Groupon Stumbles: Will the Industry Catch the Fear Virus?
Groupon and its £400m IPO generated headlines globally – another tech company launched onto the US stock market, raised lorry loads of cash, and sets off to further-conquer the space it's carved out between brands and consumers. After the headline, the sub editors and journalists moved on and the public's attention skipped to the next hype fix.
What's happening now, however, might be the story of this period of the digital industry's history. It might be just as dramatic as the IPO – with more drama, pain and, maybe, just maybe, dire consequences for many digital start-ups.
You see, Groupon appears to be in trouble. That's the sentiment I'm reading in more and more industry press – not the vacuous hype of "10 reasons to use Groupon" blog posts, but the analysis of people who are paid to analyse companies. Groupon have had to restate their earnings this week. Analysts are circling like hyenas, ready to rip at exposed flesh. Rumours swirl that the SEC are looking at the IPO paperwork from last year – and once a regulator weighs-in on a recently-listed company, you have a big problem. Negative consumer press coverage (hurting sales), shares being sold off, staff wondering if they should move on…and if you're an internet business, the b-word is quickly slapped on you* and distant memories of share prices tumbling in 2000 and 2001 resurface in shareholders minds. Uh-oh…maybe Miss Bassey was right.
So what is actually happening at Groupon?
Groupon shares have fallen consistently since the launch – and here are some of the accompanying headlines:
Why Groupon is Poised for Collapse (June 2011)
Groupon Dodged Bankruptcy With Its IPO (November 2011)
Should the SEC Have Stopped Groupon's IPO? (February 2012)
UH-OH: The SEC Is Looking Closely At Groupon, Says Report (April 2012)
It's not just market analysts who are negative about Groupon – from headlines like "Cupcake calamity": Groupon discount deal leaves baker swamped by orders for 102,000 CAKES and wipes out her profit, to complaints about vouchers that aren't honoured or pushy sales people, it seems the company isn't exactly winning friends from the businesses or consumers who pay its bills. Big brands remain cautious of discounting widely and reducing their brand's value and creating an expectation that sales periods will become continuous.
From a personal point of view, the range of offers from Groupon UK is limited and predictable – spas, salons, dentists, mediocre Indian restaurants…yes, I've unsubscribed. I was on lists for London, Surrey and Sheffield at one point, so I've seen the consumer experience across several newsletters.
Life's too short to read an email that might, once a quarter, yield something genuinely interesting. I save more money by freeing that time up.
Groupon's Stumbles: The Industry Gets The Fear?
A high profile failure – or even just a loud stumble, which is all this might turn out to be – is bad for the whole digital industry. If investor confidence is shaken then a mini version of the post-bubble shrinking of investment capital that occurred in 2000 could happen. Other group buying ventures will face similar criticism and fall away (expect Amazon's Living Social and Google's half-baked Google Offers) and IPOs will be pushed back as demand falls (Facebook). Investment in start-ups will slow – not to mention companies still trying to figure out how to make money finding their cash lifeline could be cut-off as VCs rebalance their portfolio across industries. It's all happened before.
That's the doom laden scenario. A tumble by Groupon (or any high profile "dot com**") might cause investors and regulators to look more closely at how Internet "wunderkid" companies actually operate internally, causing them to demand more of the sorts of processes and, dull as they are, policies and internal controls that companies in other sectors would be expected to have in place from their early days - before they even started talking to investors or about IPOs.
The race for growth is a key characteristic of the digital company – but entrepreneurs, investors and regulators need to make sure the wheels are bolted on too, or the whole thing becomes a twisted, tangled mess of investors, employees, individual shareholders and regulators.
* Yes, I'll slap it on them too. Bubble.
** A phrase I'm reticent to use as it still has associations of working at a search engine in 2000/1 and watching waves of sites go offline as the bubble burst.
By Duncan Parry, COO, STEAK
@STEAKLondon