Groupon’s Slow-Motion Train Wreck

Groupon failure of business modelI’ve blogged before (several times, actually) about the problems with Groupon’s business model and the difficulties it’s encountered since going public.

It seems that the twin whammies of new competitors plus merchants’ increasing unwillingness to take a bath on offering deep-discounted products and services to ultra price-sensitive consumers have been enough to send Groupon’s business into a financial tailspin.

One key takeaway from the Groupon couponing experience: Consumers who are attracted to bottom-of-the-barrel pricing have absolutely no brand loyalty thereafter – unless they’re offered a similarly extreme price discount the next time around.

Understandably, merchants aren’t much interested in marketing practices that boil down to being creative ways to divorce profits from sales.

And now, with yet another quarter of dismal financials just released, Groupon’s board of directors has done the inevitable: separating CEO and founder Andrew Mason from his company.

As the famously quirky Mason, who was once a student of music at Northwestern University, put it in a letter to Groupon employees (which he also released publicly “since it will leak anyway”):

“After four and a half intense and wonderful years as CEO of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding – I was fired today. If you’re wondering why … you haven’t been paying attention.”

And then Mason goes on to summarize the ugly facts: two quarters of missing the company’s own financial expectations, along with a stock price that’s baely one-fifth of Groupon’s listing price when the company went public ~18 months ago.

Business observer and talk-show personality Jeff Macke has been merciless in his condemnation of Groupon’s recent business performance. He writes:

“In its short, ignominious history as a public company, Groupon crushed the hopes of more true believes than Santa Claus and Jim Jones combined. From its closing level on the day of its IPO in November 2011, GRPN shares have lost more than 80%, driven by accounting scandals, an ill-conceived international expansion and generally poor execution of a not-very-smart business model … What is fresh information is the company’s hideous earnings miss … when it reported a 12-cent loss versus expectations of a 2-cent gain.”

Late moves by the company to staunch the bleeding – such as taking a smaller cut of revenue on daily deals during the latest holiday season in an attempt to attract and keep merchants – haven’t been very successful and haven’t reassured investors.

In late 2012, Andrew Mason was dubbed “Worst CEO of the Year” by CNBC’s Herb Greenberg.  But not every business journalist and analyst has been completely critical of CEO Mason. In an interview with the New York Times, Stifel Nicolaus’ Jordan Rohan remarked: “I view Mason as a visionary idea generator. Few would argue with how impressive the Groupon organization was as it grew.”

But Mr. Rohan went on to report, “However, at some point it became the overgrown toddler of the Internet – operationally clumsy [and] not quite ready to make adult decisions.”

For many of us in the marketing field, peering at Groupon from the outside was like seeing a slow-moving train wreck in the making, so the latest news is pretty much what we expected.

But perhaps the biggest surprise is how similar it all looks to the ill-starred Internet pure-plays of the dotcom bubble a decade ago.

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