (Groupon Goods?), because their daily deals wasn't cutting it. The company was, in my opinion, a pump-and-dump type of company: not built for the long haul, but for raising the next round of cash.

Laughing at Groupon? I'd be more jealous: they were able to complete a sprint, but so far in the marathon, they're not looking like a company built to last. They look like a company that is using the IPO cash to search for something to sustain themselves, while cutting costs to extend their runway. To say that's "successful" is a bit of a stretch, in my mind. Their success was in hitting all the right metric for a large IPO. Since then, it's been a bit of a dud.

tinkerrr• 11 years ago

Funny how every single 'right' thing they did benefits the early owners only and no one who buys the company stock thereafter. Successful companies are seldom built on the principle of maximizing value for yourself while handing lemons down to the next person foolish enough to invest in your company.

JonFish852• 11 years ago

I completely agree; I think a lot of startups these days are built on the same principles. Uber comes to mind, specifically. I think the name of the game there is to get to an exit before the regulators really start to get involved, because those will only eat away cash/value. The same applies to AirBnB (again, only in my opinion). So in general, these types of startups are really just sprinting to an exit, growing insanely fast to benefit the early people: founders and investors. Once it's public, they've cashed in their stock, so it's up to the new guard to figure out how to turn the growth company into a successful, long-term company.

bunderbunder3• 11 years ago

Funny how every single 'right' thing they did benefits the early owners only and no one who buys the company stock thereafter.

Hypothetically, there's not really any reason to put scare quotes around the word right: At its core, every company is a vehicle for delivering value to its current owners. Future owners are not current owners, and the only defense mechanism they have is good old-fashioned caveat emptor.

In a well-functioning system, that would be sufficient: Few companies would follow the "pump and dump" scheme because it would be so difficult to pull one over on prudent, skeptical investors that approach would rarely meet success. I think, though, that we are not seeing a well-functioning system. We're finding a system where companies inevitably flow toward less and less savvy investors, until eventually you've got half your family members talking about how they're thinking about getting in on the Facebook IPO based on nothing more than that they keep hearing in the news that it's selling for a lot of money.

Incidentially, I was terminally amused by all the news articles talking about the "failure" of the Facebook IPO. On the contrary, if I were one of Facebook's pre-IPO owners I think I'd have been laughing all the way to the bank. Only in what passes for popular financial news could someone do the equivalent of characterizing a masterfully executed Poker bluff as a woeful failure without being rightfully dismissed as someone who's terminally clueless about the rules of the game.

maaku2• 11 years ago

Serious question: how is that different from a Ponzi scheme?

bunderbunder3• 11 years ago

Structurally, they have nothing in common.

In a Ponzi scheme, you've got only one central figure playing everyone off. Classically, there's no underlying assets under it, it all exists on paper. The schemer promises everyone that they're getting great returns (on paper), and use new investors' money to cover the withdrawals of others in order to maintain the illusion. As soon as the rate of money coming in exceeds the rate of going out, the whole thing crumples and everyone loses everything.

Good old-fashioned finding-the-greater-fool doesn't involve any of that. Everyone involves gets to keep all their money. This includes the greatest fool, too. Admittedly this poor soul has since found out that the thing they bought isn't worth what they thought it was worth, but still has exactly what they paid for.

andrewmutz• 11 years ago

I think this is a great example of why that list of "right" things is not a good list.

Focusing on growing insanely fast, with high usage numbers and a relentless focus on where the next source of funding is coming from is not the way to build a sustainable business.

If an entrepreneur's goal is just to get rich via exit, regardless of the viability of what he leaves behind, it's at best cynical, and at worst is deceiving public investors.

ExpiredLink• 11 years ago

* If an entrepreneur's goal is just to get rich via exit, regardless of the viability of what he leaves behind *

That's the Silicon Valley business model.

Zigurd2• 11 years ago

It's a little unfair to call it "pump and dump" which is a specific kind of unethical stock play. The points you made show how Groupon was a creature of the venture model, and executed well:

No barriers to entry, so you have to exploit first mover advantage as quickly as possible: Check.

Audience and advertiser numbers are more important than anything else: Check.

Executing on these points is worth any risk, and never mind the cost or the plausibility of the P&L projections of throwing as many salespeople at the problem as it takes to be dominant: Check.

Groupon executed on what turned out not to be a viable model with total focus. Nobody remembers who the 3rd-27th players in their market were, and their investors lost most if not all of their money.

shittyanalogy• 11 years ago

23 billion down to 4.9 billion...

tsm• 11 years ago

Disclaimer: Groupon engineer (but not speaking for company).

Groupon's a lot more than daily deals now—that (what we call "Local") is still a big part of the business, but there is also Goods, Getaways, our POS/inventory management system, and Snap! by Groupon (in addition to several other things I'm probably forgetting). And even in Local the emphasis has shifted from daily emails ("push") to various "pull" strategies.

It's always tough when you fire your founder and CEO, but the company's been recovering steadily and I have faith in upper management's ability to continue increasing revenue and diversifying the product offering.

brador• 11 years ago

daily emails ("push") to various "pull" strategies.

I guess push is notifying the user, but what's pull?

alasdair_2• 11 years ago

Have a lot of content and "pull" users to the site to experience it.

Part of that is having Yelp-style merchant pages with reviews on them, part is having a lot more editorial and blogger content and part is building in search so you can find, say, "things to do in San Francisco" or whatever more easily.

mooreds• 11 years ago

I'm a happy Groupon user. Not sure if it is working for the companies that I buy Groupons for, but as a consumer I certainly review those emails.

justboxing• 11 years ago

Andrew Mason is having the last laugh, all the way to the Bank. Last time I checked, despite being fired from the Company he created out of a Wordpress Blog, his nett worth was $200 MILLION.

Source: http://www.cnbc.com/id/100512677

staunch• 11 years ago

Most people who create something worth $5 billion end up with a lot more than $200M. He earned it.

puranjay• 11 years ago

And just in case you forget that he is, indeed, laughing all the way to the bank, he made an album of 'business rock' to help you remember.

http://mashable.com/2013/07/02/andrew-masons-hardly-workin/

I feel nothing but jealousy about his story. In my world, we don't laugh at billion dollar businesses

marjuk• 11 years ago

One thing I don't understand that how is firing founding CEO serves to be keeping the company growing and finding new revenue sources? isn't just a terrifying signal to the market that the board has lost faith in the long-term viability of the company by making such big decisions as firing a founder CEO?

dennisbest• 11 years ago

Fine. But I reserve to laugh at Fortune. This line in the article stands out: "If you want to criticize someone for overvaluing Groupon, take a good long look at public market investors."

Aren't they doing THAT in this article?

Eleutheria• 11 years ago

Groupon is like Blackberry.

They're already dead but nobody has told them.

Dylan16807• 11 years ago

This is ridiculous. Groupon hired the people that set that valuation. It's completely reasonable to mock Groupon for it.

tw04• 11 years ago

Failing to take Google's offer is proof they did over value themselves, so his analogy quickly falls on it's face.

Let's stop laughing at Groupon

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