Groupon CEO Andrew Mason Has Huge Balls

The headline tonight is “Groupon Said To Reject Google’s Offer.”  Wowza.  First, a little background for the uninformed:  Groupon is a localized online coupon site.  They solicit retailers in various metropolitan cities, inducing them to offer deals which Groupon markets to their audience of eager bargain hunters.  Each deal has a minimum required interest level (which is almost always met, as far as I know), and Groupon takes 50% of the coupon value.  Thus, if a vendor offers $50 worth of merchandise for $25, they’re really selling at a 75% discount because they also pay Groupon half of the $25 as a fee.  
Groupon’s revenue is said to be running at a $1b/yr pace, and they have over 35mm users.  Google reportedly offered them upwards of $6B – a pretty impressive sum for this company that’s less than 3 years old.
There are lots of tech companies out there where people say “There are no barriers to entry – that company is doomed to fail.”  Now, in tech, although the lack of barrier to entry part is frequently true, or mostly true, the doomed to fail conclusion is frequently false.  People make the same argument about NFLX (which has debatable barrier to entry (content required) and is probably not doomed to fail, yet is likely over priced), OPEN (which I think has more barrier to entry than people think, and yet is probably not doomed to fail, yet is likely overpriced), but I think the “no barriers to entry” thesis in Groupon is a pretty sound one.  In fact, the best part about their business model is that it wasn’t even really their idea – Amazon Gold Box and WOOT pioneered the daily deal phenomenon – but Groupon made it local, which turned out to be especially viral.
I mean no offense to Groupon’s users – if they covered my ‘hood I’d use them too – but Groupon’s asset is their base of 35mm of the worst type of customers a business could ask for – serial deal whores.  Yes folks – admit it – if you’re the type of person who is patronizing a merchant only because you got a coupon, you’re also the hardest type of consumer to convert into a repeat full paying customer – which is the merchant’s goal, of course.

If I were Google, I’d buy Craigslist for a fraction of that $6B, take local to the extreme, cut the massive 50% vig that Groupon takes for itself, and eat their business by competing with Groupon on price (note to Sergey Brin – you can give me 5% and use my idea – email me).

In any case, Andrew Mason, the CEO of Groupon, has some serious balls.  If I were in his shoes, I know what I’d be screaming at the top of my lungs if Sergey Brin came calling:  SOLD TO YOU SUCKA!
disclosure: I have no positions in any of the mentioned companies

-KD

note:  here’s an analysis of Groupon’s value from the point of view of a merchant, and here’s an analysis from one of Groupon’s smaller competitors.

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