Magazine article Marketing

Andrew Walmsley on Digital: Groupon's 'Y-Factor' Problem

Magazine article Marketing

Andrew Walmsley on Digital: Groupon's 'Y-Factor' Problem

Article excerpt

Daily deals service may have delayed too long with its IPO plan and lost ground to the competition.

When yoghurt came to the UK in the early 60s, it was plain white gloopy stuff that nobody ate. The Ski brand changed all that in 1963 with the masterstroke of adding fruit, thereby making it a little less like baby sick, and a category was invented. As its popularity grew, competition spurred innovation and the category proliferated to the bewildering wealth of choice offered today, from low-fat, frozen and set to fruit-topped, fruit-bottomed and fruit-cornered.

Structurally, the diversification of a simple product, with which one brand almost managed to become synonymous, into a set of brands, variants and subsets that no one company could dominate, had inevitable consequences for the margins in that market.

Will this happen to daily deals? Groupon's management certainly hopes not. Having spurned a dollars 6bn offer from Google last December, it intends to go public with an IPO designed to raise dollars 750m to fuel expansion; a sum that could value the company at between dollars 15bn and dollars 25bn, depending on whose numbers you're smoking.

Yet the firm hailed by Forbes as 'the fastest-growing company ever' after its 2000% revenue growth last year is starting to look a bit less of a sure-fire hit. As it scrambles amid delays to get an IPO away while enough magic dust still adheres to the daily-deal concept, it looks like there's a race on between the IPO and the market in which it operates.

Some of this has been brought on by Groupon itself, but most is down to the 'yoghurt factor'.

Closing offices in China (reportedly even shutting one outpost at lunchtime while the staff were out) is one thing, but dismissing it as 'just one example of ... fine-tuning our strategy' is bizarre. This is China, after all, not Belgium.

Then there's chief executive Andrew Mason's email to more than 7000 staff, which, not surprisingly, got leaked. In the pre-IPO 'quiet period', it is sailing close to the wind with what was clearly expected to become public.

Add to that the 'Adjusted Consolidated Segment Operating Income' basis of its valuation, which might as well stand for 'weird dotcom bubble-type metric that makes us look profitable', and the 50% dive in traffic the site suffered during June (when its biggest rival, LivingSocial, grew by 25%), and we're starting to look at something investors might feel less bullish about, but consumers don't worry about.

Nonetheless, it is the 'yoghurt factor' that is going to cost it merchants and consumers, and it's happening at both ends of the market. …

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