Let's stop laughing at Groupon
fortune.com
fortune.com
* 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.
Ostensibly, the multi-decade vision for Uber is that it becomes not just a taxi substitute but the operator of all the transportation in the future, as people abandon cars in the US and as motorized transportation reaches more of the third world, eventually culminating with them having a good chunk of the ownership in the driverless-car market... and that's where the value will come from, not just the disruption of the entrenched taxi interests (which is only adequately lucrative, and, as you mentioned, riskier). And regulatory diversity at least ensures that there will be somewhere that they should be capable of proving out a model with which to tempt the rest of the world.
Realistic or not, I tend to think that the management buys into that kool-aid.
Airbnb, that one is a bit murkier. There is something to be said for people wanting better value for money, and being able to rent a nice apt for the price of a small hotel room surely is a good thing. Even if you would add some sort of hotel tax to that, I'd say it's still superior value to a traditional hotel.
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.
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.
The lie is "I did X very well, and that's where this money came from."
Then why is Groupon 1/4 it's post-IPO price, and how are the people who bought then not screwed over?
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.
That's the Silicon Valley business model.
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.
>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'.
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.
I guess push is notifying the user, but what's pull?
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.
[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.
It's not. Groupon is worth $5 billion. 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.
It's possible that in the future someone will invent financial vehicles to make it possible to make those kinds of investments in the private sector, but it hasn't happened yet.
Edit: in a sense there is already something, namely government bonds, ETFs, and long-term positions in currency markets. But those are too coarse-grained. What we need is some way for private investors to make private investments in things that are all of: high risk, high payoff, and broad payoff.
Everywhere. Look at the numbers - Groupon has only taken a total of 1B in investments. SpaceX recently took 1B alone from Google in a single investment - and on top of the public billions spent on NASA, and private billions spent on SpaceX, Boeing, Lockheed - and the numerous other academic research projects.
The difference, I'm sure, is publicity. I'm sure the Groupon IPO got a ton more press than the curiosity landing. You simply don't hear about how the billions are being spent on those project because they don't have relatively massive returns in 5-8 years like a social coupon company would, and large money is spent on relatively small, uninteresting steps.
Likewise it isn't wise for a private fund to aggressively invest in these spaces. What would be an individual firm's financial return on developing the internet? A lot less than the financial return on Google.
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.
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.)
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...
Why is increasing population indefinitely such a priority. Isn't there enough of us already?
Source: http://www.cnbc.com/id/100512677
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
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.
I thought Amazon was the example everybody always used.
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?
Now that Amazon has expanded from books into CDs and DVDs and electronics and clothing and toys and food and computing services, of course, it's quite possible that their cash flow picture is very different.
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.
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.
http://www.fool.com/investing/general/2014/10/06/why-groupon...
Aren't they doing THAT in this article?
They're already dead but nobody has told them.