IP Uh Oh

Andrew Mason: Groupon’s Future To Come From Moments of ‘Sheer Stupidity’

groupon cat 360 Andrew Mason: Groupons Future To Come From Moments of Sheer StupidityHey, look! Groupon’s stock prospectus is out! There are plenty of numbers and mind-numbing details in it that we won’t bore you with. Instead we’ll just focus on the crazypants guru talk Andrew Mason threw in there, which distinguishes Groupon from the average I.P.O. stock prospectus out there.

Take, for example, the following quote from Mr. Mason’s letter to potential stockholders:

“If you’re thinking about investing, hopefully it’s because, like me, you believe that Groupon is better positioned than any company in history to reshape local commerce. The speed of our growth reflects the enormous opportunity before us to create a more efficient local marketplace. As with any business in a new industry, success for our investors is not guaranteed. We have yet to reach sustained profitability and we have no shortage of competition. Our path will include some moments of brilliance and others of sheer stupidity. Knowing that this will at times be a bumpy ride, we thank you for considering joining us.

Okay, okay: to be fair, links and emphasis ours, but there’s some ominous juju about comparing your stock debut to a nauseating flight. And while we’re focusing on the negative, let’s take a peek into Groupon’s self-awareness regarding risk-reward returns. This is, according to Groupon, what could kill Groupon:

Our Risks

Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully under the caption ‘‘Risk Factors,’’ and include but are not limited to the following:

• we may not maintain the revenue growth that we have experienced since inception;

• we have experienced rapid growth over a short period in a new market we have created and we do not know whether this market will continue to develop or whether it can be maintained;

• we base our decisions regarding investments in subscriber acquisition on assumptions regarding our ability to generate future profits that may prove to be inaccurate;

• we have incurred net losses since inception and we expect our operating expenses to increase significantly in the foreseeable future;

• if we fail to retain our existing subscribers or acquire new subscribers, our revenue and business will be harmed;

• if we fail to retain existing merchants or add new merchants, our revenue and business will be harmed;

• our business is highly competitive and competition presents an ongoing threat to the success of our business;

• if we are unable to recover subscriber acquisition costs with revenue generated from those subscribers, our business and operating results will be harmed;

• if we are unable to maintain favorable terms with our merchants, our revenue may be adversely affected; and

• our operating cash flow and results of operations could be adversely impacted if we change our merchant payment terms or our gross billings do not continue to grow.

Many of those problems they’ve definitely experienced! Riding the Groupon Gravy Train is a bit like Mr. Toad’s Wild Ride, if Mr. Toad’s Wild Ride occasionally ruined businesses and/or helped save them and had a fluctuating worth of billions of dollars depending on which car you got in and what time of year you decided to visit Disney/Grouponland.

fkamer@observer.com | @weareyourfek

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Comments

  1. prosfores says:

    These are serious risk parameters for the battle to “reshape local commerce”. I am not sure that Groupon model is the one to reshape commerce. I am more into coupons for my small business rather than Groupon-type sites. The reason is pretty simple: with coupons I have a marketing tool to use where I can use it according to my commercial policy. Groupon on the other hand always negotiates the maximum possible amount of reduction per deal (in order to make their deals more attractive) and the maximum amount of commission per deal (in order for them to make money). I totally understand this from their point of view, but from my point of view, in order to run a deal with Groupon-type sites, there has to be a strategy for: A. not cannibalizing my product or service, B. protect my company from a major success with Groupon (remember the cupcake small business deal, where the business lost thousands of dollars because they sold so many cupcakes they couldn’t handle the delivery) and C. a strategy to protect my interest with my loyal customers (which are much more important than any new customer Groupon brings).