Maybe, but I didn't realize it, and I'll bet others don't either. Significant because of the accumulation of bad days, and because of the company's apparent hubris and possible over-valuation.
Remember, this was the fastest growing company of all time, gone from a billion dollar+ IPO price of over $30, down to $7 in a matter of months. Sheer evaporation of capital. Promoted by many of the usual suspects of the tech scene. I find it to be an incredibly interesting business case study.
Serious question. Does capital really "evaporate"?
I mean, the value of the entire company has gone down when measured by the stock price, but the stock price is just a report of the latest trade.
If you and I trade 1 Share of Groupon for $1, we didn't just wipe billions of dollars in capital away.
Maybe I lost money selling you that 1 share, but Groupon still has the cash in the bank from it's IPO, all other investors still own the same percentage of the company, revenue remains the same, profits remain the same --- so the stock transfer between you and I didn't really change anything fundamental about the company did it?
If you could make that trade in the market then yes, you could wipe out billions of dollars. But, the market assumes that you are trying to hold as much value as possible -- you wouldn't walk around trying to sell your $10 bill for a nickel, would you?
It's a difficult question, as with any "on paper" value and what that really means. If you and I trade one share for $1, it probably doesn't affect the paper value. But if a year ago a stock was regularly trading at $30, and now it's regularly trading at $7, that does substantially change the paper value of the stock, and therefore impacts anything that depends on that paper value. What it comes down is "stock price" as a reasonable estimate of what you could sell the stock for if you wanted to. You and I exchanging a share for $1 doesn't really make it reasonable to assume $1 is now the going rate; but many shares changing hands at a lower price than they regularly did last year is a good indication that the price you could fetch for the stock today is less than it used to be.
Of course, if you don't want to sell, you could just ignore the stock price, and pretend the stock doesn't have a price even. Although even then that assumes you're not using the "paper value" of the stock in any way. For example, if you want to use the stock as payment for something (e.g. in a stock+cash transaction), or as collateral for another transaction, then its paper value matters.
These guys should have taken the 4 billion from Google. Their unfair advantage is pretty much inexistent that leave them extremely vulnerable to any competition.
I think it actually says more that Google was willing to pay that much... for what, exactly?
As for the merits of not taking the deal, I think we should be clear – the early investors and many early employees have done alright and most likely won't be losing their shirt like any of the recent investors:
A great line from the Short logic analysis: "At the moment, it’s costing them $1.43 to make $1, and it doesn’t look like it’s getting any cheaper."
This was the kind of thing that thoughtful business analysts were noticing in the weeks before the Groupon IPO: the company didn't have a sensible earnings model, even if it had "revenue" that dug it deeper and deeper into a hole.
Indeed. Where's the IP? It's not like there's anything of value in Groupon – customers? no lock in/low switching costs. Vendors? Every small business person I've heard talk about their experience with Groupon has said they'd never use it again.
Everyone pointed to the ponzi scheme nature of the Facebook IPO, but Groupon's IPO really should be the standard of the ponzi scheme IPO. The investors and owners of the company knew the entire revenue model would collapse in on itself, and the only way to make money on the whole thing before it all disappeared was to IPO - sell this worthless POS to someone else and let them hold all the shares when the bubble pops. The nature of the ponzi scheme is that the last people in get hurt the most - sounds remarkably like this IPO.
The very nature of the IPO itself should have raised red flags to everyone (just as Facebook's did). Early investors are all dumping shares, founders are dumping shares - in lieu of insider trading laws, it's the surest sign that something is amiss. You really think if the company was expecting the same massive growth that the only people with the insider knowledge of that happening would be selling shares? You think John Rockefeller was selling shares of Standard Oil?
The investors and owners of the company knew the entire revenue model would collapse in on itself,
Is it me, or has the standard of proof on HN dropped to immeasurable levels?
What's that? Hmm?
Oh no, I didn't say anything, not me. Just doing my part in the two minutes hate against anyone who isn't an engineer. We all know engineers are the unappreciated man-gods oppressed by the investor class.
Nobody mentioned engineers. It was a statement about more savvy investors with insider knowledge screwing less savvy investors without insider knowledge.
Your criticism is like accusing somebody calling out unscrupulous used car dealers who sell lemons of hating people who own cars.
I'm sorry, perhaps you are unaware of this fact: the term "Ponzi scheme" has a specific meaning, which an activity either conforms to or it does not. If it does conform to that definition, then you should be able to present material facts about the activity which would cause a reasonable person to reach that conclusion.
Likewise, when a person makes statements about the mental states of another, such as what those people did or did not know, that is a statement of fact. If you assert those facts, then you should have evidence to demonstrate that such things are true.
Unfortunately, all you have are poorly formed, emotionally charged opinions informed by a couple of articles you read on TechCrunch. Or maybe the WSJ if you're a little more rigorous. What you don't have are sufficient facts to warrant the conclusions you're defending, unless -- and this is my point -- you have such a low standard for truth that practically any statement can be considered substantiated, so long as it agrees with your prejudices about who deserves wealth and what constitutes success.
Oh jeez, seriously? STFU dude. I was responding to the inane comment which called Groupon and Facebook a Ponzi scheme. I don't know why you're responding if it's not to defend/agree with that comment.
Do you actually have anything to say, or are you compelled to react whenever you see someone not rabidly and mindlessly denouncing Groupon?
If I recall correctly, groupon raised something like $100 million immediately after they rejected Google's offer.
At the time, I remember reading that almost the entirety of the investment went to buy out early investors.
So it looks like Mason got the best of both worlds: he got the cash out a substantial number of shares and then hang on for the IPO upside.
You also forget to mention that the Google deal was contingent upon due diligence, which now, in hindsight, may not have even successfully gone through.
Google's stock and cash worth $6B is still better offer to than rising $100MM. Not only first is 60x more, but it is also the ultimate exit (done deal - wash your hands go to the bank to cash the check), versus "$100MM investment" is just a gas for a business to sustain it and move it forward.
So still you haven't convinced me that Mason was after the money. I think he obsessively believed in the idea, which to me (personally) has no merits from business perspective, therefore from the investor/stockholder perspective this is a nightmarish position to be in, but one has to agree Mason did build something good: he gave jobs to thousands unemployed and stimulated the recessed economy by providing platform for both businesses and customers to continue selling and buying.
edit: I don't believe Mason had a crystal ball to predict how future will look.
Sorry, I was incorrect, it turns out they raised $1 billion, most of which went to the existing investors.
Of course, reasonable people can disagree on this, but I think the questionable accounting standards (see: adjusted consolidated segment operating income) that they made up to hide their huge weaknesses before the IPO came straight from the top.
I think Mason knew the wheels were coming off even before the Google offer, and he decided to take the guaranteed 1 billion instead of risking not making it through due diligence with Google. Then, push the accelerator to the floor, try to obfuscate the numbers as much as possible, and get away with as much money as possible before the IPO investors were left holding the bag.
I agree that the founders/early investors of Groupon acted quite suspiciously, cashing out billions of dollars in value before the IPO and at the IPO - which tends to mean they would rather have cash than shares in their own company.
But the sad thing is that all investors invested with their eyes open to it. You can't call it a Ponzi scheme because everyone knew of Groupons profit challenges BEFORE the IPO.
This is just IPO greed / tech bubble meets reality, if anything. Groupon was never worth what the people who bought the shares thought it was. Speculation is not illegal though. If the shares doubled/tripled post IPO, they would have all made off like bandits, so I feel no sympathy for them.
If there's any joy to take from this (beyond pure, uncut schadenfreude), it's that news articles like this have permanently stemmed the tide of Groupon imitators that saturated every conduit of the tech media in 2011.
I do fully believe that Groupon (and Living Social) will survive -- albeit as much more modestly sized companies -- but the sea of imitators should evaporate except for a very select few in well-entrenched niches. And that's fine, they serve their purpose, and they do have a legitimate market in which they can make money and deliver value. The rest of us can treat their product as an established commodity and move on.
I'm not sure what the right price is for Groupon, but I still believe it's got massive potential. It could serve the same purpose that AdWords does online but in the physical world, which is a far larger market.
The thing that seems to be holding them back is that they're simply not executing at a super high level yet.
It seems like they scaled the business by doing everything the same way but at higher volumes. They need to move to a self-serve model so they can get rid of the overhead of having 10,000 sales/writer employees. They need to simplify their product down to the primary use case. They have at least four products currently: Featured Deal, Now!, Goods, and Rewards.
Unfortunately I do predict doom and gloom for them. It would be so hard for them to make the changes required that it's most likely they will not be able to do it. Andrew Mason isn't in the kind of position Zuckerberg is in from a control perspective, which means he'd probably get fired for trying to do this stuff.
Most of their small business owner clients lack decent knowledge in computers in order to be self-served by Groupon, otherwise they would have used AdWords or Drupal by now and would have had their own coupons. But in a couple of years from now, with voice recognition and voice synthesis, I can see e.g. Google having phone bots that are good enough to automate the process (and have human operators just for 10% of the cases where things go bad).
Part of the flow is not really automate-able: it involves hearing from the owner the products they have and writing a pitch on Groupon.com that fits the overall theme and style of the site. But it can still be done faster probably if owners were to leave that info with clever phone bots rather then being hand-hold while walked though every stage of the process.
I think the future of Groupon is something closer to what Google Local wants to be. A place people can turn to when they want to get lunch, a massage, or get their oil changed.
I think the daily deal thing, which started Groupon, is not nearly as interesting as this. They could drop it entirely.
I believe business owners could absolutely handle it themselves, if you made it really simple. The primary interface could be a smart phone, so it would work for any business. Made it dead simple. It shouldn't take more than 5 minutes to put up your daily ad.
We can't bet on companies based purely on their market potential. We have to bet on companies based on the potential we believe them capable of realizing. This is highly dependent on the companies themselves: their behaviors, their characteristics, their products, their people, their organizational structures, their capital structures, and so on. As you identify, this is probably tough going for Groupon as it currently exists.
The problem with a self-serve model is that these aren't self-serve customers. Almost by definition a large percentage of small businesses are relatively unsophisticated computer users (at best, middle adopters).
It's the same reason why Yelp has to spend so much on direct sales to get these businesses advertising.
Groupon needs to fail. The faster the better. Often the small business owners that are attracted to Groupon's service are not technologically savvy. They become starry eyed with the promise of new customers, business (and - ultimately - money), and don't grasp what's at risk. It's typical for a business owner to have a wholly negative experience with a Groupon sale. "Grouponers" have a certain DNA. And that DNA is at odds with what Groupon promises. "Attract new customers" - NO, most only go to the merchant for that single, highly discounted, offering, never to return. "Attract collateral business" - NO, studies show grouponers rarely purchase beyond the sale item. "Make lots of money during the sale because you'll get a guarantee number of X buyers" - NO, Groupon keeps such a large percentage of the sale (50%) that most sales operate at a loss to the merchant.
But there are more systemic issues with Gropoun, merchant, and employee relationships. Again, the DNA of a grouponer - being that of a deal thrift - often leads to a strained relationship between employees and grouponers. No use in fostering good rapport with the customer; you'll never see 'em again. Tips will be small (again, deal thrift), upselling is improbable, etc., all leading to employees often becoming resentful toward grouponers. All this leads to a large net negative to the small business owner.
> "Grouponers" have a certain DNA. And that DNA is at odds with what Groupon promises.
> Again, the DNA of a grouponer - being that of a deal thrift - often leads to a strained relationship between employees and grouponers.
This is insulting and frankly, just bullshit. The overwhelming majority of the businesses on Groupon are failing. Of course I'm not going to be back. They won't be there!
Out of the businesses that aren't failing, you can put them in these categories: new location for an established business, new business, experiences (like tours, hot air balloons, etc.), confused business.
I have experience with all of these.
1. New location. There was a restaurant that I like that opened a new location. They had a groupon. I already knew they had great service and excellent food. I went on a groupon, had the experience I expected. Did I return to that location? No, I prefer the other one because it's closer. But now I know about it and if I'm in that neighborhood, I know I can go to that location and have the same excellent experience I expect.
2. New business. These mostly suck. Because they're new and don't know what they're doing. Out of all the ones I went to (and I went to many), I would only go back to one. It was a chain, so they had fewer variables to juggle.
3. Experiences. These are flip of the coin. Some are excellent, some suck, but regardless ... once I had an experience, I'm not going to have it again. That's boring. They know that. Most of the groupons for these are structured so that they make their money on the first round.
4. Confused business. There's only been one like this. A fantastic restaurant. I bought 2 groupons and went there twice. I have no idea why they did it. The place was packed, service great, food amazing. It was voted Groupon of the year in my area (NYC) and they had it again ... so I bought 2 more and went there 2 more times. Will definitely come back many, many times.
Groupon is going down the toilet. That's because there are fewer and fewer of the above businesses on it. Now it's 99% failing businesses. Unless I already know the business or I'm traveling, I'm not going to touch Groupon. That's after almost 50 groupons purchased.
I would submit that you are in a very small minority and your experience is very unique.
> The overwhelming majority of the businesses on Groupon are failing.
This may or may not be true. Even if true, I fault the failing business owner for being a bad business owner. But I still largely fault Groupon for preying on those who have a history of bad decision making. "Oh, this guy isn't business savvy?! twists mustache Let's sell 'em on Groupon!"
"The overwhelming majority of the businesses on Groupon are failing."
To use your own words: "This is insulting and frankly, just bullshit." I would love for you to find a non-anecdotal study which shows that most (>50%) of businesses on Groupon are failing.
"Now it's 99% failing businesses."
Ahh...now I know you're just being hyperbolic.
Obviously it was hyperbole, but in the restaurant category, the few gems that popped up here and there, have been largely replaced by restaurants which aren't going to be around much longer.
My use and excitement for Groupon is almost on the same trajectory as their stock and frankly, I don't think I'm alone.
Nobody has yet mentioned the absolute drubbing that tech/semi stocks in general have taken. Sure there's some company issues but don't forget market correlations that occur when an entire sector takes a hit.
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