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Can Groupon Be Saved?


An analysis of what went wrong and, surprisingly, how it might turn around.

MINYANVILLE ORIGINAL Here's an anniversary story for you: Groupon (NASDAQ:GRPN) went public one year ago, with great fanfare and a last-minute price hike to $20 per share. It was the biggest Internet IPO since Google (NASDAQ:GOOG) in 2004. On Monday, Groupon closed at $2.66 a share. With luck, it might survive into the new year.

In an effort to increase its chances of survival, Groupon just announced a free shipping offer through the holidays on most of its Groupon Goods. It even rolled out its first-ever holiday catalog.

Groupon Goods is the newer division that sells deeply discounted products. Investors don't like it any more than they like Groupon's core business, selling coupons online for local businesses. It's lower margin, since they manage the inventory in-house. And it's got better-established competition with vastly larger inventory, like Overstock (NASDAQ:OSTK) and, owned by eBay (NASDAQ:EBAY).

What went wrong at the world's "fastest-growing company" (at least according to Forbes) ever? Nothing that wasn't obvious a year ago. Sure, it was growing fast, with a "marketing reach" of 150 million people. It also was losing money, its revenue growth was flat, and neither of those facts was adequately disguised by some truly squirrely accounting practices.

[In fact, some of its accounting is still a tad squirrely. The Wall Street Journal points out that Groupon has a respectable $1.2 billion in cash, but half of that is money owed to merchants but not yet paid out.]

Worst of all, the local merchants who were the drivers of its business were running like bunnies. They were telling horror stories about mobs of bargain-hunters who bought the loss leaders and never came back. These weren't big operators, they were mom-and-pop shops, like the British cupcake baker who wound up selling 102,000 cupcakes at a loss.

Still, Groupon was trying to make "local" work, and "local" is the Holy Grail of the Internet. Local information, local services, local news and coupons and advertising. Such an alluring idea, and nearly impossible to implement.
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