Nobody Said It Was Easy: Groupon CEO Gets The Push.

Who says running a business is easy? Well, certainly not the founder and chief executive of Groupon, Andrew Mason.

The colourful character was unceremoniously dumped by the company last week after Groupon reported falling sales and profit margins. Confidence in Mason had plummeted following more than a year of lacklustre performance and clashes with the U.S. Securities and Exchange Commission.

It was a bad day for the chief executive, but as it turned out a better day all round for the once-dominant daily deals giant.

Mason treated his dismissal with his customary bluntness stating:

“After four and a half intense and wonderful years as CEO of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding – I was fired today. If you’re wondering why… you haven’t been paying attention.”

The news for Groupon, however, was a little brighter. Shares in the company rallied after the announcement, rising 13% initially, falling back to 4% taking the shares up 16 cents to $4.68. However, that good news should be tempered by the knowledge that when the company floated in 2011, shares were sold at nearly $20, taking the company valuation to over $13 billion. So what went wrong for the daily deals giant? Why did it suddenly lose its Midas touch?

The online marketing firm, which offers discounts to subscribers on local goods and services such as meals and beauty treatments, posted another quarterly loss last week. That, however, was just the final straw. Groupon had been losing market share for well over a year. That was principally because investors feared its business model, which was being increasingly copied by competitors like Amazon, was becoming unsustainable. The challenge Groupon and its competitors faced, was keeping the businesses happy through the amount of profit it could make from the people it brought in, but also keeping the users of the offers happy by giving them a genuinely discounted product. Groupon appeared to be failing on both counts.

Gartner analyst, Michael Gartenberg, was not surprised by the company’s plight as he believed the business model was much too easy to replicate. He told the BBC:

“The question is whether this as a business model can last. It’s easy to replicate and under a lot of pressure. The question is where the company goes from here…. Clearly something wasn’t working, isn’t working.”

Some of Groupon’s retailers had complained that the company took too big a cut of the offer price, although, in fairness the company has recently reduced this from 40% to 35%. But that alone can’t explain its low showing on the stock exchanges.  What underpinned its dramatic fall was a lack of confidence from the markets and an underlying fear that it would take too long for the company to become profitable again. Investors argued that Groupon employed far too many staff – 11,000 – and spent way too much money on marketing.

Groupon had also attracted the attention of regulators at the SEC over its reporting as revenue the total amount its customers spent on deals – ACSOI, or ‘adjusted consolidated segment operating income, which excluded the costs of marketing, rather than the amount it made from them. It had to redraw the accounts, and those new documents showed that net revenue in the first half of 2011 was roughly half of what was originally reported. It made its only profit in the second quarter of last year.

Groupon’s executive chairman Eric Lefkofsky and vice chairman Ted Leonsis will now step in as temporary joint chief executives until a replacement for Mr Mason can be found.

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