Not in love with Groupon, no I would not pay $5-10 billion to buy it

By: ispeculatornew
Date posted: 02.15.2011 (5:00 am) | Write a Comment  (2 Comments)

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I have no doubt that Groupon is a great business but a few weeks ago, I had mentioned that if I were in charge of Google, I would be happy that the offer to buy Groupon had been rejected. That could have been a good decision but do not believe that Google should go after it this way, here are my reasons why:

Too expensive: Buying a company that is increasing its value by double digits every few months certainly sounds like a recipe for disaster. The one counter example would be Facebook but other than that, many of the recent tech companies have seen their values explode initially and settle back down.

Users are not engaged: I really enjoyed watching this TechCrunch interview with Venture Capitalist Fred Wilson where he described what he was looking for in companies these days and as he explains, Groupon does not have users that are engaged as some other networks.

Users not as loyal as you would think: Groupon was clearly the top coupon website without much competition until a recent Amazon promotion by LivingSocial (which is part owned by Amazon). Since that day, LivingSocial is actually growing at the same pace as Groupon. Yes, it happened

Questionable decisions: The idea to run a controversial ad at the Super Bowl this year was risky and I just don’t see the risk/reward here. Having ads that stir things up that discuss sex is one thing and is not as risky as some could think but to discuss political matters was certainly a bad PR move and a crazy waste of money. The Groupon CEO eventually decided to pull down the ad while the LivingSocial ad below remains one of the most seen ones:

Building a competitor: I think Amazon has proved that building a competitor to Groupon was not as hard as it looks. You need a solid website infrastructure, a great sales team and then a few incredible viral deals to pull it off. The total cost is likely to be much smaller than Groupon’s current valuation.

Market leader? Yes! Dominant Player? No: I’ve seen some comparisons of how Groupon might become the next Facebook of ecommerce and that might be true. But I think it’s impossible for now to determine if Groupon could also become the MySpace of social, which used to be the dominant player and is now not much more than an after thought.

Would you invest in Groupon?

I personally think that Amazon made the right decision to build a smaller competitor and build it up instead of paying a huge premium for a company that is making mistakes these days. What are your thoughts?

Disclosure: Long Amazon & Long Google

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2 Comments

  1. Comment by Terry Mowery — February 15, 2011 @ 1:55 pm

    You are right with your comments. The only thing I would add is the business is not sustainable because 95% of local merchants will NOT use the 50% OFF model.
    Yes – yoga, skydiving, massage will do it. For restaurants it is a total disaster.
    No return customers – No upsell – No profit – sounds great!

  2. Comment by IS — February 15, 2011 @ 8:13 pm

    @Terry Mowery – Very good point yes and I think/hope that eventually Groupon will think of a way to reach out to those companies as well.

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