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Gini Dietrich

My Groupon Prediction

By: Gini Dietrich | December 6, 2010 | 
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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, a Chicago-based integrated marketing communications firm. She is the lead blogger here at Spin Sucks and is the founder of Spin Sucks Pro. She is the co-author of Marketing in the Round and co-host of Inside PR. Her second book, Spin Sucks, is available now.

114 comments
margoayn
margoayn

I have received THE WORST customer service from groupon. They clearly do not care about making me or my business happy. I have waited for over a month to get the date of my deal but to no avail. I have been blown off twice, I do not receive phone calls and now the clincher is I receive a youtube video showing me how another COMPLETELY unrelated business is soooo happy with the results from the groupon experience. Are you serious, Groupon? I could not feel less concerned about as a merchant and I am horrified with this experience. I have been waiting 5 weeks for information and I can't get anything. I feel that they have just completely blown me off after I sent them all the information needed and numerous phone calls. FURIOUS.

MichelleTukachinsky
MichelleTukachinsky

Groupon has a great concept.. but tweaking it and making it better for BUSINESS... is key. Right now it is benefitting the consumer and the business (many really desperate for business in this economy) is making a huge sacrifice, hoping for repeat customers.

There are better ways of doing this where both the consumer and the business come out as winners.

Fred Smith
Fred Smith

I have worked with Groupon, Eversave, and Angie's List Big Deal. They are all a scam. They want to take the lion's share with 25-50% commission (they all shot for 50% then Groupon will nickle & dime you for credit card processing fees on top of that - which I am certain is against their contract with their CC processor to pass on those fees on to the customer). They, for the most part, want you to make a offer that really is no great offer and then publish that it at 50% off. They do try to make is sound above board but it is secondary as they just want the commission and will turn their head a bit. When dealing with these folks remember that they have a coupon mentality so they will nickle and dime to no end with the expectation that the business will not make any money on the deal. My experience with coupon customer is that there is no loyalty and little prospect of returned business as they are only interested in the deal, instant satisfaction and sometimes endup overpaying to get a "deal" (read Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions by Dan Ariely). Ebay has proven that people will many times over pay for the thrill of a win. Groupon will be inconsequential in they next 12-24 months. The equivalent of a one him wonder.

MikeKallay
MikeKallay

They should have taken the money and run, and here's why:

1: Groupon & this whole paradigm are becoming so saturated in the inboxes with product/service overlap.
2: They don't offer anything of value to the business owner other than a list of unknown demographhics -- they essentially "rent" you a list to blast a loss leader deal for a huge fee. Facebook could absolutely *kill* Groupon whenever they jump into the fray, because they have the biggest database of opt-in personal information on the planet.
3. Businesses are getting burned on the deals. I might have broken even on our $15 for $35 deal, or made a slight profit because 28% never redeemed, but it drove my regulars away for 3 months after the end, so overall it sucked the life out of my business. We are building it again like it's 2007.
4. People are realizing that they buy too many of these to use in a timeframe & throttle back purchases.
5. Businesses know that by & large the typical customer these things bring in are deal hunters and will never return. The word has gotten out.
6. The evidence is growing as to how many businesses actually closed during/after the deal.
7. We're still in the middle of this recession -- the only real place a business like Groupon could grow so quickly. When we really start to recover, people will return to going where they want when they want.
8. Businesses & their employees get angry during the redemption period for all of these reasons & it shows on their faces and in their service. Customers don't get the best version of the business and unfortunately swear off the business, or even better, swear off the discount. Who wants to sit in a jam packed understaffed restaurant, wait 3x as long for your food/drink, only to save $10? I don't.

I believe that Groupon et al are destroying American businesses at the expense of their success and I won't support them at all. I have unregistered my personal accounts from anything I was subscribed to, and I urge you to do the same. Patronize a business because you want to. Try a new restaurant because you've wanted to. If small business is the lifeblood of our society & economy, then Groupon & friends are the vampires sucking the very life out of it.

Let's get back to letting only the big stores do the deals they need to do because they can afford to do it. Jack's Local Bistro cannot afford to do these deals and Americans are becoming accustomed to them and thus steer clear of Jack's because they are getting a sweet deal somewhere else. I think that this paradigm could work for small business if the splits were more equitable (more in line with traditional advertising) and there were qualified databases to cull from. Just having an e-mail address and a valid CC doesn't necessarily qualify you.

Just my $.02 (I actually got a Groupon for my $.02, so I only paid $.01)

/mike

Howie Goldfarb
Howie Goldfarb

I just can't let this blog post miss the 100 comment mark! I just can't!

meganbeausang
meganbeausang

I'm curious if Dick Fuld is a part of these negotiations. (Sorry...couldn't help myself!)

ginidietrich
ginidietrich moderator

Phew! Long day, plus I had to go to the doctor because now I have a sinus infection. So now I am going to read all of your comments! Stay tuned...

JackMonson
JackMonson

Groupon is worth far more than the $6 Million price. Wait, what? Billion with a B?

BobReed
BobReed

While Groupon is already losing value, I think the entire business model the company practices will peter out. How many companies go back to Groupon for a second pass? Curious to see those numbers. I've been reading accounts that the discounts are effective for artificially bumping up sales, but not so much delivering ongoing customers. Moreover, companies are saying that they're losing money on the deals. The long-term viability of this glorified loss leader strategy is questionable.

paigeworthy
paigeworthy

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.

jsandford
jsandford

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.

janbeery
janbeery

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 conference changed everything! Standard of care no longer required the same protocol.
The company ended up selling for under 5 million! Greed is a terrible disease that never has a happy ending!
Groupon is an easily replicable business with enhanced improvements that could make it better. Hmmmm! Maybe we've got something here!

TMNinja
TMNinja

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

MSchechter
MSchechter

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 said, it does seem like Google will now either buy someone else or jump into the frey... I cannot imagine them turning their back on this, especially with their recent improvements to Google Places...

Gini Dietrich
Gini Dietrich

It's too bad you don't have an opinion! :) I've heard the same about these sites and that they're only good if you have excess inventory you want to get rid of. A friend of mine has a great story about the opera. Let's just say the coupon clippers and the typical opera goers clash.

ginidietrich
ginidietrich moderator

@MikeKallay I'm with you 120 percent! And now I see they're going for $950 million in funding. The story I read yesterday certainly makes it sound like they are heading toward an IPO soon. I hope their market cap gets them more than $6B. I hope it doesn't hurt other entrepreneurs in the process.

Howie Goldfarb
Howie Goldfarb

@MikeKallay As with everything that has some investors or success and hope to cash in big with an IPO I think there is this romantic period going on. I agree with your nice post here. The question isn't does Groupon have a place, can it make money etc. It's can is be as big as they think they will be and I say no.

I mean is this really any different than McDonald's launching a new sandwich and putting buy one get one free coupons in your sunday paper? That said there is a new business I have been trying to gain as a client who is a very upscale Chocolatier in California. She was featured via on TV on the local Fox Station during the evening news via Groupon and has another TV spot coming. All for free (not sure why). She said it was a success but did not tell me how many customers bought the deal. But Groupon can't get everyone who signs up on TV!

Howie Goldfarb
Howie Goldfarb

@meganbeausang I think he should of retired to Miami Beach and told everyone to call him Ricky. "Please, my friends call me Ricky"

meganbeausang
meganbeausang

@HowieG Very perceptive. Maybe that is why Nixon went from Richard to "Tricky Dick" post-Watergate.

Howie Goldfarb
Howie Goldfarb

@meganbeausang not that I notice these things but if you name your kid Dick often they become rich mean people...Fuld, Cheney. But if they choose Richard...whole different outcome..Branson, the Lionhearted. And if you choose Ricardo....well that is vaulting you to heights rarely seen in this world..Montalban.

Howie Goldfarb
Howie Goldfarb

@FollowtheLawyer @DerekPangallo The whole premise of isolating one deal was smart. But they go to your email inbox with all your other emails. I used to open the emails now I don't open most of them. I think like what happened to Priceline is what is happening here. When Priceline went public at $14bil you could buy American, United, and US Airways. Today 13 years later its worth $11bil.

FollowtheLawyer
FollowtheLawyer

@DerekPangallo That's my impression on both counts. No discernable barriers to entry, and a surfeit of yoga, pilates, day spa and nail salon deals.

FollowtheLawyer
FollowtheLawyer

@BobReed When I recently tendered my Groupon at a restaurant, the waiter rolled his eyes. Basically, they were not gaining new customers through the promotion, just giving steep discounts to regular customers (like me).

ginidietrich
ginidietrich moderator

@BobReed You're exactly right, Bob! I spoke on the Crain's small business forum panel in October and we talked about this. It's great for a spike in sales, but maybe not at the risk of hurting your brand. But there are companies out there who have figured out the "return merchants" equation.

ginidietrich
ginidietrich moderator

@jsandford @jennalanger @LFJeremy I read an interesting theory this morning...they never had any intention of selling. They did it just to attract big investors as the company who turned down $6B from Google.

jennalanger
jennalanger moderator

@jsandford @ginidietrich @LFJeremy There are some things we may never know, and why they turned down the deal might be one of them :) But the Groupon Amazon deal will never happen now considering Amazon doesn't have the money and they invested in Groupon's biggest competitor.

jsandford
jsandford

Group deals have been around for ages for tangible products; get enough people together and companies give the group rate. It would work well and they could offer multiple items each day/week. Groupon probably turned down Google because it just seems like a semi-solid pairing, IMHO.

jennalanger
jennalanger moderator

@LFJeremy @jsandford It would be cool for Amazon to buy Groupon, but they don't have the cash. There were rumors about them acquiring @livingsocial , another Groupon type company. Instead they invested $175 million: http://bit.ly/eOaSY What makes these deals ridiculous is that it seems too easy to successfully replicate the product. I would have taken the $6 bil and run for sure!

janbeery
janbeery

@ginidietrich I'm in! We'll have our first strategy meeting over wine.
I agree with you on the boomers. I walked from a great opportunity that would have been extremely lucrative. I opted for quality of life. I'm much happier and I've not looked back (well, maybe a couple of times.)

meganbeausang
meganbeausang

@janbeery Thank you for sharing this real world example that just because you think you are worth more doesn't necessarily mean you will get it. Coming from the world of financial services, I'm shocked and disappointed how many deals are driven by ego and not real financial analysis. I wonder how much money is left on the on the table that could go to innovation and better yet, employee development?

ginidietrich
ginidietrich moderator

@janbeery Your story makes me so, so sad. That being said, I know A LOT of entrepreneurs who just can't give up their businesses, no matter what the offer. It might be a generational thing, but Baby Boomers built businesses as lifestyle. My generation builds businesses as a way to a means. Should we build the next Groupon?

ginidietrich
ginidietrich moderator

@MSchechter Amen! LOL! @meganbeausang and I were looking at how much cash companies have sitting around. Only Apple has this kind of money to be able to increase the offer.

Trackbacks

  1. […] Another Bubble? A couple of weeks ago, I graced you with my Groupon prediction. And now it seems The Economist agrees with me. Sort of. OK. Well, it’s not like they read my […]

  2. […] ego play in a long line of arrogance. It’s no surprise that I think walking away from the Google $6B deal was about as dumb as they come (and I’m willing to bet my life that they never see that kind […]

  3. […] of Groupon don’t often work for local business owners. Google it and you can find a ton of stories about how businesses got overwhelmed, lost money, etc. More importantly, Groupon’s value […]

  4. […] many readers of popular PR/Marketing Blog spinsucks.com thought so when Gini Dietrich wrote “My Groupon Prediction” and got me interested in the […]

  5. […] talking about this yesterday. He asked me if I wanted Groupon to fail. I said I don’t, but I called this in December. It’s really unbelievable to me that a company walks away from a $6B offer from Google and […]

  6. […] for Groupon – in 2010 Gini Dietrich said, “I think Google launches their own local online coupon model, Groupon decreases in value, […]

  7. […] when Google offered them $6B and they walked […]

  8. […] they turned down in order to go public, which they did less than a year later). At the time, I predicted they would falter and never see that kind of money […]