Global Crisis/Innovation Blog 

Groupon: The Movie 

By Shlomo Maital

 

 Andrew Mason, founder &  CEO Groupon 

 

Have you by any chance been following the incredible phenomenon known as Groupon?  According to Wikipedia, 

  “Groupon (“group coupon”) is a deal-of-the-day website that features discounted gift certificates usable at local or national companies.  Groupon was launched in November 2008,  by now-CEO and Pittsburgh native Andrew Mason.  The idea subsequently gained the attention of his former employer, Eric Lefkofsky, who provided $1 million in “seed money” to develop the idea.  

According to Reuters,   “Groupon Inc raised $700 million after increasing the size of its initial public offering, becoming the largest IPO by a U.S. Internet company since Google Inc raised $1.7 billion in 2004. The global leader in “daily deals” is now valued at almost $13 billion after saying it increased the offering by 5 million shares to 35 million in total and pricing them at $20 each, above an initial range of $16 to $18.”

   Groupon is generating four times as much revenue as Google was, at this stage (three years after its first sale).  It already employs 10,418 people, as many as Google had in its year eight. 

   Groupon is a classic Web business which is both close to utter collapse and close to gigantic jackpot earnings, at the same time.  It has negative working capital, according to Richard Waters, who writes a Technology column for the Financial Times (Nov. 3).  It owes far more to merchants (for the coupons) than it has cash on hand.  It has 143 m. email addresses in its databases, but only one of them in five has ever bought a coupon.  It is growing at 72 per cent a quarter,  but the amount of money it retains per coupon has collapsed, by 5 percentage points, to 37 per cent.  So, either the novelty value of coupons has collapsed, and with it Groupon, or, Groupon is showing it has a solid business by slashing its spending on subscriber acquisitions and is ‘cruising’. 

    Waters perceptively notes Groupon’s (and Mason’s) problem.  Groupon has to do what Jeff Bezos did at Amazon – turn a one-product Internet business into a broader “solutions” business.  Waters says doing this, on the ‘fly’, is like changing tires on a racing car while the car is doing 200 mph on an F1 track.  If he can pull it off, Waters say, Mason will have earned his place among the handful of lasting dotcom winners.

   We wish him well.

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