Is Groupon the Best Poorly Executed Idea Ever?


Well, it's official: Groupon CEO Andrew Mason finally got canned. Raise your hand if you did not see this one coming. It's hard to discuss his accomplishments -- which are very few, by the way -- without acknowledging that three years ago, Mason turned down a $6 billion buyout offer from Google , which is more than twice Groupon's current market cap. The company (then) felt it could do better. So, this gives you an idea of where this is going.

It's a win-win-lose situation
Groupon's story has been mixed since going public in November 2011, with a few ups and downs. However, over the past year, it's hard to quantify how unimpressive, if not pathetic Mason's leadership has been. During that span, he has been the poster child for how not every great idea can translate into a great business. And the odds of success are much worse with an inexperienced CEO, or according to Herb Greenberg, 2012's worst CEO. The company had no chance.

Unfortunately, Groupon just realized how dim these odds were. But it just might be too late. Granted, Mason was no Steve Jobs, but there are still fundamental problems with this company that (once again) its recent earnings revealed. The concept of Groupon is sound. Mason figured out a way to truly give the "power to the people," or groups, to create deals that benefit the companies and the customers, and in return Groupon took a cut of 40% to as much as 60% of the revenue. Indeed, customers and businesses got what they wanted. But Groupon created no competitive leverage.

No new markets, destined to fail
The beauty of this business, however, is that Groupon is able to profit while also connecting customers with businesses they otherwise might have never heard of. But here's the problem, Groupon is working within an existing market -- it's not creating new ones. So how can it grow since theoretically, there's a ceiling? This is what Mason failed to realize. Supporting existing markets can only take you so far. And besides, businesses that are already successful and well established have no need for Groupon.

What's more, anyone can do it. How much would it cost to become the best "middle man?" And to invest in that business is, well, let's just call it unwise, especially with Google and Facebook always one button away from putting you out of business. There's no way Groupon can reach 1 billion users in the manner of Facebook, and Groupon doesn't have a hope to achieve Google's advertising dominance.

Likewise, consider Living Social, in which has a 29% stake. It's struggling to navigate the poor deals environment. But is it really just the environment, or the idea itself? The difference, though, is that Amazon is dominant outside of the deals business. The urgency is not there -- at least not yet. And don't discount that Amazon can sustain Living Social's business just long enough to kill off Groupon. And after Groupon's recent quarter, this probability has increased.

Don't let the door hit you
Although Groupon posted a 30% increase in revenue, this number alone does not reflect underlying strength of the company. As fellow Fool Rick Munarriz noted, that bump came from Groupon's new line of business: selling overstocked goods. The market was smart enough to separate out the fluff. When was the last time a 30% jump in revenue got a CEO canned? This business is doomed once the very idea that took this company public becomes secondary.

Unfortunately for Groupon, it's no longer an attractive target for any companies looking to merge or acquire it. I once called it the perfect match for Facebook or Amazon. But not now, especially since the company announced that Eric Lefkofsky and Ted Leonis will take over until the board finds a replacement. Knowing Lefkofsky's sketchy past, which includes accusations of racketeering, bankruptcies, and several lawsuits, any potential acquirer would be looking for trouble.

Groupon shares have fallen dramatically over the past year and left investors panicked. Will this company live out its American Dream, or leave shareholders empty-handed? In order to answer that question, our analyst has compiled a premium research report with in-depth analysis on whether you should buy or sell Groupon right now, and why. Simply click here now to get started.

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