It’s a win-win-lose situation
Groupon’s story has been mixed since going public in November 2011, with a few ups and downs. However, over the past year, it’s hard to quantify how unimpressive, if not pathetic Mason’s leadership has been. During that span, he has been the poster child for how not every great idea can translate into a great business. And the odds of success are much worse with an inexperienced CEO, or according to Herb Greenberg, 2012’s worst CEO. The company had no chance.
Unfortunately, Groupon Inc (NASDAQ:GRPN) just realized how dim these odds were. But it just might be too late. Granted, Mason was no Steve Jobs, but there are still fundamental problems with this company that (once again) its recent earnings revealed. The concept of Groupon Inc (NASDAQ:GRPN) is sound. Mason figured out a way to truly give the “power to the people,” or groups, to create deals that benefit the companies and the customers, and in return Groupon took a cut of 40% to as much as 60% of the revenue. Indeed, customers and businesses got what they wanted. But Groupon created no competitive leverage.
No new markets, destined to fail
The beauty of this business, however, is that Groupon Inc (NASDAQ:GRPN) is able to profit while also connecting customers with businesses they otherwise might have never heard of. But here’s the problem, Groupon is working within an existing market — it’s not creating new ones. So how can it grow since theoretically, there’s a ceiling? This is what Mason failed to realize. Supporting existing markets can only take you so far. And besides, businesses that are already successful and well established have no need for Groupon.
What’s more, anyone can do it. How much would it cost to become the best “middle man?” And to invest in that business is, well, let’s just call it unwise, especially with Google and Facebook Inc (NASDAQ:FB) always one button away from putting you out of business. There’s no way Groupon can reach 1 billion users in the manner of Facebook, and Groupon doesn’t have a hope to achieve Google’s advertising dominance.
Likewise, consider Living Social, in which Amazon.com, Inc. (NASDAQ:AMZN) has a 29% stake. It’s struggling to navigate the poor deals environment. But is it really just the environment, or the idea itself? The difference, though, is that Amazon is dominant outside of the deals business. The urgency is not there — at least not yet. And don’t discount that Amazon can sustain Living Social’s business just long enough to kill off Groupon Inc (NASDAQ:GRPN). And after Groupon’s recent quarter, this probability has increased.
Don’t let the door hit you
Although Groupon Inc (NASDAQ:GRPN) posted a 30% increase in revenue, this number alone does not reflect underlying strength of the company. As fellow Fool Rick Munarriz noted, that bump came from Groupon’s new line of business: selling overstocked goods. The market was smart enough to separate out the fluff. When was the last time a 30% jump in revenue got a CEO canned? This business is doomed once the very idea that took this company public becomes secondary.
Unfortunately for Groupon, it’s no longer an attractive target for any companies looking to merge or acquire it. I once called it the perfect match for Facebook or Amazon. But not now, especially since the company announced that Eric Lefkofsky and Ted Leonis will take over until the board finds a replacement. Knowing Lefkofsky’s sketchy past, which includes accusations of racketeering, bankruptcies, and several lawsuits, any potential acquirer would be looking for trouble.
The article Is Groupon the Best Poorly Executed Idea Ever? originally appeared on Fool.com and is written by Richard Saintvilus.
Fool contributor Richard Saintvilus has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Facebook, and Google. The Motley Fool owns shares of Amazon.com, Facebook, and Google.
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