WTF? My goodness, the daily deal industry has taken a beating this week. Groupon’s stock price is being killed (unjustifiably in my opinion), and as such, the vultures in the media in the USA…and in turn most bloggers and article writers just regurgitating media articles are destroying not only Groupon but calling for the death of the Daily Deal model. It’s a bit pathetic actually given that the industry still produces revenue greater than last year. Groupon’s revenue’s are still growing, but growing slower (well obviously given their growth) and all of a sudden the Daily Deal model is dead. The Daily Deal business is NOT Groupon and Groupon does not represent the whole industry. Quite frankly the media attention and reaction to Groupon and the Daily Deal business in the USA is VERY much like the attention they give to Presidential Elections. It is cut throat, it is immature, it is filled with “i told you so” and finger pointing.
Very rarely do you read positive story lines or solutions surrounding the daily deal space. I am quite angry about it. Now, there are certainly holes in the Daily Deal model…no doubt! And plenty of holes at Groupon. But their are even more holes in the newspaper business and they get less ass kicking than the deals business. This is an industry that has gone through hyper growth, much like ecommerce in 1998-2000, and as such has gone through serious growing pains. Will the industry mature? Of course it will, it already has and will continue. But analysts, journalists, merchant associations, consumer groups, and media are like rabid dogs smelling blood and not letting go. It really is like a witch hunt. (I have my theories as to why and I’ll share them below)
Here are just some examples of the negative press just this week, most all of which reference Groupon and their stock’s price drop and several with what I would state as author’s having either an agenda or ignorance about the subject matter. Others, however, make a lot of sense about the industry and Groupon and their points of view should be respected given their background and experience. Nevertheless…all Groupon bashing….people really hate them.
Just because a stock price drops for one company, does not mean the whole industry is in peril.
Here are some articles that are more sensible, some from more experienced people and don’t call for a witch hunt of Groupon or the industry:
- No matter what happens to Groupon, Deals are NOT going anywhere. The Deals and coupon business, despite the malaise in the economy, is doing very well and will continue to grow. Consumers love deals and there is no better way of attracting consumer in droves than with a great promotion.
- Groupon does NOT equal the Daily Deal business. It is not the poster child for the industry even though US media acts as if it is. The industry is larger than Groupon. Although in the US Groupon represents over 55% of the Daily Deals business, in Canada, it is closer to 23%. A big difference.
- Groupon has a significant PR problem and they need to address it in a big way. I believe they have done a horrible job managing the media, the industry and reacting to crisis management. They need a top notch PR company working with them.
- Groupon’s business will keep maturing and changing over the next few years just as Amazon did in the first few years of their life.
- The industry is hurt by the over analyzing of Groupon. Groupon is the only public Daily Deal company of it size. Of course it will be analyzed. And in turn, the industry is associated to that analysis.
- Media has it is for Groupon and in turn, the industry. Make sense since the Daily Deals industry take advertising money away from most media destinations (Radio, Newspapers, Magazines, online portals, etc). No wonder you rarely see a positive article on the Daily Deals Industry. Those inside the industry understand this. Consumers, however, simply get bad news handed to them week after week after week. That will take its toll.
- Analysts have it in for Groupon. Yup, if investment types lose as much money as they have on Groupon (and Facebook) over the past year then they will justify their losses by bashing both the stock (Groupon) and the industry it is in. It happens often. Why would analysts and Investment folks praise an industry when they just lost tons of money betting on the stock. They wouldn’t and they won’t.
- In my opinion, the general public, the industry and media all have it in for Groupon because of one thing……..Serious Arrogance. Groupon is arrogant. Their actions prove it and their management team oozes it. When you have a company that grows that quickly and produces hundreds of millions of dollars in sales so quickly, then people love you, they think you are cool. But when you start acting like a jack ass, or if the market sees you take advantage of that extreme success, then people feel icky towards you. People’s nature is to now hate you, to be bitter at your success. And all they want is to see you fall. The industry does not really respect Groupon’s CEO Andrew Mason’s antics….although they find him intelligent, they also find him a bit of a clown, quite arrogant, aloof, and rather nonchalant. It’s chairman, Eric Lefkowsky, the industry portrays him even worse, as an opportunistic capitalist that does not care at all about the long term well being of the companies he is vested in let alone the thousands of merchants that Groupon works with. See this article about Eric and this article. Are Andrew and Eric how they are portrayed in the media? No idea. Again, a PR issue that should be looked after.
- Ridiculous Money: When a handful of people (main founders of Groupon: Andrew Mason, Eric Lefkowsky and Brad Keywell) amongst others make a RIDICULOUS amount of money in a VERY short period of time…people tend to be bitter when they believe you do not appreciate or are thankful for that good fortune. Groupon essentially made Eric Lefkowsky a billionaire in a matter of 24 months. That is quite fantastic. Andrew and Brad are also worth hundreds of millions of dollars..again quite fantastic.The three co-founders collectively cash out to the tune of $900 million before the IPO. They got crucified in the press for being selfish and greedy. The industry, I believe, has a problem with this. Start a company, grow it wildly popular and just over the course of 18 months – 24 months become a billionaire or worth hundred of millions. What? Is this a gold rush? That does not seem right. And it isn’t. However, this is what is happening in the USA with VC backed companies, Silicon Valley companies and companies leveraging the public markets. Sure this only happens to a handful of companies out of the thousands who try, but the expectations of those involved is that they will cash out not just rich, but ridiculously wealthy…….despite their businesses not turning a profit or having poor performance. Almost all popular social media companies are ridiculously valued and almost all founders and investors have become very wealthy over a short period of time. No wonder why more and more entrepreneurs and developers try to create the next social app, portal, company, etc. Who’d fault is it? It’s the game, not the players in it. Every one of us would take the chance to earn hundreds of millions of dollars off a business if we could in as fast a time as possible. Quite frankly I believe the VC and Silicon Valley model of valuating companies is broken…but that is a topic for someone else’s blog. With the amount of good fortune Groupon founders have received, bitterness sets in from the public real fast at any sense of lack of appreciation or commitment to excellence.
- There is a real sense that Groupon’s founders, investors and investment bankers basically played the public and financial market game in order to cash out and make a YACHT load of money…..for the sake of making the money and not for growing a world class company. This is the impression and it leaves people bitter. Bitter enough to destroy Groupon’s and the industry’s reputation. The only thing that will shut analysts and the media up is Groupon’s good performance over time.
So what of Canada:
As it usually happens, Canada gets the rain over the clouds in the USA. Bad Groupon press in the states equals bad industry press which lead to bad press in Canada overall. Fair? nope! Expected? Yes!
- Groupon is actually doing a good job in Canada. There aren’t many horror stories in this country pertaining to Groupon. We receive hundreds of comments and feedback from both merchants and consumers across the country and most of the negative ones rarely mention Groupon in Canada. That’s a good sign.
- The largest Deal providers in Canada are: Groupon, Dealfind, Wagjag, Tuango, Teambuy and Living Social. The up and comers are Buytopia, rdeals, Dealticker, Social Shopper, Goyub, City Linked, Gosango, Astral Radio Deals. They all have their operational concerns, but most are doing well across their respective regions and are trying to grow their business using various methods.
- Does Groupon’s fate hurt the industry in Canada? Yup! It’s an expectations thing. It all leads to whether or not investors will fund such businesses, invest in, buy Daily Deal businesses, or whether merchants will continue to use these methods of distribution.
- Will the Daily Deals business in Canada go away? Well, that depends on whether you believe if pigs can fly. there is no way that consumers will let Daily Deals go away. They are too attracted to them. Who the heck would not be attracted to a 50% off deal at a restaurant or service they want? Couponing, Deals, offers, rebates, etc.. they have worked for decades and will continue to work.
- The financial model for merchants: Yes, I believe the model for merchants may have to be adjusted in order to continue to get new merchants on board with the “Daily Deal” model. There are still sites demanding 50% of the deal and that is just too high in my opinion. What is the right percentage? It all depends on the site’s reach and quality. Certainly a percentage between 30-40% makes sense and in some cases lower depending on the retailer being promoted. As more deals sites gets sold off or removed from the industry, margins to deals sites will stabilize due to lack of competition. Services to merchants is still an area that must mature.
What is interesting is that in Canada a recent data analysis shows that two thirds, 66% of all deals are from repeat merchants! So much for the opinion that merchants are losing interesting in Deal promotions. Quite the contrary. We will publish a post about this for Monday or Tuesday of next week.