Groupon fires CEO, still faces underlying problems

Published on NewsOK Modified: March 1, 2013 at 3:30 pm •  Published: March 1, 2013
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NEW YORK (AP) — Now that Groupon has gotten rid of its quirky founder and CEO, the chief question is whether the company's underlying online deals business is promising enough to reverse its falling stock price, declining revenue growth and waning consumer interest.

Groupon Inc. fired Andrew Mason on Thursday, one day after the company reported another disappointing quarter amid worries that people are tiring of the restaurant, spa and Botox deals that Groupon built its business on.

In a refreshingly candid memo to staff, Groupon CEO Andrew Mason admitted he "failed at this part of the journey" and said the company's employees "deserve the outside world to give you a second chance. I'm getting in the way of that. A fresh CEO earns you that chance."

Mason's firing has been "fairly widely expected" given the company's performance, and the surprise was how long it took, Gartner analyst Michael Gartenberg said.

But a new CEO may not be enough to tackle all of Groupon's problems.

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

Benchmark Co. analyst Daniel Kurnos also questioned whether a change in leadership will be enough, but he said a successor might succeed in getting Groupon more focused and steering it toward more traditional businesses. For example, Groupon Goods, which sells products rather than restaurant or spa deals, has been performing well. With its deals, Groupon's challenge is to balance pleasing merchants who sell the deals with pleasing the customers who buy them, he added.

"There was always a sense that Groupon had a lot of good ideas but no real focus," he said.

The company appointed Executive Chairman Eric Lefkofsky and Vice Chairman Ted Leonsis to the Office of the Chief Executive while a replacement for Mason is found. Lefkofsky is a co-founder of Groupon. The 43-year-old entrepreneur, a veteran of the Internet boom and bust in the late 1990s and early 2000s, is also the company's largest shareholder and pre-IPO investor. Leonsis is a former executive at AOL, where he helped steer the company's transition from a dying business, selling dial-up access, to one revolved around ad-supported content and services.

Groupon Inc.'s stock increased nearly 13 percent Friday. The announcement had come Thursday after the market closed.

Mason, a Northwestern University graduate and former punk band keyboardist, founded Groupon in 2008, pioneering the daily deals business. Groupon started as a side project to another website, The Point, which helped raise funds for various causes. The idea behind daily deals is that if enough people sign up for a discount — for restaurant meals, manicures or weekend getaways — offering the deals will be worthwhile for businesses, especially if customers bring friends or come back. Groupon makes money by taking a cut from those deals. By 2010, Groupon was available in 25 countries, and some people saw online deals as the next big thing in retailing.

But analysts have been questioning the long-term viability of such a business, not just at Groupon but also at the long list of copycats, which include LivingSocial, Google Offers and Amazon Local.

While the business is easy to set up, it is difficult to sustain and to stand out. Companies must make both their customers and the businesses that offer the deals happy. Many merchants have become reluctant to offer deals because of how little they were getting in payments and repeat business once the promotions ended. And to keep growing, companies need to make more from each subscriber, rather than simply add more addresses to email deals lists. Investors had been worried that instead of buying more, people were suffering from fatigue over the frequent emails.

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