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Groupon pins hopes on mcommerce as founder/CEO is ousted

March 1, 2013

With disappointing results and its stock down, daily deals giant Groupon reportedly fired CEO Andrew Mason yesterday afternoon. It is unclear how the news will affect the  beleaguered company’s strategy of focusing on mobile to help drive growth and its transition away from being so focused on daily deals.

Mobile is a growing part of Groupon’s business, accounting for 40 percent of North American transactions, up 44 percent compared to a year ago and up from 30 percent a few months ago. However, the company’s overall fourth-quarter results were a disappointment, showing a bigger year-over-year loss, causing Groupon to lose a quarter of its market value and leading to the departure of Mr. Mason.

“This was a long time coming,” said David Kaminsky, emerging technologies analyst at Mercator Advisory Group, Maynard, MA. “There have been rumors of this ever since the third quarter 2012 that Groupon was looking to oust Andrew Mason. It is hardly surprising.

“I think that a lot of the reason why it took so long for them to oust Mr. Mason after these rumors started is that there is not that much that can be doing,” he said.

“Looking back on it, there is very little question that they should have sold themselves to Google when they had the offer [for $6 billion] on the table.”

Heading where?
With ecommerce as a whole moving toward mobile, Groupon appears to be doing a good job of encouraging its users to migrate to mobile.

However, the company needs to be doing more to drive growth.

It has made several attempts to leverage mobile to drive growth, but the results have been disappointing.

Groupon launched a mobile point-of-sale device last year to leverage its existing relationships with merchants.

It also tried to drive local deals via Groupon Now.

“The other aspect that they can work on is trying to leverage the relationships they have with merchants, which is what they were trying to do with that mobile POS device they came out with,” Mr. Kaminsky said. “Unfortunately, they tried to leverage themselves into another industry that does not have much potential for growth.

The one way that mobile really provided a benefit was when they were trying to do those local deals, but those didn’t catch on,” he said. “People just don’t seem to be interested in pulling out their phone and seeing what something local is.

I think in a few years, as people get used to using their mobile devices even more than they currently do, as mobile payments start to take off, as more and more things get integrated onto the mobile platform, I think that something like that may have much more potential. But right now it is just before its time.”

Transition period
Groupon’s fourth-quarter results were impacted by a move to take a smaller cut of the revenue from deals. As a result, Groupon did not meet fourth-quarter projections.

The company is working to reduce its reliance on daily deals, but the transition is not happening quickly enough for investors.

Groupon made a big splash when it came on the scene several years ago at a time when the bad economy was making consumers increasingly interested in saving money.

However, by the time the company went public in 2011, there were already numerous copy cats doing the same, and consumers as well as retailers were tiring of the daily deals model.

While the company’s IPO was initially successful, Groupon has been struggling ever since to prove that it has a viable long-term business model and to buoy its stock value.

Mobile has been one of its bright spots.

“Mobile users, as we’ve said in the past, are better customers for Groupon than non-mobile customers,” said Mr. Mason during a conference call with analysts to discuss the results that took place a day before he was pushed out. “The data is very clear. They have a higher lifetime value, retention is higher of these customers.

“So the transition to mobile is a very good thing for Groupon,” he said.

“We’ve also seen it as a core component of our strategy to move from push email marketing to pull marketplace marketing. And the massive shift in consumer behavior towards mobile is one of the clearest signs that we see that our strategy is working and resonating with customers.”

Mobile customers
Driving local commerce is a key focus for the company, which is why mobile is so important, as consumers have these devices on them wherever they go.

Groupon is also finding that mobile customers are good customers.

Additionally, mobile is also playing a key role in the company’s transition from being a push marketer to a pull marketer, with the company reporting that it is seeing a larger increase in the percentage of transactions from customers who are going direct to Groupon and not being driven through a push email.

Headroom for growth
Groupon is trying to evolve its business model across a number of fronts, with mobile users a key driver for many of these.

For example, it has launched a search marketplace as a way to help decrease its dependence on driving volume via the daily deals emails it sends to users.

As a result, in the U.S., email, including mobile email, now drives less than 50 percent of Groupon’s transactions, which is 12 percent lower than in the previous quarter.

Additionally, the company reports that 50 percent of local transaction volume is coming not from daily deals but from its Deal Bank, which is its virtual deal inventory.

Groupon also launched a product sales business last year called Groupon Goods, which is competing with Amazon and eBay.

The company also continues to expand its services for merchants, for example with a new iPad-based solution for restaurants that enables users to process payments.

Overall, Groupon reported that for fourth-quarter ended December 31, 2012, gross billings increased 24 percent for a total of $1.52 billion and that revenue increased 30 percent for a total of $638.3 million.

However, the company also reported a net loss of $81.1 million, or $0.12 per share, which is a bigger loss than it posted during the same period last year, which was $65.4 million, or $0.12 per share.

“All the growth they are seeing in mobile, it is just people doing the same thing they would be doing on their PC on their mobile device,” Mr. Kaminsky said. “I don’t think they are really growing their business – it is just going from one location to another.

“Groupon is in an industry that they should have gotten in and out of as fast as possible,” he said. “Something like daily deals, it is just the way that there is so much potential for competition to come in.

“There is not much they can do. They are circling the drain and struggling against it.”

Final Take
Chantal Tode is associate editor on Mobile Commerce Daily, New York

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