* 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.
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.
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.
> 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.
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.
Uber I can see working in the long run. For taxis, they are disrupting artificial monopolies that have been created by cities.
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.
That really depends on your definition of success. Is it going to build a lasting sustainable corporation that will benefit humanity through long term research and development? Unlikely. Did it do well for its employees and initial investors? A very emphatic yes. In a world where we accept limited purpose prototypes and one-off solutions to get things done in the software and process worlds, why can't we we accept it from a business?
> 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.
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.
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.
> 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.
Then why is Groupon 1/4 it's post-IPO price, and how are the people who bought then not screwed over?
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.
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'.
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.
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.
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.
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.
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.
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.
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]
The 2nd piratebay dude had the same argument, and there is definitely some value to that notion -- convincing all these bright engineers to go join the so/lo/mo products instead of helping to build upon the BIG ideas.
It's not just risk. It's complexity. Groupon is a single product. No single product is going to put human colonies on another planet. No single company, or even single government, seems likely to do that. What, precisely, is Sequoia or Kleiner supposed to throw a giant check at? The rocket maker? The rocket fuel maker? The habitat designer? The logistics and supply companies? The cryogenics company? Lots and lots of moving parts and interdependencies involved, and no apparently clear winner to take the lion's share of the financial upside.
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.
The other difference is capturing the surplus. Fixing the economy would be worth trillions, but how do you get your piece of it? It's much easier to capture the surplus if you can insert yourself into the payment process for an already existing product.
That's why IMHO only governments can do those kinds of things right now. Only governments can make high-risk-high-payoff extremely broad and long-duration investments and then capture the upside through overall economy-wide growth (via taxation and other means). Nobody else can both afford the risk and capture some of the upside.
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.
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.
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.
He's been selling 500,000 shares every month since they've IPO'd. That link totally misquoted how much he has remaining. He has over 30 million shares still. I have no idea where the author pulled out that 40,000 share remark.
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.)
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.)
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.
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.
When Amazon launched, the standard contracts between publishers and bookstores had the stores paying 60 days after books were shipped to them. This made sense for conventional bookstores which would often have books on their shelves for months before selling them; but Amazon typically turned over their inventory every 30 days, meaning that -- even after the inevitable delay between charging a credit card and getting the money -- they received payment for books on average 2-3 weeks before they had to pay their suppliers. A lot of Amazon's early growth was funded by this negative working capital requirement.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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?
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."
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.
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.
* 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.