* Note: I originally published this article on Forbes.com.
Yesterday’s firing of Groupon’s CEO, Andrew Mason, came as no surprise, but it won’t solve the problems of the daily deal industry leader.
The press loved to hate Mason. His experience and leadership capabilities were in question. Rumors began surfacing late last year that the board was looking to ditch their founder and replace him with someone more qualified. Continually sliding earnings reports, and uncertainty by investment banks about his vision sealed his fate. Shortly after he was fired yesterday, the company’s stock price jumped in after-hours trading. So clearly the board did the right thing.
Still, firing the CEO does not mean Groupon’s legal troubles and bad press will abate. Groupon could be looking at continued tough times, unhappy investors, and the potential loss of their No. 1 position in the deal space. Let’s hope the board will tap an experienced CEO who can push Groupon forward with a renewed vision.
To be sure, Groupon is a public company with a lot of funding and they have friends with deep pockets. However, during the 14 months since its IPO, which debuted at $20 per share, the company has shed more than three quarters of its value. The question on everyone’s mind is whether it will thrive or continue to take a dive after the CEO’s departure. Here are some of the things that could leave Groupon vulnerable.
Capital investments and financial woes. Groupon has received an enormous cash infusion, from major capital investment groups and shareholders. Interestingly, its business model is to deliver new customers to merchants so that they will want to continue working with Groupon. But having to primarily look out for shareholders, over their merchants, is worrisome.
To some extent any public company has this issue, but most public companies are wooed by their suppliers and not vice versa. Groupon’s sales people are selling to their suppliers, whereas in most business models, suppliers sell to companies. If a company in the deal space doesn’t focus on suppliers, its business could dry up fast.
Easy entry for competitors. There is virtually no barrier to entry in the deal space. There are many companies similar to mine that offer white label deal software and allow businesses to easily launch a Groupon clone. The majority of these smaller, niche-specific deal sites launch and fail quickly, but there are thousands of similar websites offering a similar service that are actively looking to take market share away from Groupon. More come online each day.
Merchant troubles. A core function of Groupon’s business model is to help merchants attract new customers. If the effort succeeds, a merchant will continue running deals every so often and make it a staple of their marketing efforts. But lately, more businesses are speaking up about poor experiences with Groupon and vowing not to do business with the deal giant again.
If Groupon continues with a lack of focus and technological innovation for merchants, it may slowly run out of viable companies who want their services. Nor do daily deals work for all businesses. Those with a membership component, such as dance studios, have been able to find great success by turning Groupon users into paying members; others have not.
Legal troubles. As a new and rapidly growing company in a hotly competitive market, Groupon has faced significant legal battles, ranging from patent cases to lawsuits challenging its coupon practices. In one especially damaging case, a judge rejected an $8.5 Million settlement involving Groupon breaking laws about coupon expiration dates. Now, even if a Groupon coupon has expired, the customer can still redeem it for the actual value. This is tough for both Groupon and its merchants since they were generating a great deal of revenue from consumers who bought coupons and never redeemed them.
Groupon also operates at a disadvantage because it doesn’t own intellectual property: its core business is an idea, not a product.
Pressure to adapt. In response to market trends and emerging legal boundaries, Groupon has been forced to continually change its business model —for example, by updating its technology, building onto mobile applications and diversifying its offerings.
Groupon isn’t likely to shut down during the next 5 to 10 years. Consumers love getting a good deal. That means there’s a place for a middleman like Groupon to link the customer to the merchant. But for the company to prosper, it needs to keep innovating and evolving. It must make investors and customers happy, but most importantly, it needs to satisfy merchants.
Marc D. Horne
http://dailydealbuilder.com
