Back in November 2010, Groupon was in the heady stage of the grow-and-dump Eric Lefkofsky playbook. It was growing faster than any company had before. It was turning down billions from Google. And it was juggling heady growth capital offers from Silicon Valley’s elite venture firms. I was having lunch with an investor, who didn’t want to be named, but was a rare bear on the trend. Or at least, he was what qualified for a bear in that moment of uber daily deals hype.
He argued that, while compelling, daily deals just weren’t defensible as a stand alone business. It would likely be no more than a feature of every other site: ecommerce sites, portals, even social networks. And for a while that looked prescient. EBay has a daily deals vertical. Yelp jumped into it. Google purchased the creatively named German startup DailyDeal, and Amazon placed its bet on LivingSocial.
But today it’s looking even that “bear case” was overly optimistic. Not only is Groupon sinking faster than any other big recent tech IPO, other companies — even those with far greater resources — don’t seem to be sold that this is even a good feature.
Yelp was the first to back away, with this well-read blog post by Jeremy Stoppelman back in August of 2011, saying that individuals and vendors were finding the category annoying and not economically feasible, respectively. At the time, Yelp said they weren’t killing Deals. And in an email Jeremy Stoppelman tells me it’s growing “like a weed.” But it’s evolved into something completely different than Groupon.
There’s no single destination to find deals — indeed the word “deals” is nowhere on the home page and the old URL for deals shows an expired fitness deal from last January. Instead, to see them, you have to search for a certain category on Yelp and click the box marked “offering a deal.” That makes sure the deal influence someone looking to make a specific purchase, not just rabid couponers who have become the bane of a Groupon merchant’s existence. It’s safe to say the early incarnation of the service is dead, and Yelp has succeeded by making it as non-viral as possible.
EBay’s daily deals page never got much attention, and while it’s still up, it is focused more on goods than services — and some that aren’t exactly top shelf, like the prominent placement of this Green Coffee Bean extract. The inventory appears to be mostly if not all self-listed, which doesn’t indicate that eBay is investing much in this vertical. This one seemingly isn’t getting killed, but it’s hardly the future of eBay.
And last July, Amazon disclosed that its stake in LivingSocial had declined in value some 30 percent. Well, at least compared to the losses of some Groupon’s investors, Amazon is getting off easy.
But Google was hands down the most aggressive about daily deals with a (thank God!) rebuffed $6 billion offer to purchase Groupon. Instead, they bought the German DailyDeals for a comparatively modest $114 million. Today VentureVillage reports that Google, too, has lost its daily deals religion. The story reports that the unit is shedding staff, specifically in sales and marketing, which is sort of the heart of any ongoing daily deals effort.
The story further states that the Global Daily Deal Association (which is apparently a thing?) has acknowledged merchants’ frustration with the category and is working on an international “code of conduct” in an attempt to throw a raw steak on the sector’s collective black eye.
Are we seeing an entire multi-billion dollar sector wither all at once?
All of this paints an even worse picture for the granddaddy of the space, Groupon. All of the recent, stumbling IPOs have some big — legitimate — concerns weighing on once-heady valuations. Pandora’s investors have concerns about competition and whether any company can be profitable in the dangerous online music space. Facebook’s investors have concerns about monetizing users as they shift to mobile. And Zynga’s investors have concern about too much reliance on Facebook and whether social games can work as well on mobile as they do on social networks.
But most of these problems are one of valuation, particularly in the case of Facebook. No one actually thinks Facebook might go out of business, the question is whether it’s worth $100 billion (no), $50 billion (maybe) or something even smaller (yikes). But any of those are still a big company.
But Groupon’s problem is two fold. With the many PR stumbles of the IPO roadshow there were concerns about the management team’s execution including the charismatic but inexperienced Andrew Mason, the build up ’em and cash ’em out chairman Eric Lefkofvsky, and the rip-and-burn copycat artist Oliver Samwer. But increasingly, it seems even the most credible management team in the world couldn’t make this category into a company worth billions of dollars.
So much for the savior of local marketing. And so much for the sustainability of “the fastest growing company ever.”