Skip to main content

Pity The Fools Who Invested In Groupon


In December 2010, shocked that Groupon had rejected a buyout offer from Google, I suggested that they were a commodity and should take the money - either $5 or $6 billion depending on whether you read the Chicago Tribune or the NYT - and run.

Yesterday, November 4, 2011, Groupon went public in what is being called "the largest tech IPO since Google went public in 2004," (though to me it's a coupon company not a tech company). At $20 a share the resulting "value" of the company is $12.7 billion

It is common knowledge on Wall Street that this company is a lot of "hype." As former CNBC financial reporter, now Yahoo! Finance blogger Matt Nesto writes in "Groupon IPO: Shares Debut With A Bang, But Questions Remain:" 

"Once the hype of Groupon's trading debut fades, investors will closely evaluate the entire realm of opportunity and risk that lies within the 'daily deals' industry."

In the short-term Groupon is succeeding because it's got the mechanics of a successful business, absent the brand. It combines a little bit of innovation with a lot of hype and some basic customer service intelligence to establish itself as a trusted business with widespread reach:

1. Innovative technological advance - "delivering deals straight to a person's email inbox" (Nesto) - and these deals are routinely deep discounts

2. Marketing itself to vendors - they pay Groupon for the privilege of being a featured business-with-a-deal (John Abell,, on PBS)

3. Distribution to a large user base - "30 million subscribers in 45 different countries" (Nesto)

4. Trusted business - the "Groupon Promise" offers money back, no questions asked, if you don't like something you've purchased - and they honor the promise

5. Friendly and highly localized user interface - the website is simple, well-designed, and appealing, and it is absurdly easy to sign up

Looking at all of this it seems like a no-brainer that such a company would succeed. Indeed, Groupon has rocketed to nearly $313 million in revenue (and 10,000 employees) with this model. 

The only problem is that Groupon has little, if any, brand equity. You can use any methodology to assess this that you want; I like Brand Asset Valuator because it's simple and has been used over time. According to the BAV the greater the following assets, the more valuable the brand.

* "Differentiation" - By now the business model they've invented has been copied. Can you tell the difference between Groupon and LivingSocial? (Weak)

* "Relevance" - If you spend a lot of time on leisure activities then yes, it's probably relevant to your life. (Somewhat)

* "Esteem" - Do people have "respect for and attraction to" the brand or do they just like saving money? (Weak)

* "Knowledge" - This is a huge challenge that Groupon has overcome, clearly. (Strong)

Any company that can copy the Groupon business model and improve on it in any of the weak areas above will by definition have a better brand.

This is where knowledge of branding (not to mention marketing) would be enormously helpful to investors yet unfortunately the investor community seems relatively illiterate in these areas, instead falling victim to greed and the crafty tactics of Groupon's promoters.

For example they offered up less than 5% of their stock for purchase - pumping up demand. Stanley Crouch, Chief Investment Officer at Aegis Capital, told Olivia Oran at

"The IPO was very engineered and very artificially crafted. The bankers came out with the right balance and they created demand."

In the same article, Josef Schuster, founder of IPOX Schuster, an IPO research firm, expresses surprise that people actually fell for this:

"The price dynamics in these low float deals make the stock trade up in the short term, but it's a long-term risk. We saw this during the '90s but investors seem to be repeating this." (!)

Groupon has succeeded so far because it's established itself as a technology-based trusted intermediary between merchant and customer, able to deliver a deep discount and still make money. Amazon already does this and does it better. Does anybody doubt that they are going to get into this market? And with its extensive reach into customers' lives and status as a trusted provider of information, of course Google is going to try, further notes

"Despite a strong opening on Friday, the company still faces obstacles ahead including competition from tech giants like Amazon and Google."

Not only Amazon and Google, but also LivingSocial and many others are going to try to make money from this business model:

While it's true that Wall Street insiders see Groupon as a risky investment - "too far, too fast" - they fail to grasp the importance of brand in influencing the rise or fall of a business. And so do investors.

Anyone can be innovative. Anyone can hire a techie to do code. Anyone can identify an unmet need. Anyone do marketing. And anyone can provide customer service. But very few have the genius to build a mystique that envelopes all of those other things. Howard Schultz did it, as did Estee Lauder, Mark Zuckerberg, Steve Jobs, Ralph Lauren, and Asa Griggs Candler (Coca-Cola). 

What distinguishes brand-builders from ordinary businesspeople is that they knew how to take a product/service and elevate it to a cause. It can be done, but Groupon has failed utterly. And that is why, if you've put any money into this company, it is probably a good idea to reevaluate that investment.


A separate but related commentary:

Regarding "Occupy Wall Street" - while it is certainly true that any powerful institution will do things to further its own ends, what has happened to critical thinking and personal responsibility? There is no shortage of analysis of Groupon or any other company available freely on the Internet...and yet we continue to tell ourselves what we want to believe, make stupid investments or buy things we can't afford, and then blame someone else when we can't pay for those things. 

At what point do we have to stop blaming somebody else, and start taking personal responsibility for the choices that we make, or don't make? A culture of victim-ology and finger-pointing isn't going to get any of us out of the current economic mess that we're in. And while it's easier to refuse to think and just join a movement mindlessly, in the long run it's a lot more productive to think critically and get involved in a thoughtful way.

Have a good weekend everyone...and good luck!


Image source here

Popular posts from this blog

What is the difference between brand equity and brand parity?

Brand equity is a financial calculation. It is the difference between a commodity product or service and a branded one. For example if you sell a plain orange for $.50 but a Sunkist orange for $.75 and the Sunkist orange has brand equity you can calculate it at $.25 per orange.

Brand parity exists when two different brands have a relatively equal value. The reason we call it "parity" is that the basis of their value may be different. For example, one brand may be seen as higher in quality, while the other is perceived as fashionable.

All opinions my own. Originally posted to Quora. Public domain photo by hbieser via Pixabay.

What is the difference between "brand positioning," "brand mantra," and "brand tagline?"

Brand positioning statement: This is a 1–2 sentence description of what makes the brand different from its competitors (or different in its space), and compelling. Typically the positioning combines elements of the conceptual (e.g., “innovative design,” something that would be in your imagination) with the literal and physical (e.g., “the outside of the car is made of the thinnest, strongest metal on earth”). The audience for this statement is internal. It’s intended to get everybody on the same page before going out with any communication products.Brand mantra: This is a very short phrase that is used predominantly by people inside the organization, but also by those outside it, in order to understand the “essence” or the “soul” of the brand and to sell it to employees. An example would be Google’s “Don’t be evil.” You wouldn’t really see it in an ad, but you might see it mentioned or discussed in an article about the company intended to represent it to investors, influencers, etc.Br…

Nitro Cold Brew and the Oncoming Crash of Starbucks

A long time ago (January 7, 2008), the Wall Street Journal ran an article about McDonald's competing against Starbucks.
At the time the issue was that the former planned to pit its own deluxe coffees head to head with the latter.
At the time I wrote that while Starbucks could be confident in its brand-loyal consumers, the company, my personal favorite brand of all time,  "...needs to see this as a major warning signal. As I have said before, it is time to reinvent the brand — now.  "Starbucks should consider killing its own brand and resurrecting it as something even better — the ultimate, uncopyable 'third space' that is suited for the way we live now.  "There is no growth left for Starbucks as it stands anymore — it has saturated the market. It is time to do something daring, different, and better — astounding and delighting the millions (billions?) of dedicated Starbucks fans out there who are rooting for the brand to survive and succeed." Today as …