ImaginativePRO Blog

AFTER GROUPON FIRES CEO ANDREW MASON, IS THERE A FUTURE FOR DAILY DEALS?

Former Groupon CEO Andrew Mason (Click Image To Enlarge)

The shakeup at Groupon, where Andrew Mason was just fired, and two board members have taken over has put the daily deal industry under scrutiny again, raising the question of where the industry is headed next, and indeed, whether it will continue to exist.

As a part of the executive team at JustDeals.com, a startup within the discount space, here’s what I see happening. For the biggest players such as Groupon, LivingSocial, Gilt City and others, consolidation is likely to occur in the market, as competition continues to grow.

Click Image To Enlarge

Companies with a broad range of available deals and discounts such as LivingSocial might look to combine with a more niche deals provider in order to focus on perhaps a higher margin area. It’s likely that the bigger players will be around in some form for the near-term future, although they might not look like as they do now or offer deals in the same manner.

Although Groupon's revenues were up +24.79% in Q4 2012 over Q3 2012 and up +23.47% over Q4 2011, operating income was substantially down -- down 152% from Q3 2012:

Groupon - Gross Billings and Revenue and Opeerating Income or Loss - Q4 2011 through Q4 2012 - Groupon (Click Image To Enlarge)

The reason for the drastic drop in operating earnings in Q4 2012 over Q3 2012 and Q4 2011 was higher costs of revenues -- up 54.95% over Q3 2012 and representing 44% of revenues in Q4 201 2 versus 32% in Q3 2012 :

Groupon - Cost of Revenues - Q4 2011 through Q4 2012 - Groupon (Click Image To Enlarge)

For example, the leading pure-play daily deal company, Groupon (Nasdaq: GRPN), is moving away from strictly relying on the coupon part of the business and becoming more of a localized e-commerce platform. The challenge in such a transition will be to satisfy customers who expect the brand to offer deep discounts and of course competition from massive and entrenched players such as Amazon (Nasdaq: AMZN). For these big companies, trouble is already brewing with Groupon’s recent poor earnings report and stock tumbles and LivingSocial canceling employee bonuses in late February. Both will likely need to shift tactics in order to remain viable.

For service businesses, daily deals certainly have a role in attracting initial interest to a new business, but they do pose drawbacks for established businesses. The margins, of course, can be steep, with many restaurants or nail salons breaking even or perhaps losing money on the typical heavily discounted deal.

A growing drawback for these types of deals is the inability for many businesses to attract long-term customers through daily deal promotions. Many consumers simply “deal hop” to find the current discount, and are only drawn to be a repeat customer if the service provided is truly extraordinary.

Current customers can also be negatively impacted by daily deals. Consider a nail salon that features a steep 70 percent off offer in order to drum up business. If the deal attracts 600 people, that might seem to be a great result, but it could mean the salon is booked for the next four months, and regular full-price customers are effectively pushed out.

The business can of course set controls on the number of offers, although many simply want to pursue the largest possible number. The longer-term ramifications of these arrangements are turning off many establishments from conducting as many daily deals or from offering as aggressive discounts.

Companies that offer a physical inventoried product are likely positioned to fare considerably better than those firms that offer services such as massages, restaurant discounts, and fitness classes. More of these types of companies will look at buying directly from manufacturers and keeping stock of products in order to operate at reasonable margins. They might even make deals with such manufacturers, working with them to produce branded or unique products.

Firms like JustDeals.com and some other product-centric sites offer mainly overstocked items, discontinued merchandise, or products that are simply at the end of their marketable life. There will always be products that fall into these categories, and savvy deal firms can acquire the product at price points that offer quality margins even when they are subsequently heavily discounted. Some of these product-centric deals firms also focus on just a few offered deals at a time, as opposed to many sites that fit into the “Paradox of Choice” model where they simply offer too many products and services and don’t focus the consumer on one particular area. Many of these sites resemble a “pennysaver” type magazine that offers myriad products that don’t go together logically.

Going forward, successful deal companies will need to:

• Mirror the leading players in other categories, which universally excel at service. 
• Deal sites need to be transparent, both in providing detail as to the exact nature of the deal.
• Provide adequate customer service access in order to address any problems.  More automation will be found in the returns process, allowing companies to reduce costs and more efficiently serve customers.

The longer-term future includes trends such as the convergence of the Internet and cable television and deals, where companies such as Hulu or Netflix (Nasdaq: NFLX) might feed deals directly into the homes of consumers. College students today are abandoning cable and focusing on streaming content, and smart deals companies will find ways to logically integrate their offerings with related video content. It’s another example of the necessary adaptation that these companies will need to perform in order to remain relevant in 2013 and into the future.

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Richard Chemel is vice president of JustDeals.com, and is a contributing writer for Daily Deal Media.

COMMENTARY:    In spite of Andrew Mason's laidback, free wheeling, and often controversial methods of running things, Groupon went on to become the fastest-growing company of all time, hitting a billion dollars in revenue in just 17 months.   Groupon's growth strategy followed co-founder Eric Lefkofsky's playbook to a T:  

A hypergrowth company fueled by mountains of investment capital that claimed to be reinventing an old industry — coupons and loyalty cards — with a high-tech approach.

Former Groupon CEO Andrew Mason (right) and Eric Lefkofsky (left), the co-founder and investor behind Groupon (Click Image To Enlarge)

In an interview with Bloomberg before the company went public, Eric Lefkofsky, a co-funder and early investor, claimed Groupon would be "wildly profitable", a statement the SEC later forced him to retract. And while a few journalists raised questions about Lefkofsky's past, most focused instead on the incredible growth and the smiling Andrew Mason, who personified the disruptive youth and innovation of a startup.         

Since Groupon went public, the facade of Groupon has come tumbling down.  Instead of wild profits, there's been steady losses (see below). And as the red ink has mounted, so have the lawsuits, from investors who said they were misled and from employees who said they weren't paid. The SEC was forced to look into some very fishy accounting which appeared to have been used to prop up Groupon's books. As the bad news piled up, Mason took the brunt of the criticism, with Lefkofsky fading into the background.

Groupon (NASDAQ.GRPN) - Profit and Loss Statements - Calendar Yrs Ending December 31, 2009 through December 31, 2012 - Google Finance (Click Image To Enlarge)

With Mason's departure, Lefkofsky will take over as co-CEO, along with vice chairman Ted Leonsis.  In some respects that will mean he finally has to face the music. But just like it was with his previous internet ventures, Lefkofsky, a man with a track record of creating hypergrowth companies that have crashed and burned, the health of Groupon's business has less of a material impact on Lefkofsky than many others involved.  Lefkofsky and his family actually cashed out to the tune of $382 million before the IPO taking a huge chunk of cash off the table during the last round of venture funding. Insiders cashed out again duringthe IPO, which valued the company at $12.8 billion.  And it wasn't long before talk of a secondary offering, which would allow insiders to cash out for a third time, began to swirl. 

In the 16 months since Groupon went public, the stock has plummeted more than 80 percent (see below stock price chart). It's now worth $3.09 billion, or roughly half what Google offered to pay for it back in 2010. And its most recent earnings, reported yesterday, paint a grim picture, with the company notching losses of 12 cents a share.

Groupon (NASDAQ.GRPN) Share Prices - Nov 11, 2011 through March 7, 2013 (Click Image To Enlarge)

It's very ironic and surprising that Andrew Mason, who did not have a golden parachute, only received a $378 in severance, saw the value of his 7.1 percent stake in Groupon go up by $34 million in the days since he got fired, and stock prices rose.  His shares were worth about $228 million yesterday. He made $31 million in private transactions prior to Groupon’s 2011 initial public offering.  

Lefkofsky doesn't appear swained by the controversy surrounding Mason's firing or the early payouts by early Groupon investors, told the Chicago Tribune earlier this week that Groupon is "on the edge of greatness," and that he looks forward to hiring a CEO to replace Mason who has experience dealing with the type of issues the company is now dealing with. Currently, he and Ted Leonsis, a veteran of the biggest dot-com boom and bust in history through AOL are co-CEOs.  This sort of reminds you of the co-CEO setup over at Research In Motion (RIM), maker of the BlackBerry.  And,we all know how well that arrangement turned out for RIM.  Lefkofsky better hurry and hire a new CEO.

The fact that Groupon has lost so much money over its four year history and ended Q4 2012 with another loss, can be blamed almost entirely on much higher costs of capturing incremental revenues.   This raises continued questions about the sustainability of Groupon's business model:

• Will Groupon's business model ever generate economies of scale?  
• Has Groupon's business model reached a point of diminishing returns?  
• Has the pressure of meeting investor expectations required a strategy of attaining revenue growth "at any cost"? 
• Does Groupon rely entirely too much on the U.S. market to attain revenue targets?  
• Has Groupon become a bloated corporate whale without regard to good business fundamentals?  
• How will Groupon perform post-Andrew Mason?  

If Groupon is losing money on each incremental dollar in revenues it generates, does this mean there is a flaw in the business model, does this signal poor management decision-making, or has has the company simply forgotten how to generate a profit?  I have a feeling that it is a combination of all three.

What is most ironic is that Groupon's revenue model is the same one adopted by hundreds of smaller competitors, so you have to wonder about the entire health of the daily deals industry. However, by its dominant size, Groupon sets the cost and profitability standards for the entire daily deals industry.  By virtue of its unique status as a publicly-traded daily deals company, with access to capital via the public markets, huge market share and experienced management team, it would not surprise me that part of Groupon's strategy is to outlast its competitors, forcing many of them to go out of business, or be acquired on the cheap by non other than Groupon itself. Could this be what Lefkofsky meant when he said that Groupon was "on the edge of greatness?"

In early November 2012, Groupon reported very disappointing Q3 2012 earnings as its core business stagnated, sending its stock down 30 percent to an all-time low of $2.76.  By its own admission, Groupon told investors in mid-2012 that daily deals are beginning to fade.  That should've been a warning to competitors as well.  Its biggest rival, No 2 Living Social, is piling up losses, had to scaleback expansion and layoff workers, cancelled its IPO (no thanks to Facebook an Zynga), and even cancelled annual bonuses for 2012.   Even LivingSocial part-owner  Amazon.com earlier this month recorded a quarterly loss after writing down its Living Social investment.

Both Groupon and LivingSocial are racing to diversify, venturing into more generic ecommerce areas like off-price sales through ventures such as Groupon Goods and LivingSocial's Shop. Meanwhile, upstarts are developing new variations on the discount coupon theme.

Aaron Kessler, an analyst at Raymond James said.

"It's clear that they need to have other models besides the email daily deals business.  The problem is that a lot of these newer businesses have lower margins."

Critics say the torrid growth that enabled Groupon to go public at $20 a share just over a year ago was fueled by merchants buying into a new type of marketing that they didn't fully understand. The discounts offered through the Groupon coupons have turned out to be costly, and the repeat business they generate uncertain.

Utpal Dholakia, Professor of Management in Rice University's Jones Graduate School of Business said.

"A lot of people made the mistake of overlooking the price-promotion part of this model. Normal advertising, yellow pages advertising, it really doesn't have a price promotion, it doesn't have discounting component. That's what makes this difficult to do again and again."

A Raymond James survey of roughly 115 merchants that used daily deals services during the fall found that 39 percent of merchants said they were not likely to run another Groupon promotion over the next couple of years. The top reasons cited were high commission rate and low rate of repeat customers gained through offering a promotion.

The survey also found that 32 percent of the merchants reported losing money on the promotions, and nearly 40 percent said the Groupon offer was less effective than other types of marketing.

Rakesh Agrawal, principal analyst at reDesign mobile, a San Francisco consulting firm said.

"I've always maintained that this is a hype driven business built on an unsustainable business model both for the merchants and for Groupon."

Existing customers interested in signing up for daily deals has waned - Groupon reported in early November 2012 that the average revenue per active customer (defined as an account that has purchased a deal from the site in the previous 12 months) fell to $63.96 in the 12 months to September 30 from $76.49 a year earlier.

The company has also suffered a string of high-level executive departures as its market value has shriveled to just $3.61 billion, down from nearly $13 billion when it went public. Groupon has also been dogged by controversy over its accounting methods, though its financials show that it had $1.2 billion in cash and cash-equivalents with no long-term debt at the end of December 2012. 

Groupon Goods, a more traditional discount online retail operation, already accounts for much of the company's revenue growth.

Kal Raman, Groupon's senior vice president of international operations, said in an email.

"We're investing in the development of products and technology that help our merchants run their businesses more effectively, from payments and POS services to our evolving suite of marketing services including the daily deal. By this combination we become a true merchant partner, serving the yin and the yang, both the operational and marketing pieces of each business."

A key part of that is the massive sales force that Groupon has built to market its daily deals to small businesses. The relationships it has built with merchants and a retail subscriber base that recently hit 200 million could help it beat back competition in daily deals and broaden its offerings, some analysts say.

Groupon controls about 50 percent of the daily deals market share in North America, according to Yipit, a New York City-based daily deal industry tracking firm.

Arvind Bhatia, analyst with Sterne, Agee & Leach said.

"I don't think the industry it is completely going away, though it will settle.  There may be some market share shift to the benefit of Groupon."

The margin pressure, though, could be here to stay. Groupon laid off 80 employees in early November 2012, mostly in sales, as it seeks to bring more automation to the sale process and control costs. But a big sales force is central to the company's strategy.

Karim Faris of Google Ventures, which invests in online coupon company WhaleShark Media said. 

"It's a business that scales with bodies, with humans.  I'm a technology investor, and I like businesses that scale with technology."

WhaleShark and other competitors such as Coupons.com have focused on bringing traditional coupons into the digital era. Such companies typically get a small percentage of revenue for each sale generated by their coupons.

WhaleShark Chief Executive Cotter Cunningham said. 

"Groupon is working with small retailers to give big discounts, irregularly.  We work with big retailers, to give small discounts, every day."

Dholakia of Rice University said executives at new startups have told him they plan to make daily deals more attractive to merchants by offering them a bigger cut.  He also cites interest in new models around "perishable inventory," such as restaurants and spa services, for which big discounts might make more sense for the merchants.

As such competition builds even as the original deals business flattens, there are no easy answers for Groupon.

Courtesy of an article dated March 6, 2013 appearing in  Upstart Business Journal and an article dated February 27, 2013 appearing in VentureBeat, an article dated March 1, 2013 appearing in The Verge, and an article dated March 5, 2013 appearing in Upstart Business Journal, an article dated August 15, 2012 appearing in Bloomberg, an article dated November 12, 2012 appearing in Reuters

FAST COMPANY EXCLUSIVE: ANDREW MASON'S LAST INTERVIEW AS GROUPON CEO

Groupon CEO Andrew Mason (Click Image To Enlarge)

One month ago, Fast Company contributing writer Elizabeth Spiers interviewed then-Groupon CEO Andrew Mason for a forthcoming Fast Company feature on the future of Groupon. His performance--at turns, defensive, weary, combative, and naïve--foreshadowed his firing on Thursday.

Groupon CEO Andrew Mason was fired on Thursday. This is a not entirely surprising development given that on Wednesday afternoon, he and his fellow top executives reported quarterly earnings that can only be characterized as disastrous. Revenue was up, but no one expected the losses the company announced, and first-quarter guidance was far below what analysts hoped for. As Mason himself acknowledged in his resignation letter to employees,

“If you're wondering why...you haven't been paying attention."

Mason continued. 

"From controversial metrics in our (initial public offering) to two quarters of missing our own expectations and a stock price that's hovering around one quarter of our listing price, the events of the last year and a half speak for themselves.  As CEO, I am accountable."

Four weeks ago, I saw it coming. And I think Mason surely did, too.

He and I met in Palo Alto on the first of February to have breakfast, a continuation of my reporting on the company for a future Fast Company story. We sat in the dining room at Madera, a Michelin 1 star-rated restaurant in the Rosewood, a luxury hotel that’s partly owned by Stanford University. The Rosewood is located on Sand Hill Road, across the street from legendary venture firm Kleiner Perkins Caufield & Byers. (This fall it was the subject of a story on a satirical website called the Silicon Valley Pasquinade alleging that undercover detectives had arrested several prominent VCs for soliciting prostitutes at the restaurant’s famed and very scene-y bar. The story was noted by several prominent news outlets and was often mistaken for the truth, in part because the restaurant’s Thursday night, aka “Cougar night,” crowds allegedly exhibit a certain type of transactional behavior that isn’t restricted to term sheets.)

On this Friday morning at 7:30 a.m., the restaurant was still a good 12 hours away from its weekly influx of glamour, money, and what economists would classify as utilitarian behavior. Only a handful of tables in the vast dining room were occupied, and to a man (literally, there were no women) by people in suits reading newspapers or checking their smartphones.

Mason was not wearing a suit. He was wearing a brown sweater over a gray T-shirt and jeans and he looked like he just crawled out of bed, which given the hour, may well have been the case. (He once experimented with sleeping in his clothes to see if it would allow him to get out of bed later. He immediately deduced that this was a bad idea and the experiment terminated fairly quickly.)

He seemed simultaneously alert and exhausted, in the sense that you would be if you’d been pursued by a bear and turned to find it was gone; you'd remain physically drained but twitchy with the knowledge that the predator could reappear at any moment.

And this was understandable. Mason was nearly eaten alive by the market and the press in the last year. And while there were some bright spots--an analyst upgrade here and there like a daisy in a vast landscape of weeds; a vote of confidence from prestige hedge fund Tiger Management, which picked up a not-insignificant 9.9% stake in the company--for the most part you got the sense that the bear was always there, looming, waiting to maul Groupon--and Mason--at any sign of weakness.

He was four weeks away from announcing fourth-quarter earnings, and the last quarter had not been so great for him. In November the Groupon board met to discuss, among other things, whether Mason should be replaced as CEO. Groupon co-founder and chairman Eric Lefkovsky reportedly stood by Mason at the meeting, but discussion was heated and it was unclear whether Lefkovsky would continue to support him under pressure from other directors.

I asked Mason how often he talked to Lefkovsky.  He said.  

“Every so often.”

Specifically? He snorted.

“No comment.”

When I contacted Lefkovsky’s office, his spokeperson noted that Lefkovsky had decided to pull back involvement with Groupon over the summer and referred me back to Groupon’s head of communications Paul Taaffe for questions. Neither party was inclined to talk about the other.

Mason was defensive, even in discussing issues that were relatively innocuous, as if he suspected that every inquiry was a trick question. I had been heavily pitched on Groupon’s new R&D projects and the interesting technology the company was developing, yet when I asked Mason if Groupon was becoming a tech company, he protested, as if the question was some sort of accusation.  He said.

“What does it mean to think of someone as a tech company?  We don’t have a small division working on a space elevator, if that’s what you mean.”

I clarified that my definition of tech company was very much a business definition, unencumbered by innuendo: a company whose value is primarily defined by its tech-related intellectual property portfolio.

He softened a bit.

“I think in the first phase of our company, we were a glorified mailing list. We had a completely unintelligent email that we sent out once a day and we had a human sales force that was going around and procuring the deals... Absolutely IP is going to be an important and necessary part of our success. I suppose that makes us a technology company. I suppose somebody could ask us, are we a marketing company? Yes. Are we an e-commerce company? Yes. Are we a technology company? Yes.”

Part of Mason’s legitimate challenge was that Groupon was not easy to define at that point. Groupon Goods was one of the company's fastest-growing revenue segments but also one of its lowest-margin businesses. It had acquired interesting emerging technology companies, many of which were promising but were too early stage to yield meaningful numbers. It had seen enormous growth in the international sector the year before only to see it tank on Europe’s macroeconomic woes, integration issues, and problems replicating what Groupon called its “North American Playbook” in international markets.

One of the impressive things about Andrew Mason is that he’s not especially threatened by other entrepreneurs. This may seem like a small matter, but entrepreneurs are a delicate species, with easily wounded egos. They’re not the types that take well to working for other people. It’s very difficult to go from directing operations with no bureaucratic or authoritative friction, no need to ask anyone for permission, to taking direction from someone else. Many of Mason’s staunchest loyalists are entrepreneurs whose companies Groupon acquired. COO Kal Raman describes him as one of the best listeners he has ever known. (Wall Street would dispute that, but I’d wager that Raman might not be wrong. Mason is just selective about who he listens to.)

SVP of product management Jeff Holden bonded with him over a two-day stay at Holden’s house where Holden says they had “one of those conversations where you see the world exactly the same way.” The founder of Breadcrumb, Groupon’s point of sale system for restaurants, Seth Harris, was “a restaurant guy--it’s in your blood” but was convinced to go to Groupon because he liked Mason’s vision for empowering local businesses with better infrastructure and tools. And as Mason put it,

“Whatever you think of me, I have a great team below me that’s had a lot of success.”

To his credit, this is something that many public company CEOs never learn how to do.

But it was Mason’s job to define Groupon not just to a hand-picked team of executives but to the world. And communication, at least in that context, wasn’t his strong suit.

However he connected with people internally, he struggled to do it publicly. In part, this is because Mason was uncomfortable with the spotlight. He attributes some of his legend as prankster to this.  

He said.

“I think that story built up, and part of it was my way of dealing with the lack of comfort of being in public. But it doesn’t reflect reality or the way I behave day to day.  I’m weird. But I’m a pretty serious person.”

Mason never could convince Wall Street of that, and he seemed disillusioned with his experience dealing with it.

“What’s just depressing to me is how--and it’s not just for us, let me generalize it--the moment a company goes public the conversation shifts from how they’re trying to change the world and the product they’re building to how they’re making money.”

“All the coverage around Facebook’s new search tool was a little bit about the feature, and then it gets immediately into how the market is reacting to it. Like, who the fuck cares?”

He said.  

“If you look at a lot of the issues we’ve had since going public, it feels like we’re at Wimbledon and we just keep on double-faulting.  It’s like we don’t even get to play the match.”

He thinks the Street is callously unsympathetic.

“It’s the nature of a four-year-old business that’s trying to get its arms around 11,000 people in 48 countries, a lot of them strung together from acquisition.”

Part of Mason’s downfall was that he’s an idealist. He feels betrayed by a market that does not understand what he’s trying to accomplish or appreciate his good intentions. There is of course an arrogance in that--an expectation that the market should conform to one’s own ideals instead of the parameters in which it has always operated. He seems wounded by the fact that Wall Street doesn’t care as much about the quality and efficacy of Groupon’s products as it does about raw profits.

This is at best naïveté, but then naïveté has plagued Mason all along. In 2012, Groupon filed statements with the Securities and Exchange Commission that had to be restated because Groupon had used an accounting metric--ACSOI (Adjusted Consolidated Operating Income)--in its required filings that suggested a net gain in its operating income. Conventional SEC-required metrics would have suggested a loss.

To be fair, ACSOI is an important metric for Groupon internally. It’s a measurement that helps them think about long-term costs before they spend money on marketing. And considering that they believe their marketing budget is variable, it’s important for them to know what sort of profits they’re looking at without taking marketing into consideration.

But it’s not what the SEC asks for. And it’s rare that a company blatantly flaunts what the SEC wants.  Mason said.  

“Looking at it in retrospect,  like many stupid things that people do, it looks obvious. But at the time, we were in a different world. We were the darlings of the tech world. Everything was and had gone our way, and we thought, we’ll put this metric [ACSOI] in here because we think it’s helpful. And people were like, We think you put this metric in here because you’re evil.”

He continued.

“They were basically like, Here’s the list of companies that have made up metrics and these companies suck. So you probably suck, too.”

Mason admits that it was unsophisticated.

“That was us not realizing what we were getting into in going public.”

When I asked him whether he regretted going public--whether he thought he could have accomplished more without the market pressure--he became incensed.

“I feel like the only reason you could be asking me that question is because you think I’m stupid or because you’re trying to see if I’m going to lie to you.”

Like most reporters—and let’s face it, most human beings--I’m always interested in whether people will lie to me. But it was an honest question. I know entrepreneurs who have regretted exits for precisely that reason. And I sincerely wonder what Groupon would look like if it weren’t a public company now. I suspect Mason does, too.

But Mason fails to see why the market behaves the way it does. It is callous, to be sure, but it isn’t stupid. The Street is not unaware of the fact that it has a regimented system that does not reward eccentric behavior. Mason’s lack of prior experience and personality quirks were at odds with Wall Street’s platonic ideal of a public company CEO: a numbers-driven operator who is experienced, polished, reliably predictable, and predictably reliable. In other words, not the kind of guy who makes jokey yoga videos in his underwear or who nearly presents the mayor of New York with a pony (a GrouPony, to be exact) as a party favor for an office visit. Certainly not the kind of guy who creates an entire room in his corporate headquarters for an imaginary tenant named Michael whose belongings include an exercise bike that plays Sade when pedaled, Cheerio boxes as décor, and a toilet full of Almond Joy bars. All of which Mason had done.

The presentations that public company CEOs have to make to institutional investors are called “dog and pony shows” for a reason. Wall Street knows some of it is superficial and irrelevant. It recognizes that it’s inconvenient and annoying for the CEO to have to trot the company out, brush its hair, decorate it with pretty ribbons, and walk it around the stage. The CEO has better things to do, after all. Isn’t the CEO supposed to be building the company?

Well, yes and no. Mason failed to accept that if you’ve taken money from public investors, you have to acknowledge that you owe them. Or you shouldn’t take the money at all. If you’re a public company, you have stakeholders whose interest in your company is entirely tied to fiscal performance. Mutual funds buy you for individuals who want to invest. Institutional funds buy you because you seem promising. Individuals in Peoria buy you because they think you will perform the way you said you would, even though that fourth quarter miss wasn’t your fault. It’s cold comfort to those people that you’re empowering small businesses if your management policies disempower them by draining their investment accounts. Those people were not investing in an ideal; they were investing in a security.

So it disturbs the Street when a public company CEO won’t do these things. They think it’s disrespectful to institutional investors who have invested in the company and deserve an audience. They think it’s a sign that the CEO is trying to hide something. How hard is it to give a simple presentation about where the company is going with no drama?

Julie Mossler, Groupon’s PR director was upset on his behalf. She mentioned a 60 Minutes episode earlier in the year wherein the show’s staff was annoyed that Mason didn’t present himself as the clownish prankster they had hoped to capture on camera.  SheMocked.  

“Andrew’s not being funny!  Where’s funny Andy?”

To be honest, I was relieved not to see funny Andy, if such a persona exists. As a human being, I’d rather see the sincerity--the irritation, the exhaustion, the frustration of being misunderstood, even if part of the misunderstanding is a function of self-inflicted difficulties that could be remedied by an acceptance of the realities to which Mason has consigned himself by virtue of going public. I’d rather see Mason as a complete person and not a character optimized for amusement. I ask him how his wife would describe him, and he says,

“She’d say ‘I wish he was home more so I was capable of characterizing him.”

It’s intended as a joke but there’s a tinge of sadness to it. Mason doesn’t like talking about himself. It makes him uncomfortable. But even his attempts at self-deprecation fall flat.

Mossler, both by virtue of her role and her longstanding relationship with the company (she has been at Groupon from whatever constitutes "the beginning"), is extremely sympathetic to Andrew. Like several of the other senior executives with whom I spoke, she seemed protective of him, and not simply because it was part of her job. She believed in him.

But the market did not.

Mason is by most accounts a passionate, smart guy who cares deeply about creating a superior product. He hires people who have more experience running companies than he does and finds ways to gain their trust. If he can learn how to tolerate the things that the public company CEO must do for the public market and come to peace with the fact that it entails walking the be-ribboned pony around the enclosure and smiling while doing it, maybe he has the potential to be an effective CEO of another public company.

But I don’t think he’d like it. And I don’t think it would be the best use of Andrew Mason.

COMMENTARY:    I don't feel bad for Andrew Mason one iota.  As many startup CEO's have quickly discovered after going public -- it's not the end of the journey, but the beginning.  As the CEO of a startup, if you are smart, you hire the best people possible, and give the responsiblity to execute the company's corporate initiatives.  Although early and late venture capital investors may exert some influence over operations, they don't call the shots.  Very often the CEO puts himself in the position where he controls the votes on the board of directors, and is somewhat immune from being fired.  Facebook CEO Mark Zuckerberg  and Zyngao CEO Mark Pincus have voting control by virtue of holding enough Class A and Class B shares to veto any effort by the board to fire them.  They are the luck few.   Andrew Mason did not have full control over the board, and his longivity as CEO depended on how many bad quarters Groupon had.  

Groupon Inc only had one quarter (Q2 2012) when it reported a profit.  It lost money every quarter prior to that and every quarter after that.  And, I have a feeling it will continue to lose money because of its controversial business model.  Yes, it was only a matter of time before Little Andy Mason was canned, but I am surprised they let it go this long.   Here are the financials and stock prices.  You be the judge.   In a world of stock analysts and institutional investors, there is no room for idealism, just profits, profits and profits. 

Groupon Inc - Profit & Loss Statements - Year's Ending 12-31-09 through 12-31-12

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 Groupon Inc - Stock Prices - 11-11-11 through 3-7-13

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Courtesy of an article dated February 28, 2013 appearing in Fast Company

AFTER MOUNTING LOSSES AT GROUPON, A BOARD OF DIRECTORS REBELLION INSUES, AND CEO ANDREW MASON IS FINALLY FIRED

Groupon CEO and co-founder Andrew Mason (Click Image To Enlarge)

Like many a defeated and depleted executive before him, Groupon co-founder and CEO Andrew Mason emailed his staff yesterday, then, in his typically offbeat style, he did what most executives don’t and he wrote: 

“I am leaving to spend more time with my family.  Just kidding –- I was fired today.” 

Although the note was “for Groupon employees,” carrying the valediction “Love, Andrew,” Mason wrote:

“I am posting it publicly since it will leak anyway.”

He told employees.

“You are doing amazing things.  It's time to give Groupon a relief valve from the public noise.”

He told his former workers not to worry about him, then said.

“I'm OK with having failed at this part of the journey.”

Mason referred to the part where a promising business model actually gets executed and becomes a viable enterprise against mounting competition.

Groupon (NASDAQ:GRPN) - Profit and Loss Statements - Calendar Yrs Ending December 31, 2009 through December 31, 2012 - Google Finance (Click Image To Enlarge)

The dismissal was not a surprise. Mason had been “buying time” since late last year and dismal fourth-quarter results, as MediaPost’s Gavin O’Malley reported yesterday, sealed his execution. The growing mob shouting “off with his head” seemingly was pleased; stock quickly shot up as high as 12% to $5.10 in after-hours trading before receding, TechCrunch’s Colleen Taylor reports. The share price was at $4.72 at 6 a.m., up from a close of $4.53, which constituted a drop of 24% after Wednesday’s earning’s report. 

Groupon (NASDAQ:GRPN) Share Prices - Feb 25, 2013 through Mar 1, 2013 (Click Image To Enlarge)

Stifel, Nicolaus analyst Jordan Rohan tells the NewYork Times’ David Streitfeld.

“I view Mason as a visionary idea generator.  Few would argue with how impressive the Groupon organization was as it grew. However, at some point it became the overgrown toddler of the Internet -- operationally clumsy, not quite ready to make adult decisions.”

Mason was asked to “exit the company immediately” at a board meeting yesterday morning, according to a source who talked to the Wall Street Journal. Reportedly, “tensions had flared” between Mason and Groupon co-founder and chairman Eric Lefkofsky before the meeting, Evelyn M. Rusli, Geoffrey A. Fowler and John Letzing report. Lefkofsky had been “agitating for change” and “urged Mr. Mason to be more vocal in defending Groupon, which was dealing with a precipitous stock-price decline, one person has said."

One year and for months ago, Groupon went public.  It priced at $20 a share, opened at $28, and then peaked around $30.  Since then, it has done nothing but collapse. As of today, Groupon shares are worth $5.42 with a market cap of $3.57 billion (Click Image To Enlarge)

Mason had left the building by the time Groupon conducted a company-wide meeting that was streamed to its distant outposts, the WSJ reports, presumably puttering around the house with an eye on the trending Twitter feed about his ouster. Tthe Times’ Streitfeld wrote.

“Mr. Mason himself retweeted a comment that said: ‘First the pope and now Andrew Mason!?! Our esteemed leaders are falling like flies.’” 

Some observers point out that Yahoo’s former CEO, Carol Bartz, was similarly forthcoming about her dismissal in September 2011, but she was, in fact, a tad more strident about it publicly in an exclusive interview with Fortune’s Patricia Sellers.

Lillian Cunningham, the Washington Post’s “On Leadership” editor wrote.

“Honesty and authenticity are so profoundly lacking in today’s leaders that it really is a thrill when a frank memo appears, like the one that freshly ousted Groupon CEO Andrew Mason penned Thursday evening,”

Authencity? Well, Mason has long been known as quirky. Reuters’ Poornima Gupta, Alexei Oreskovic and Malathi Nayak wrote that Mason “garnering props for [the letter's] self-deprecating style … should come as no surprise,” and then they lay out the evidence. Some of the anecdotes: Mason purportedly doing yoga in his underwear in a video posted to YouTube, his giving a pony to gazillionaire Michael Bloomberg and turning down an interview with the New York Times in 2010 on any topic other than “my other passion, building miniature dollhouses.”

The Chicago Tribune’s Ameet Sachdev and Robert Channick said that the resignation note is “filled with the same offbeat humor, charm and candor that defined his tenure as chief executive.” The company is headquartered in the Windy City, and the Tribune reporters observe that

“Groupon's struggles have been stunning, and dispiriting, to many in Chicago because so many expectations were wrapped up in its early success.”

But, in addition to mounting competition “from imitators from LivingSocial to Amazon,” they point out that “consumers' appetite for heavily discounted deals on restaurants, yoga classes and pedicures has shrunk.”

Executive chairman Lefkofsky and AOL veteran and vice chairman Ted Leonsis will be sharing the steering wheel as the search for a new CEO is conducted. Neither is in consideration for the permanent role of jumpstarting the vehicle stalled on the Skyway –- a task that begs for a master mechanic.

Therese Poletti wrote in a MarketWatch commentary.

“Many investors, joined by several Groupon analysts, don’t believe Mason was the core problem with the company, and they can only wish the interim CEOs luck in tackling its fundamental issues.  What CEO would want Mason’s job on a permanent basis is another question whose answer will only become clear in the coming weeks and months.”

COMMENTARY:   I have been waiting for Groupon's CEO Andrew Mason to be fired, and that day has finally come.   If you've beeing following my blog posts, I have extensively covered Groupon since before its IPO.  I am very surprised that Mason's firing did not come sooner, considering all the management screwups, poor decision-making and controversey surrounding Little Andy Mason.  It turns out that according to Groupon's filings, Mason did not have a golden parachute, something that is customary for top management.  In spite of this, I still don't feel the least bit sorry for Little Andy Mason.   Mason sold around $28 million worth of Groupon shares before Groupon's IPO in the fall of 2011.  After the IPO his shares in the company were valued at more than $1.3 billion. In November 2012, the value of his shares topped $1 billion, making him an official billionaire, at least on paper.  Groupon stock has subsequently plummeted, but his shares are still worth $200 million.  Bye bye, Little Andy.     

Courtesy of an article dated March 1, 2013 appearing in MediaPost Publications MarketingDaily Top of the News and an article dated March 1, 2013 appearing in CNBC

LIVINGSOCIAL TO CUT STAFF, GROUPON CEO FEELS THE HEAT, DAILY DEALS MARKET COMPETITION INCREASES, MARKET LOOKS BLEAK

Throwing more cold water on what was once a white-hot daily deal space, LivingSocial is reportedly ready to cut about 10% of its workforce, or as many 400 jobs.

The Washington Business Journal reports.

“For the 5-year-old social commerce company, the long-rumored layoffs reflect a struggle to stabilize itself financially after a frenzied headcount expansion in 2011.” 

Mashable writes. 

“The layoff shouldn’t come as much of a surprise following Amazon’s third-quarter earnings report, which blamed its $169 million loss on its stake in LivingSocial.  Amazon invested $175 million in the daily deal site two years ago.”

According to CNet. 

“The daily deals world is awash in financial woes, and LivingSocial is no exception.  After a net loss of $566 million in the third quarter, the company is now reportedly about to cut jobs.”

As Forbes notes,

“The news comes on a day when the company’s chief rival, Groupon, is reportedly holding a board meeting to discuss whether or not the struggling company should replace co-founder and CEO Andrew Mason.”

Connecting the dots, Business Insider recalls:

“Earlier this month, Groupon eliminated 648 jobs prior to announcing quarterly revenues that missed expectations.”

LivingSocial, which has raised more than $800 million in funding, entered 2012 with a staff of roughly 5,000, according to the Washington Business Journal.

Regarding LivingSocial, The Washington Post writes:

“It has not yet turned a profit and has since pulled out of some international markets and has sought to diversify its business by selling vacation getaways and everyday consumer goods, with mixed results.”

COMMENTARY:   At Groupon, daily deals are fading. That’s the message the company sent many investors this week when it reported a decline in gross billings, or the total value of goods and services bought on its site, between the first and second quarters of this year.

While demand for online coupons may be cooling off, competition is rising, according to new data from Yipit. The deals industry researcher found that Groupon’s market share in North America shrank to 53 percent in the second quarter, down from 56 percent in the previous quarter. Meanwhile, LivingSocial grew its share to 22 percent, up from 20 percent.

Click Image To Enlarge

Travelzoo grew to 3 percent of the market, Yipit said. AmazonLocal, a partnership between LivingSocial and Amazon.com, kept its 2 percent share of the daily deal business.

While it’s not the first time Groupon has given up market share, Unaiz Kabani, product manager for New York-based Yipit said. 

“This was the first sizable shift backwards in well over a year.” 

In North America, Groupon’s gross billings from daily deals fell 2 percent in the period, Kabani estimated, while LivingSocial grew 15 percent.

Paul Taaffe, a spokesman for Groupon, and Brendan Lewis, a spokesman for LivingSocial, declined to comment.

Like Groupon, LivingSocial is looking to expand beyond daily deals. Last month, the Washington-based company LivingSocial Shop, an e-commerce store for discounted furniture, clothing and other goods. The site mirrors Groupon Goods, a shopping site started last year that accounted for most of Groupon’s sales growth in North America in the second quarter.

Little Andy Mason To Remain As CEO

On Thursday, November 29, Groupon's board of directors met in a regularly scheduled meeting. The board's official agenda included items related to strategy planning for upcoming quarters, but directors were also discussed whether CEO Andrew Mason should be replaced, a person briefed on the matter has said.   The board of directors voted and the answer was a resounding YES said Paul Taaffe a spokesman for the company.

"The Board and the management team are focused on the performance of the company and they are all working together with heads down to achieve Groupon's objectives."

The discussion among board members came amid fractures among Groupon's three co-founders—Mr. Mason, Eric Lefkofksy and Brad Keywell—who all sit on the board, people briefed on the matter have said.

Mr. Lefkofsky and other board members have recently grown increasingly frustrated with Groupon's stock performance and have tried to push Mr. Mason to be more vocal in defending the business, these people have said. Groupon's stock has plunged around 80% since its initial public offering last November, as growth has slowed.

Groupon's share prices since its IPO in November 2011 (Click Image To Enlarge)

At a New York conference on Wednesday, little Andy Mason said he remains the best person to steer Groupon.

"If I ever thought I wasn't the right guy for the job, I'd be the first person to fire myself."

Groupon is in a classic Catch-22 situation:   If they had voted to fire Andy Mason, Groupon's stock could drop even more.  By keeping him, the stock dropped 0.35 or 7.71%.   Same result.  

If you ask me, Little Andy Mason is a dirt bag for cashing out a significant amount of his Groupon stock during the IPO.  He also sold a lot of shares in the secondary market prior to the IP.   He clearly doesn't understand how to develop a predictable and sustainable business model that can generate revenues AND profits.  In fact, many social media experts and analysts believe that Groupon's businesss model is deeply flawed.  A real money-loser if there ever was.  

He has also failed miserably in pivoting the company so that it can generate revenues and profits.  Since inception, Groupon has lost money.  To date, its total accumulated losses since 2008 total $685 million.

Groupon Inc (NASDAQ:GRPN) Annual Income Statements - Years Ending December 31 (2008 through 2011) - Google Finance (Click Image To Enlarge)

Groupon Inc (NASDAQ.GRPN) Quarerly Income Statements - Q3 2011 through Q3 2012 - Google Finance (Clic Image To Enlarge)

Courtesy of an article dated November 29, 2012 appearing in MediaPost Publications Around The Net and an article dated August 15, 2012 appearing in Bloomberg and an article dated November 29, 2012 appearing in The Wall Street Journal

FACEBOOK LAUNCHES 'SOCIAL DEALS' GEARED TOWARDS SOCIAL EVENTS, FACEBOOK CREDITS TO BE USED FOR PAYMENT

While Facebook local deals have been in the works for some time, Facebook social deals are brand new. There is already a huge buzz surrounding this new feature release. Imagine all the power of Facebook, all the interconnectivity, all the viral components working together to create unheard of group deal potential! That is what we are talking about here folks.

So let’s talk a little bit about how this works because there are some distinctions between what Facebook is trying to accomplish and what companies like Groupon and Living Social are doing. You may want to consider this as a viable local social media advertising platform.

Facebook Deals

Check-In Deals Stay the Same

Right now you can check in to a Facebook Places location through Facebook and unlock certain deals. This is really similar to how foursquare deals work. Basically, when you go to your favorite restaurant you log on to your phone, check in and if they have a deal set up you can unlock it and use it. This part will not really be effected.

Social Deals are Different

The new social deals work differently than the check-in deals. Social deals are really more geared towards events and experiences.  So for instance, a good social deal would be a concert or beer festival.

The most interesting part about these social deals is that you cannot pay for them with your normal credit card, you need to use Facebook Credits. Yep, Facebook Credits   Here is a quote on this from our friends at Mashable:

“By contrast Facebook’s new Social Deals, like Groupon or LivingSocial, must be purchased up front using money or Facebook Credits (the first use for real-world products/services). You actually buy a voucher that is then redeemed offline.”

As of right now this new feature is only available in a few select areas, to a few select companies. Before we go to much further, feel free to watch a video on Facebook social deals. Then you can read the rest of the commentary and important points below.

 

Areas Where Facebook Social Deals are now Being Offered:

• Atlanta
• Austin
• Dallas
• San Diego
• San Francisco

Companies Allowed to Run the First Facebook Social Deals

• Gilt City
• Home Run
• FreshGuide
• PoweredByTippr
• KGB
• Plumdistrict
• Zozi
• OpenTable
• ReachLocal/DealOn
• Viagogo
• aDealio

Why Could this be Better Than Groupon?

Let’s get one thing straight. Facebook has stated clearly that they are not focusing on group deals for things like dental work, laser surgery, etc. They are focused on group deals for inherently social events. This allows the new feature to play into the social nature of the site. We’ve heard time and time again that high school and college parties get way out of hand with Facebook invites. Imagine this happening for your business!

The best part about these group deals is that they can support future residual marketing. What do I mean by that? Basically, you run a social deal. But a large focus of the social deal is the information offered on your Facebook page. So, when you run this social deal you are directing people towards your page and then people turn into fans of your page. Now next time you run a deal or an online promotion you can reach out to this new community for free to promote it. Pretty cool right?

COMMENTARY:   The daily deals space was crowded before, but with daily deals leaders Groupon and LivingSocial, Google Offers, regular Facebook Check-in Deals and now Facebook social deals, the deals market is getting outrageously crowded.   There are already signs of a shakeout in the daily deals segment, 

With Facebook Deals, users can also subscribe to emails, but the social deals can also appear in the news feed. That’s one area where Facebook should have a huge leg up on Google and daily deals giants Groupon and LivingSocial

Businesses are still getting used to Facebook marketing. Getting seen in the news feed is perhaps the most important part of that. This week, Facebook marketing firm Buddy Media released a report, giving brands tips for capitalizing on Facebook’s EdgeRank algorithm (the basis for what Facebook shows users in their news feed).

Deals will present a whole new option, and deals in general have already proven to be massively popular among consumers. Many Facebook users check their news feed multiple times throughout the day, which should ensure conversions, as long as the deals are attractive. 

After the phenomenal maturation of the daily deal industry seen in 2011, a new paradigm will usher in programs that merge content with a seamless deal delivery experience. The industry focus will evolve from deal sites and daily emails to other messaging formats, providing relevant deals where, when and how consumers want them. The year 2011 was just Phase One of group buying. Phase Two begins in 2012. Here are some predictions for what portends to be another technologically eventful year in group buying, and reasons why publisher may stand to gain the most.

200 “Groupon Clones” Will Bite The Dust As Consolidation Mode Takes Off

With more than 600 companies currently operating in the group buying space, industry consolidation is going to become a very real threat to many daily deal sites. According to Yipit.com, over 170 deal sites failed in 2011. Next year the trend will continue as large companies purchase smaller rivals and other generic deal brands go belly up. Over 200 of the ‘me-too’ deal sites may close their doors within the first six months of the New Year. Meanwhile, publishers and niche sites that have found a way to integrate daily deals into their existing content, rather than just photocopying Groupon’s model, will not only survive but thrive.

2012 Is The Year of the White Label

White-label providers (e.g. Groupon, LivingSocial, Analog Analytics, Group Commerce, Nimble Commerce) will reign supreme in 2012. According to Yipit research, in 2011 white labels exhibited a transaction volume of 5-10 percent, but it may double in 2012 as much as 20 percent. Media companies, niche bloggers and digital content creators have credible brands, local sales forces and engaged audiences–critical components that large horizontal sites spend hundreds of millions to grow. The only piece these companies are missing is the technology on which to build a deal site. In 2012, white label technologies will allow publishers to prevail after the Groupons of the world have exhausted their resources acquiring new customers and finding new merchants.

Big Branded Sites’ Futures Lies In Instant Contextualized Deals 

2012 will be the year big brand sites (e.g. Groupon and LivingSocial), which source hundreds of deals to large audiences with diverse interests, establish a profitable business model. But profits will only follow the ability to tailor content, matching the right customer with the right merchant. Simply put, the daily space will be dominated by the players who understand how to effectively merge content and commerce into a seamless experience, allowing consumers access to relevant deals anywhere and at any time. In 2012, Groupon and LivingSocial will make massive investments in their mobile capabilities, while Google, Facebook and other major audience aggregators will extend their commitment to the integration of location, advertorial, mobile and contextual commerce.

The future group buying landscape will be marked by consolidation, significant developments in offer targeting and the introduction of new deal delivery technology.  2011’s success, marked by the highly successful IPO of Groupon, sets the stage for other daily deal players to be taken seriously and carve out a niche of the market for their own.  2011 was not the ending for daily deal industry; rather, it’s merely the beginning.

Courtesy of an article dated April 26, 2012 appearing in WebProNews and an article dated December 20, 2011 appearing in Folio Magazine

 

HOW WOMEN ARE RESHAPING THE NEW AMERICAN MARKETPLACE, THE ECONOMY, SHARING RECOMMENDATIONS AND DECISION-MAKING IMPORTANT FACTORS

People are often surprised to learn how frequently Affluent consumers use coupons and other forms of discounts. Our latest barometer, conducted in late January 2012, again revealed relatively strong interest in coupons of all types, along with widespread and frequent use. Among Affluents, defined here as the 58.5 million adults living in households with at least $100,000 in annual household income, we found that:

• 71% use paper coupons once a month or more; 47% do so at least once a week
• 54% use online coupons once a month or more; 23% do so at least once a week
• 58% have gotten some kind of “deal of the day” offer, most commonly from Groupon (46%) or LivingSocial (25%), but with significant numbers (5-12%) trying new or more niche-oriented offerings such as those from Amazon, Google, GiltGroup, and Woot.

Just as telling: coupon interest and usage shows little or no drop-off if we examine more elite financial groups, such as those with $250,000+ in household income, or those with $1+ million in assets. The fact is that a strong value-orientation and “love of the deal” are felt widely and strongly among Affluents; they are deep-seated elements of the consumer psyche that were intensified, not created, by the long-running economic downturn. Today’s “deal of the day” and group coupons further boost interest by tapping into additional hot-buttons – the desire for novelty, and the quest to be “in the know” – that add cutting-edge angles to long-standing promotional tactics.

Although interest in discounts cuts across many traditional demographic groups, and reaches well into the upper economic strata, there is a very clear gender difference: women outpace men by 10-20 percentage points on most measures of coupon use. In some ways, the prevalence of coupons across both genders (but led by women) may reflect a broader and more fundamental change in the marketplace, and in society more generally: the continued ascension of women into leadership roles – in the family, in the marketplace, and in society more generally.

That’s a conclusion supported by “Women, Power & Money,” an on-going survey of women we conducted and commissioned jointly by Fleishman-Hillard and Hearst Magazines. The first wave of the study, conducted in pre-recession 2008, set out to examine “today’s successful woman,” and found that virtually all American women consider themselves successful, and have defined success on their own terms; moreover, the study concluded that she had become the de facto CEO, COO, CFO and CPO of most American households.

Wave Four of the study, released last month and titled “Game Changers: Women Defining the New American Marketplace,”* found her impact has grown even more profound, concluding:

“Her influence within the family, and in broader circles as well, has led to an amplification of her preferences – in a very real sense, her preferences have become the de facto defining preferences for today’s marketplace.”

Several factors have converged to shape these trends, creating a perfect storm of environmental conditions that favor marketplace approaches more characteristic of women:

• A persistent economic downturn, favoring value-orientation, frugality, pragmatic expectations from brands, cautious investing decisions, and a willingness to delay gratification.
• The proliferation of information and choice in the marketplace, favoring thoughtful, considered, and researched purchasing decisions.
• The emergence of social media, which expands one’s sphere of influence, and has shaped the attitude that one can and should express opinions (women are more likely than men, for example, to be a friend/fan of a product or company on Facebook).

On a tactical level, these trends have made the market ripe for coupons and discounts, across genders and income groups. More profoundly, they have fostered a fundamental shift in marketplace values, and marketplace power.

* “Game Changers: Women Defining the New American Marketplace” from Fleishman Hillard and Hearst Magazines represents the fourth wave of the ongoing study: "Women, Power & Money." It can be downloaded here.

COMMENTARY:  

The Economy As At The Core of Female Consumer Behaviors

According to "Women, Power & Money," a survey by marketing research firm Fleishman Hillard, The economy is by far today's female consumer's greatest concern, and this concern continues to weigh heavily on her mind, and her shopping decisions.  Economic concerns have intensified her decidedly utilitarian approach to the marketplace. She seeks value, quality, performance, and above all, substance.  She generally prefers a solid “good” choice over a more expensive “great”choice.  In many cases, she researches purchases thoroughly, and applies complex, category‐specific decision rules in making marketplace choices. And again, her influence within the family, and in broader circles as well, has led to an amplification of her preferences – in a very real sense, her preferences have become the de facto defining preferences for today’s marketplace.  

Click Image To Enlarge

The economic stress that has taken a foothold after the Great Recession has affected how female consumers shop.  Here's what women said about how the economy has affected their spending behavior:  

• 75%+ said:  “I shop differently now than I did before the recession.”
• 71%+ said:  “Life is more complex today than it was before the recession.”
• 58%+ said: “Financially, I am worse off now than I was before the  recession started.”

Her Leadership Style: From “It’s all on ME” to “Leading the TEAM”

Clearly today’s woman remains the agenda setter in most American households. She is the family visionary who keeps the big picture in mind,while also plotting the day‐to‐day course for the household and those who live in it. But her leadership style is less about doing‐it‐all herself and being Ms.Independence. Instead, it is a more collaborative and thoughtful approach, one in which she leads the team (at home and away) in developing and executing the agenda. She readily shares both the decision‐making responsibility, and the credit that goes along with it.  

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Women as Media: Expanding Social Circles through Receiving,Broadcasting, Influencing

There’s no denying the impact of online social networks on the female consumer, but it is important to put their impact into context. Her online social networking represents only a portion of what she does online, and of course, what she does online is only a portion of her life. Reading and posting product reviews are more common activities than marketplace‐related activities on social networking sites.  Moreover, in‐person communications – in social gatherings, at work, in retail contexts – remain by far the most widely used methods for communication and influence.

Click Image To Enlarge

Improving Lives for Self and Others: The Positive Nature of Her Influence and Communications

Reaching out to others and adding more social elements to her decision‐making is not a sign of insecurity or ducking responsibility. She certainly feels confident and empowered in the marketplace; 71% agree, “Today, I feel confident in my being a trusted source of information to others.” She feels smart and ultimately acts based on her own judgment. Rather, her decision‐making style is information‐oriented, and friends, family and other trusted sources have become among the most influential sources of information that she seeks out.  It is not so much about safety in numbers – rather, it is theexpectation that collaboration will result in a better decision, for herself andthose she connects with.

Her primary reasons for sharing opinions (online and offline) – center around sharing positive experiences, seeing others benefit, and spreading the word about something they feel passionate about. Relatively few are focused on warning others about poor products or services, and only 5% say “it’s what everyone is doing these days.” (Interestingly, men are more likely than women to share product or service recommendations because they are confident that their recommendations are “the right way  to go.”)

Click Image To Enlarge

Her Marketplace Needs and Brand Preferences Skew  Practical, Functional

When asked to list the brands women admire across a variety of categories, the brands named most consistently tended to be “solid,” but not necessarily spectacular.  Across a dozen categories, American women were asked to list the brands they admire, and to describe in their own words why they admire those particular brands.  The most cited automotive brands, for example, were Ford, Chevrolet, Honda and Toyota – traditional “luxury” auto brands ranked far down the list. The same admiration of good, if not great, brands emerges across categories. Olay and Cover Girl. Old Navy and Macy’s. Tylenol and SC Johnson. Kraft and General Mills.  

Her practical marketplace approach also underscores why she admires particular brands. Across virtually every category, good and quality are the terms she uses most, with price typically close behind. Certainly there are some nuances by category – she wants health from food brands, style from fashion brands, innovation from technology companies, service from hotels, beautiful designs from jewelry, and effectiveness from over‐the‐counter drugs. But good quality at a good price (in other words, value) is generally her top consideration. (See below; font size indicates frequency of mention).

Click Image To Enlarge

Sharing Recommendations Differs Among Generational Categories

The tremendous sway that recommendations have on behavior, for example, skews modestly by generation, but in the big picture, is a key marketplace theme across age groups. As shown in the table below, Millennial women are more likely to agree that recommendations from others can be comforting, and to have made specific marketplace choices based on recommendations; however, more than two‐thirds of Senior women agree with these sentiments as well.  

In other respects, however, the tremendous diversity of the women’s marketplace is apparent. Millennial women more frequently broadcast information and make recommendations, and fully half point to online social networking sites as facilitating their shopping decisions. Millennial women bring a different approach to shopping more generally – displaying a more unabashed enjoyment of shopping both online and offline, and paying greater attention to celebrities. (interestingly, Millennial women are also most likely to describe themselves as “stressed” or “exhausted,” while self‐descriptors such as “caring,” “family‐focused” and “optimistic” are lowest among Millennialsand increase with age).

Click Image To Enlarge

Judging from the Fleishman Hillard study, the aftereffects of the Great Recession as created the Era of the Frugal Consumer.  The sharing of information and making recommendations about products and brands through different channels, both online and offline, have become vital in the buying decision.  When affluent consumers making $100K+ are also looking for deals and resorting to clipping coupons, you know frugality is here to stay.

As for myself, I much prefer that my female partner maintain the family budget and do most of the shopping.  Keep me as far away as possible from shopping malls.  I'll shop for groceries to help out, but it's not on the top of my priorities.  I definitely want to be "in" on major purchases, and this matches the findings of the study.  

These days it is very important to take control of your household expenses, knowing where the money is coming from, and how it's being spent.  Establishing a family budget begins with the essentials--things you absolutely need to buy or spend on, and keeping luxuries and discretionary items to a minimum. 

Courtesy of an article dated February 15, 2012 appearing in MediaPost Publications Engage:Affluent

 

HOW SCVNGR'S 'LEVELUP', A NO COST MOBILE PAYMENT SYSTEM AND DAILY DEALS LOYALTY PROGRAM, COULD BECOME A $50 BILLION BUSINESS



In the fall of 2007, Seth Priebatsch was a freshman at Princeton University. A year later, he dropped out. By 2011, he was head of a company valued at nine figures.

Seth Priebatsch, founder of SCVNGR and LevelUp

The 23-year-old is the self-proclaimed "chief ninja" of SCVNGR, a real-world, location-based gaming system, and its new mobile payment service, LevelUp. Priebatsch's record of entrepreneurship stems back to high school, when he ran a print manufacturing startup called Postcard Tech. He cut his teeth turning out college applications while managing factory operations in Hong Kong and a distribution center in Boston.

At Princeton, Priebatsch turned his attention to another field: gaming.  He says.

"I really started getting fascinated with how much I and everyone else in the engineering department enjoyed games, but I also enjoyed actually going outside."

Motivated to move game mechanics from their traditional hardware into the tangible world, Priebatsch enlisted the help of a professor to build a demo of a mobile gaming platform to which anyone could contribute. The demo won the school's business plan competition and earned Priebatsch an invite to DreamIt Ventures' Philadelphia incubator.

There, he began fortifying the system, which he dubbed Scvngr.

"It's a reality-based mobile game," he explains. Players check in at locations and undertake challenges--puzzles to solve, location-based photos to snap--for points that lead to awards. Players, companies and institutions can add their own locations and challenges to the system, so it is "built by people like you … You unlock awards and access those places, whether it's half off your coffee at abusiness or something cool at the Smithsonian Institute."

With his increased commitment to his new business, Priebatsch decided to put Princeton on hold. He says.  

"People think that running a startup while in school is actually an option and a recipe for success, and it's just not.  If you want to be a big startup while you're in school, you'll either end up failing as a startup and failing at school or doing OK at school but the startup is going to, for lack of better terms, be on ‘forced hold' until the time that you graduate or decide to go at it full time."

Priebatsch moved his project to Boston and attracted investors from several sources:  

• $35,000 - In June 2008, secured seed capital investment from Dreamit Ventures. 
• $750,000 - In August 2009, secured a first round investment from Highland Capital Partners. 
• $4 million - In December 2009, secured a second round investment from Google Ventures, Dreamit Ventures and Highland Capital Partners.
• $15 million - In January 11, 2011, secured a third round investment led by Balderton Capital, Google Ventures and Highland Capital Partners at a valuation of $100 million. 
• $19.8 million - Total venture capital raised to date.

Scvngr has attracted 2 million users and 5,000 large enterprises since its launch.

With the new funding, Priebatsch turned his sights to the LevelUp mobile project. He originally conceived it as a location-based daily deal platform but soon scrapped that idea in favor of a QR code payment service for the iPhone and Android, distinguishable from other such services by its built-in loyalty programs. By signing up and downloading a free app, users get a unique code they link to a credit or debit card and carry on their phone; when they scan the code at participating retailers, they earn credit that can be redeemed during future visits. LevelUp attracted 100,000 users in a 12-week pilot and is now available in Boston, New York, Philadelphia and San Francisco.

Flush with his blooming success, Priebatsch has no regrets about his decision to leave school and focus on business.  He says. 

"The choice to drop out isn't actually as big a choice as it sounds.  If Scvngr had not worked, I would have been able to go back a year later or a semester later. And the absolute worst-case scenario would have been to have spent a year on an incredible experience learning a huge amount of stuff and really taking a huge risk."

COMMENTARY:     SCVNGR launched LevelUp a new type of interchange cost-free mobile payment system that incorporates a daily deals loyalty program component on March 9, 2011 in Boston, Massachusetts. 

On November 14, 2011, TechCrunch TV's Andrew Keen interviewed Seth Priebatsch, Chief Ninja for SCVNGR about LevelUp, its new mobile "interchange zero" payment service and daily deals loyalty business model, and Seth believes that SCVNGR could disrupt the current credit card payment system and give daily deals sites like Groupon and Living Social a run for their money, with the potential to do $50 billion in business. 

Click Image To View TechCrunch interview of SCVNGR'S Seth Priebatsch

The goal of LevelUp, says SCVNGR CEO Seth Priebatsch, is to offer the immediate distribution and new customers afforded by the daily deal sites, while simultaneously maintaining the long-term engagement that location-based games are usually better at. Priebatsch says that the big deal sites will often lead to a “one-and-doner” phenomenon, where businesses attract a flood of new customers eager to get in on a deal, and then watch as those customers never come back. LevelUp wants to fix that.

Checkout SCVNGR'S YouTube promotional video for LevelUp:

 

There are two ways to save money using LevelUp

• Daily Credits - LevelUp participating merchants offer daily credits of $3, $5, $10 or more to spend on whatever you want everytime you visit that merchant.  To use it, just pay with LevelUp.  If you didn't use the daily credits, use the next time you visit.  If you spend more than the credit, pay the rest with LevelUp.
• Daily Deals -  These are daily deals comparable to Groupon (say, $10 for $20 worth of sushi), using a website,  mobile applications and a regular email newsletter to contact customers. This initial deal is called “Level 1″ and is available for seven days. Anyone can purchase and redeem the deal, the same way anyone can redeem a Groupon.

LevelUp has three different levels.  Merchants keep 100% of revenues from a Level 1 daily deal, but they keep 75% of revenues from Level 2 and 3 daily deals.  LevelUp keeps the other 25%.  This is much better than Groupon, which keeps 50% on all daily deals of its participating merchants

Customers will also be able to see even better deals — dubbed Level 2 and Level 3 — which are only available to repeat customers.  So, a new student at a rock-climbing club might be able to take their first lesson at a special rate of $50 for $100 worth of classes. But then a followup lesson might be even less expensive (say, $35 for $100).

Here's LevelUp's plan to create traction with participating merchants: 

• Revenue Split Sweetener - Priebatsch is well aware that LevelUp is currently missing one key ingredient that other deal sites have:  distribution. SCVNGR will not be adding its existing user-base to LevelUp, and the other daily deal sites already have millions of subscribers to their daily emails. So LevelUp is sweeting the deal.  On Groupon, a business has to give Groupon 50% of the revenue generated by their deal — LevelUp is allowing businesses to keep 100% of the revenue generated by their ‘Level 1′ deals (they’ll take 25% of the proceeds from deals at Levels 2 and 3). Priebatsch says that under this system, LevelUp will only get paid if it brings repeat customers back to businesses.
• Advertising Blitz - It’s running $1 million advertising blitzes in both Boston and Philadelphia (the two pilot cities for the service). 
• Social Cause Tie-Ins - Some of the initial businesses participating in LevelUp will be donating 25% of revenue from their Level 1 deals to partner organizations, like the American Heart Association and Susan G. Komen for the Cure. These partner organizations may also begin to promote LevelUp, because the more people who use it, the more donations they’ll receive.

LevelUp has an interesting and potentially compelling offering for businesses, especially since they can effectively use it for free for their initial deals. But it obviously has its work cut out to achieve distribution, and there are a couple other kinks that might crop up. First, businesses will have to get comfortable giving out very steep discounts for Levels 2 and 3 (Priebatsch explains that any margins lost here should easily be recouped from the Level 1 customers, because many Level 1 customers probably won’t wind up making it to Level 2 or 3).

Another possible issue is sticker shock — if a customer is getting super cheap discounts for their first three visits to a business, the price jump for the fourth visit could be a rude awakening. Priebatsch says that the company has done a lot of research on this issue, and that after three visits customers have often established a loyalty to the business, even with the price jump.

It’s worth noting that this isn’t the only product SCVNGR has aside from its core location game. The company got its start as a scavenger-hunt generator used by colleges for student orientation and businesses for team building.

I found it interesting that SCVNGR makes money off of LevelUp by charging merchants $55.00 per month for managing their daily deals loyalty programs after they have been using the LevelUp payment system and three-tier daily deals loyalty program for three months. This assumes that during the three months prior, that the merchant has experienced a positive ROI from repeat customers (see the LevelUp promotional video).  

Seth told TechCrunch's Keen:

"I can't give you exact revenue numbers, but I can tell you that our revenue this month (October 2011) is greater than everything we made  in all of last year (2010), and last year  was in the many millions of dollars already."

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Seth also told Keen about SCVNGR's revenue growth:

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"Still its a good growth.  It's about 300% quarter-over-quarter for us off of pretty large numbers.   You know, you don't get to hire 120 people with only 20 million raised if you've not got real reven ue coming in the door."

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I just looked at the LevelUp website, and the new mobile payment system is only available in four cities (Boston, Philladelphia, New York and San Francisco), and there were only about 650 merchants offering daily credits.  That's a far cry from the over 80,000 featured merchants of Groupon.  

Seth claims SCVNGR has 5,000 merchants, so its probable that most of the revenue being generated is from SCVNGR's location-based mobile game loyalty programs.  It's probably too soon for LevelUp to generate any substantial revenues when you only have 650 participating merchants in four major cities.

On May 9, 2011, SCVNGR announced that it had signed a deal with American Express to use their credit card to pay for Amex discount deals using LevelUp.  The deal is similar to the one that Amex signed with foursquare, the location-based social network leader.  

I just wrote an email to LevelUp to obtain clarification on their daily credits, daily deals and need for a credit or debit card and security code.  I am a bit queezy about the latter due to hackers breaking into their systems.

Still, I find LevelUp's "interchange zero" mobile payment system quite unique and disruptive, but it's a bit risky to give away interchange fees and a split of daily deals revenues at level 1 in the hopes of signing a merchant for its daily deals loyalty programs longer term.  That's where the money lost in level one will be recouped, assuming that the loayalty programs are very successful in generating exponential repeat customers.

As we already know from Groupon, the daily deals market is very labor intensive, requiring armies of marketing and sales people developing and selling daily deals programs.  Groupon has something like 12,000 employees, of which probably two-thirds are marketing and sales.  SCVNGR only has 120 employees.  That's a far cry of what the company will need in order to expand nationally and then internationally to generate Seth's vision of $50 billion in annual revenues.  Just saying.

Courtesy of an article dated January 23, 2012 appearing in Entrepreneur and an article dated March 10, 2011 appearing in TechCrunch