Gini Dietrich

My Groupon Prediction

By: Gini Dietrich | December 6, 2010 | 
130

I’ve been thinking a lot about Groupon walking away from the $6 billion offer from  Google on Friday night. Our guest blogger today, Rusty Speidel, and I had a text message marathon  about it after it happened and I asked him to give his perspective on the deal. So I don’t want to steal his thunder, which will publish at noon central time today.

But I’m trying to figure out why this is bothering me so much. It’s like when Laci Peterson was killed and I became obsessed with her trial. I didn’t know her.  We didn’t even live in the same part of the country. Yet I read and watched everything I could get my hands on and couldn’t wait for the guilty conviction to come down on her husband. I’m obsessed about Groupon turning down $6 billion like I was obsessed with Laci Peterson.

You see, I know people who work over there. I’m an entreprenuer in Chicago, which (with this deal) could easily become another Silicon Valley. The founder, Andrew Mason, is just 30 years old. I hope to sell Project Jack Bauer in five or six years. I’m educating myself on angel and VC funding. So I think I’m obsessed for all of these reasons.

But the main reasons I think I’m obsessed are because I’m a woman (and all of the large deals like this are typically run by men), because I cannot imagine ever walking away from $6 billion, no matter what I thought the valuation of my company was (especially if I had some serious competitors biting at my heels like Groupon does), and because I’m a leader who runs a business with openness and transparency so I cannot imagine having to go back to my team today to get them motivated to keep working hard, even though they all thought they were going to be buying themselves cruises and cars for Christmas this year. What a morale deflator.

Of course, I’m not sitting in the board room so I don’t know what really happened, but I think this reaks of arrogance, greed, and plain old stupidity. And I don’t think it was the founder who turned them down. I think the VC firms who got involved in October smell more money and they couldn’t come to terms with Google. I mean, $6 billion is more money than three generations can spend. Not only that, but they likely would have created a fund to invest in other Chicago start-ups so their money would have made even more money.

I’ll let Rusty tell you why turning down $6 billion is dumb, but I will say that Groupon, while it hasn’t reached its prime, is the fastest growing company ever, and is a cool idea, it is an easily replicable business.

My prediction? I think Google launches their own local online coupon model, Groupon decreases in value, two or three competitors gain steam on them, and $6 billion is lost forever.

About Gini Dietrich


Gini Dietrich is the founder and CEO of Arment Dietrich, an integrated marketing communications firm. She is the author of Spin Sucks, co-author of Marketing in the Round, and co-host of Inside PR. She also is the lead blogger at Spin Sucks and is the founder of Spin Sucks Pro.

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130 Comments on "My Groupon Prediction"

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rwohlner
rwohlner
5 years 7 months ago

This will be interesting to follow as it plays out. I’m not that savy regarding internet business models but I would tend to agree that there are low barriers to entry in this business. Chicago as another Silicon Valley is an interesting concept.

barrykahan
barrykahan
5 years 7 months ago

I think they have been watching too many interviews with Marc Zuckerberg. 6 billion…yeah but after taxes what do they have LOL.

sydcon_mktg
sydcon_mktg
5 years 7 months ago

I am also intrigued by this! You are right they have competitors biting at their heels. It’s amazing how many people contact us daily to build group buying sites. I also think you are right we will see Google have their own. $6 BILLION is a insane amount of money to turn down, it reflects on the era of greed and entitlement.

I will be interested to see how this plays out down the road, and am interested to read the guest post later today.

HowieSPM
HowieSPM
5 years 7 months ago
Technically in Finance when it comes to buying and selling there is always a winner and a loser. Yes Win-Win happens but normally one side Wins more even if they both Win. So I want to give you the shrewd investor viewpoints: Groupon – they have been sent feelers by other companies and have someone who personally knows another bid is coming hoping a bidding war starts vaulting the price up significantly. Unless they have this information they are crazy for not selling. I agree with Gini if that checkbook is open…. Google – They obviously feel Facebook Places/Deals needs… Read more »
timjahn
timjahn
5 years 7 months ago

Is it such a bad thing that somebody didn’t sell for the big money and wants to keep working on something cool?

Are we all really that shallow?

(I have no idea if that’s the case, but I think I hear more jealousy circling around than I do real thoughts on the matter. “WHAT?! Are you CRAZY?! If I WERE YOU…”

NancyMyrland
NancyMyrland
5 years 7 months ago
It is true: There are low barriers to entry with this model. I have two friends here in Indianapolis who have started their own group-buying companies. The software is being sold right and left. HOWEVER, it will take a long time to build the brand that Groupon has, the infrastructure of a marketing machine that exists, and the knowledge and school of hard knocks that Groupon founders and employees can now run. This doesn’t mean it can’t and won’t be done. My business background tells me those in the boardroom know a heck of a lot more than we do,… Read more »
Jeff_Rutherford
Jeff_Rutherford
5 years 7 months ago
As you and several commenters have mentioned, there is no barrier of entry whatsoever to Groupon’s business model. I think turning down Google was a very unwise move too. Warren Buffet has mentioned several times that he likes companies that have a unique, profitable business with a very, very wide moat – meaning it would take someone tons and tons of money, energy, and execution to replicate the company’s business. Groupon’s moat is a non-existent. What’s to stop local version of Groupon popping up all over the place. Where I live, Western Mass, local businesses would immediately deal with a… Read more »
Doug_Davidoff
Doug_Davidoff
5 years 7 months ago
I don’t know Groupon’s business model so I have no personal understanding of how easy or difficult it would be to copy them. I do know that companies don’t offer to pay $6 billion for something that is easy to copy. Clearly Google thought it would “cost” more than $6 billion to build there own. There was another easily copied business model I remember. One where you could upload videos for free. Google tried to copy them with Google video. It flopped, and so the went ahead a bought You Tube. I remember when Microsoft bought Inuit (makers of Quickbooks… Read more »
dgulbran
dgulbran
5 years 7 months ago
I don’t think that Google will necessarily join in the fray and launch their own site–although, I think it’s important to remember that Groupon’s only *apparent* advantage is first-to-market. There are already many “local” competitors (LivingSocial, Gleeday, Mulamu…) and I think there is still a lot of opportunity in the “group deal” space. I know Groupon has some patent protection, and there is the MobGob patent issues that still need to be resolved. Still, I’m not convinced it was a smart move on Groupon’s part. I recall when Digg was the end-all-be-all of community aggregator sites. They turned down money… Read more »
DonovanGroupInc
DonovanGroupInc
5 years 7 months ago

I, too, am at a loss as to why $6 billion was not enough for Groupon here but as you say Gini we weren’t in the boardroom. It will certainly be interesting to see what the future holds but I think one thing is for sure it is definitely a high stakes roll of the dice on Groupon’s point – just hope it doesn’t come up snake eyes. Cheers, Andy

CLGraphics
CLGraphics
5 years 7 months ago
OK – so… yeah, maybe turning down $6bill is not what most of us would consider to be the smartest move. Maybe though, Gini, as you referenced in your other post, the $ aren’t the end-all be-all of this particular deal. As an example: My father-in-law just recently sold his company. Part of the deal was that he stay on for a specific amount of time with out an option to walk away until the time period was fulfilled. This was a sticking part of the deal that had nothing to do with the sales $ and had to be… Read more »
a_greenwood
a_greenwood
5 years 7 months ago

I’m thinking they believe they will make more in an IPO. Probably wrong if that’s the plan, but I think it’s a factor.

JoyFull_deb
JoyFull_deb
5 years 7 months ago

@a_greenwood I’m with you….I think they are waiting for IPO, which may come soon. #justsayin

wabbitoid
5 years 7 months ago

Eee-yup. 🙂

dgulbran
dgulbran
5 years 7 months ago
@CLGraphics Oh, believe me, a billion or two either way matter a great, great deal–especially to Groupon’s investors like Digital Sky and New Associates. There’s a lot about the deal we don’t know; one thing I know with utmost certainty: Andrew Mason did *not* make this call in a vacuum–or on his own. The only thing that really makes sense (and does more so when you look at the investor track record) is an IPO. Groupon thinks it can do better in an offering. I dunno. Maybe they can, maybe they can’t. Time will tell and it will either be… Read more »
DannyBrown
5 years 7 months ago
@timjahn Hey there mate, I don’t think it’s shallowness as much as it is looking at the business side of it. People compare it to Facebook not selling when they were approached. The difference is, Facebook never really had any comparable models to go with, so their uniqueness made them a more attractive proposition. Groupon, on the other hand, has a ton of clones (some that have a much better UI and engine) that Google, or anyone, could buy and slam Groupon with. As everyone here has said, we don’t know the reasons behind the non-sale. But playing with fire… Read more »
darkmoon
5 years 7 months ago
They won’t raise 6 billion in an IPO. Even Google’s own IPO only raise a little over 1.5 billion, and gave a market cap of 23 billion. And this was after publishing that they had profits in 2003 of somewhere over the 100 million range. VCs shoot for a ideal goal of 10x investment. Usually it amounts to about 2-3x. Anything over that is gravy, at least from the VCs I’ve had the pleasure of dealing with. At 35x investment, I’d say there probably are other factors involved. Let’s not forget that there have been Google acquisitions in the past… Read more »
CLGraphics
CLGraphics
5 years 7 months ago

@dgulbran OK … so if it is an IPO that’s in mind, and everyone posting here thinks that’s a huge mistake – how many of you will buy if/when that IPO is offered? Me? Nope. My investment $ are pointed in other directions.

Doug_Davidoff
Doug_Davidoff
5 years 7 months ago

Not to belabor the point, because again I don’t really know anything about Groupon or it’s competitors.

BUT, several people are slamming Groupon because their model and approach are so easily copied. If that were really true then Google would not pay $6 billion for them. They’d be far more likely to buy one of the “other” guys for a lot less, give them to Google brand and go at it. There’s clearly something there (at Groupon). What it is or what it’s worth – I have no idea. I’m sure we’ll find out in time.

darkmoon
5 years 7 months ago

@Doug_Davidoff Groupon might have an easily copied model, but they’re the most established with the best relationships with vendors so far. This gives them significant advantage. And considering their employee base and such, there are hurdles but no different than any other company. Google would buy them for those relationships instead of bothering to establish brand new relationships.

dgulbran
dgulbran
5 years 7 months ago
@Doug_Davidoff Clearly, there is a lot there. There’s much we can see: solid management, meteoric popularity, profitability, some IP (Patents), a sales for already in place, the market advantage of being there first. But none of those are *unattainable* by a competitor. Facebook had a huge advantage over competition: once the user base grew, people were invested in the site; moving meant re-forging all those personal connections and losing content (pictures, journals, etc.). Groupon doesn’t have that; they have a customer base that consists of bargain shoppers. A bit of a fickle bunch. Of course Google would rather acquire what… Read more »
darkmoon
5 years 7 months ago

@CLGraphics @dgulbran I don’t think it’s a huge mistake. I do believe that if VCs are thinking they’ll raise more than 6 billion in an IPO, they have something else coming. But, in an IPO, you don’t look towards that. You’re looking at market cap and all sorts of other factors. If Groupon did reject the acquisition truly for $6 billion for an IPO, then they have something else in mind.

dariasteigman
dariasteigman
5 years 7 months ago

I’m with you, Gini. It struck me as stupidity and hubris all rolled into one because (1) I thought the price was an over-valuation and (2) Google was offering premium for a working model. Other companies are doing what Groupon does, and one of them might just strike lightening in a bottle. Or be bought out by Google, which then builds it into a powerhouse competitor — with deep pockets for backing.

Of course, this probably guarantees I’ll be wrong. 🙂 But I’d hate to be an employee looking at my big payday doing down the drain.

PhilipNowak
5 years 7 months ago
PhilipNowak
5 years 7 months ago
I believe that Groupon will increase in value in the next short-term (1-2 years) by continuing to acquire competitors overseas. They will file an IPO in order to cash out their investors, which include Mail.ru Group (formerly known as Digital Sky Technologies), Eric Lefkofsky, Brad Keywell as well as other VCs (3rd series of funding already!) Andrew Mason will make a fortune and continue to lead Groupon as CEO until he walks away once he realizes that running a public company is not as fun as a running a young Internet start-up. Groupon and its competitors will eventually reach a… Read more »
CLGraphics
CLGraphics
5 years 7 months ago

@darkmoon @dgulbran I’m sure they do have something else in mind. I should have pre-qualified my remark in that last statement – “everyone posting here (excluding me)…” …. I think @PhilipNowak above has keyed in with what seems an almost prophetic statement.

We can all play arm chair wheeler dealers here – but down to brass tacks there’s nothing in this entire thread that’s not pure conjecture. Pure assumption. And, perhaps, Groupon will wrap things up in a way that makes the ‘assume’ rule bear true.

It’ll be interesting to watch this all play out.

CLGraphics
CLGraphics
5 years 7 months ago

@PhilipNowak So… thinking about adding the title of ‘Prophet’ at the end of your name? What you posted here makes a lot of sense.

timjahn
timjahn
5 years 7 months ago

@PhilipNowak I think you’re probably right Philip. Good insights.

timjahn
timjahn
5 years 7 months ago

@Dannybrown I understand the “anybody can copy Groupon” argument, but thus far, nobody has been able to take them over. Yet, I suppose. The king of the hill can’t always remain king of the hill.

I think the biggest loser here is Chicago. That amount of cash would have been an extremely beneficial influx into the tech ecosystem here, which has been gaining great steam over the past 2 years.

Groupon has already done a ton for the community here (and continues to), so it’s not a total loss. But this would have been great for the community.

Doug_Davidoff
Doug_Davidoff
5 years 7 months ago

@darkmoon And *that* is precisely my point. The distribution, the relationships and the knowledge that Groupon have is not “easily” copyable.

Doug_Davidoff
Doug_Davidoff
5 years 7 months ago

@dgulbran I’m not saying that it’s unattainable (I’m not even saying Groupon is smart to have turned down the offer); however if it were truly copyable all anyone would need to do to grow a business would be to hire away another comapnies salespeople. Most businesses that have tried to do that, however have failed. If you look at their business model, their key asset isn’t the bargain shoppers it’s the advantage they have with the local businesses that make those offers.

hackmanj
5 years 7 months ago

With the scope of the way my brain works I can’t think of any reason to not sell this relatively new company for 6 billion dollars. The only answer I can think of is it’s really not about money, more about passion and objectives that are still to be met. That seems very idealistic though, it probably is as you suspect Gini – Greed, Arrogance and Stupidity.

Still scratching my head, another movie in a couple of years to rival “The Social Network”?

DannyBrown
5 years 7 months ago

@timjahn Good point, mate. Everyone’s thinking about the board and employees, but like you say, there’s benefits for the community too. Cheers, sir!

PhilipNowak
5 years 7 months ago

@CLGraphics Ha, thanks for the new title. 🙂

PhilipNowak
5 years 7 months ago

@timjahn Thanks Tim! BTW, I saw your Christmas website. Amazing. I can’t imagine what your power bill is for the month of December. 🙂

JMattHicks
5 years 7 months ago
“Of course, I’m not sitting in the board room so I don’t know what really happened, but I think this reaks of arrogance, greed, and plain old stupidity.” – gini dietrich Exactly. Regardless of actual or perceived valuation (as you said), this guy just looked someone in the eye and said, “No,” when they offered him 6 billion dollars. I tried to wrap my head around that and I couldn’t. I understand that sometimes, offers aren’t the right offers or the timing just isn’t right. But let’s be honest: unless you’re currently worth more than 6 billion dollars, there is… Read more »
JonHearty
5 years 7 months ago
$6 billion could not have been easy to turn down. Stupid? Maybe. I really don’t know who’s decision it was or what they were thinking. But Groupon is apparently topping $2 billion in annual revenue, and if you take that in consideration, in addition to their mind-boggling rate of growth, I think there could be a lot of reasons to turn down $6 billion. I’m sure it was a very tough decision to make, but I can only assume that a lot of thought went into it. I’m excited to see what happens in the next few months!
PhilipNowak
5 years 7 months ago
PhilipNowak
5 years 7 months ago
@jmatthicksgini dietrichJeremy, I agree with you. I could live on $500k annually for the rest of my life and have access to everything my heart desires. At some point, it becomes more about power, ego and the ability to change the world (for some at least). When I see these power players in the tech and digital media space (http://en.wikipedia.org/wiki/Allen_%26_Company_Sun_Valley_Conference), I can’t help but think of the plot from the James Bond movie ‘Tomorrow Never Dies.’ (http://en.wikipedia.org/wiki/Tomorrow_Never_Dies) I saw an interview with Eric Lefkofsky (largest Groupon shareholder) recently about the fact that Groupon will make him a billionaire soon. His… Read more »
MSchechter
MSchechter
5 years 7 months ago
I’m not a huge fan of “amen” comments, but I have to agree with everything you said here. While I am sure there is a ton of opportunity and a ton of options for them in the world right now, it does seem as if they are not the one of a kind island that can afford to take that kind of risk. That said, who knows what is on their roadmap that we haven’t even heard of. If they continue to get major partners like the Gap to continue to jump on board, they could theoretically become unstoppable. That… Read more »
JMattHicks
5 years 7 months ago
@PhilipNowak From that same article: “He still has a good chance to do so, but only if the company keeps the momentum going and eventually sells shares to the public, a decision sources say Groupon isn’t expected to make until next year.” I’m not willing to risk 6 billion dollars on an “if.” “But Lefkofsky calculated that even if they signed more than 100 universities, their annual sales would only be $10 million. And that was too small for Lefkofsky’s ambitions. So he moved on.” I can respect that, but at the same time, that’s greed creeping in. The guys… Read more »
DannyBrown
5 years 7 months ago

@JonHearty What would be interesting is to know how much of the turnover is profit. It’s great having a high turnover in revenue, but a high turnover in revenue if your costs are high too? Not so much. 😉

JonHearty
5 years 7 months ago

@Dannybrown you make a great point. $2 billion is a huge number, but it is still relative to their expenses. I guess we’ll have to wait until an IPO before we can find out for ourselves!

TMNinja
TMNinja
5 years 7 months ago

Not sure what I think of this decision.

From the surface, it does look like Groupon made a big mistake.

I don’t see any reason why their biz is worth that valuation. Name and all.

Will be interesting to see where they are in 5 years.

– Craig

janbeery
janbeery
5 years 7 months ago
Gini,You are spot on! About 15 years ago I worked with a smaller medical manufacturer who built a product from scratch into a multi million dollar company! They made knee braces. At the time, every orthopedic surgeon was bracing their patients pre and post op. The business was unbelievable! We all were making money hand over fist!The owner was offered 38 million dollars for the company by a much larger medical manufacturer. Offer was declined! He was convinced he could get more! Then, standard of care changed with improved surgical procedures and rehab. Bracing after one presentation at an ortho… Read more »
AJDonovan (Andy Donovan)
5 years 7 months ago

Walking away from a $6 billion offer from Google – Groupon has some making predictions – what’s urs? http://bit.ly/h2zlHf (cc @ginidietrich)

elizabethshelby (Elizabeth Shelby)

I really agree with @ginidietrich‘s assessment of the Groupon/Google deal falling through: http://bit.ly/h2zlHf

jsandford
jsandford
5 years 7 months ago

I would love to see Amazon buy Groupon. Think of the possibilities for actual products versus services that are hyperlocal. Possibly more than $6 billion in opportunity over the lifetime of the existence of the model in that scenario.

paigeworthy
5 years 7 months ago

Groupon is already losing value with its customers. There are two or three other deal sites out there doing a better job with content AND customer service than Groupon.
Totally agree with you.

paigeworthy
5 years 7 months ago

Groupon is already losing value with its customers. There are two or three other deal sites out there doing a better job with content AND customer service than Groupon.
Totally agree with you.

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