June 8, 2012

Would Rocky Agrawal ever work for Groupon?

Filed under: daily deals, groupon — Rakesh Agrawal @ 1:00 pm

This post is an excerpt from a forthcoming book on Groupon.

It’s a question I’m asked quite often by friends, family, journalists and once by a Groupon employee.

Apparently, it’s plausible that I would. When I posted on April Fool’s Day that I was joining Groupon (a day after a scathing analysis of Groupon’s earnings restatement), quite a few people believed it. I had several reporters contact me to ask me for interviews on my new job.

What made it believable is that most of the post was actually true. Aside from the part about, um, actually joining Groupon:

  • I’ve spent my entire career in product management and business development. It’s my true passion.
  • I’ve also spent much of my career on local products.

My initial and ongoing motivation for writing about Groupon and LivingSocial (and increasingly, Yelp), is to help small businesses make better decisions. By analyzing these business models, I hoped that SMBs who do even the most basic due diligence could find resources that would help them make a better informed decision on how to spend their hard-earned dollars.

I was chatting with a VC the other day about how wave after wave of local sites have raped small businesses, promising internet magic but delivering dubious value.

As I’ve said repeatedly, Groupon is not always a terrible thing for merchants. There are some cases when it makes sense. (Yelp, on the other hand, is always a bad buy.) Some of Groupon’s newer products actually make sense for small businesses.

One thing that I’ve heard from several sources is that Andrew Mason actually cares about small businesses. When he hears that a deal has gone bad or that a business lost a lot of money on a Groupon, he pulls out the checkbook and tries to make it right. Not in the “please don’t sue us and run to the press” way, but because he genuinely wants to make it right. Even Jessie Burke of Posie’s Cafe told me this. (To date, the company has not allowed me to speak with Andrew Mason, so I can’t offer a personal assessment.)

Over the last year, I’ve been approached by a number of companies that are looking to tackle the local space, from startups to the giant internet companies, about joining their teams to help small businesses. If I thought a company had a credible plan for helping small businesses really use the power and efficiency of the Internet, I would consider joining them.

Even if that company were Groupon. I look toward the future, not the past.

But I would have to believe that Groupon genuinely wanted my input and I would have a role where I could drive products in a way that would work for small businesses. If it was just about silencing a vocal critic, that wouldn’t be interesting.

Joining Groupon would obviously carry a lot of brand risk for me. Based on my April Fool’s Day joke, I know how a lot of people would feel about it. Many were puzzled, some called me a traitor and many offered their congratulations.

My friend Dave wrote on my Facebook wall:

Congratulations but I have to say I’m a bit disappointed. Here’s why, businesses that build their empires based on questionable/unethical business practices that ruin other businesses (especially small and local) should not be rewarded later for changing their practices after they’ve been exposed. I’d rather they go belly up but short of that, I hope you can help them stop ruining SMBs.

My friend Walt wrote:

Wow! Rocky life is full of surprises – this is a big one! The are very fortunate to have you!

And J.T. wrote:

I recall a lot of us thinking that their best move would be to hire you when last we met.

About these ads

June 1, 2012

Groupon investors race for the exits as lockup ends

Filed under: daily deals, groupon — Rakesh Agrawal @ 2:12 pm

Groupon shares dropped to a new all-time low today as its lockup ended, releasing a torrent of new shares on to the market. Thirty minutes into the trading session, Groupon had already traded 75% of its average daily trading volume. This was Groupon’s third highest volume trading day. (Disclosure: I have various puts against Groupon.)

Groupon filed to go public a year ago tomorrow. Back then the New York Times estimated a $30 billion valuation for the company; today’s closing value was $6.3 billion. That’s about 80% off. It’s just barely higher than the $6 billion that Google reportedly offered for the company last year.

Public market investors have lost a Groupton on the stock, which is down 52% from its offering price and 63% from its first-day close.

Early insiders are still fine, of course. Groupon co-founder Eric Lefkofsky and his affiliated entities took nearly $400 million off the table well before the IPO. Even those who got in the last round of financing, such as Fidelity, T. Rowe Price and Andreesen Horowitz are up, at least for now. Those shares were purchased for approximately $7.90, split adjusted. At today’s close, that’s a 23% return.

For locked up shareholders, the timing of the lockup’s end couldn’t have been worse. It came shortly after Facebook’s IPO and on a day with bad macroeconomic news.

What’s ahead for Groupon

I have been following the company closely since the S-1 was filed; I’ve predicted that without substantial changes to its core business model, Groupon stock is going to zero.

The company is trying hard to diversify beyond its core daily deals business with forays into loyalty, travel, liquidation of unwanted merchandise, instant deals and, most recently, payments.

Groupon Now, once touted at what Groupon would have been from the beginning, has been an unmitigated failure. Although the company likes to say that Groupon Now sold 1.5 million Groupon vouchers, that’s roughly 1% of Groupons sold last year and likely a smaller portion of revenue. “In just one year Groupon Now! has hit a milestone that took the original Groupon deal platform 15 months to accomplish,” Dan Roarty, VP of Groupon Now! said in a press release. But once you reach a certain notability and are a multibillion dollar company, your success has to come much, much faster.  Tom Cruise took 18 years to make his first movie. If it took him another 16 years to make the second one, that would be a failure.

To be fair, Groupon’s other businesses don’t have the structural problems that Groupon’s daily deals product has. They aren’t toxic for merchants. But they also aren’t gigantic profitable businesses. Here is my quick handicapping of the new product lines:

  • Getaways – Highly competitive business, with margins in the 20-30% range (vs. 40-60% in the daily deals business). The quality of Groupon’s offerings have been lackluster. I had my own terrible experience with Groupon Getaways.
  • Goods – Margin competitive business. Groupon doesn’t have the logistics capabilities of Amazon or the ad distribution power of Google.
  • Now! – Low volume, forces a change in consumer and merchant behavior. LivingSocial abandoned its product in the space.
  • Rewards – Trying to change consumer and merchant behavior too much. Structural flaws in the product.
  • Payments – This is a potential opportunity for Groupon, but is incredibly competitive. Not only is Groupon comepting with Square, PayPal and Verifone, there are hundreds of independent sales organizations that target this space. Groupon would have to tremendous volume to succeed in this space at the prices they’ve put forth.

With the exception of Goods, I don’t see any of these businesses being material to Groupon’s revenues in the next 12 to 18 months.

At a town hall meeting with employees, Groupon’s Andrew Mason reportedly said, “We’re still this toddler in a grown man’s body in many ways.”

And like a toddler, Groupon is sticking its hands everywhere; it has no idea what it wants to be when it grows up. Here’s a partial list of the companies and brands that Groupon is trying to compete with: LivingSocial, Amazon, Google, Expedia, Priceline, Hotwire, PayPal, Square, Verifone, American Express, Visa, MasterCard, Fab, Woot, Facebook, OpenTable, Mindbody Online, Envision Salon, First Data, Costco, every newspaper, every Yellow Pages.

Groupon’s investors were counting on the kind of stratospheric growth that the company was experiencing before its IPO to propel its stock price. So far, the trajectory has all been downward.

May 26, 2012

Deal: Virgin America vouchers for travel through June 15

Filed under: Uncategorized — Rakesh Agrawal @ 8:53 am

Last summer, Virgin America ran an incredible deal for air travel. I bought too many and need to get rid of some of them.

These are great vouchers that are good for any city in Virgin’s route map. They are good for last minute trips and are in Main Cabin Select, which includes extra legroom, unlimited free food and alcohol, unlimited premium movies and priority security and boarding.

As you all know, I’m a huge fan of Virgin and fly them whenever I can.

Here are the high level terms:

  • Good for last minute trips. I’ve used some of my vouchers for trips that otherwise would cost $2,000.
  • Must complete all travel by June 15.
  • Only valid in Main Cabin Select.
  • You are responsible for taxes. For U.S. trips, this is about $14 for a non-stop. Cabo, Cancun and Puerto Vallarta taxes are about $90.

I’m asking $400 each. (Which is roughly what I paid, plus transaction costs.) You can pay me by paypal and I will send you the code that you can use to redeem on Virgin’s Web site.

If you are a friend and are coming to visit SF, you also get a place to stay in my guest room.

Interested? Email me at

May 18, 2012

Why I didn’t write about Groupon’s 1Q earnings

Filed under: Uncategorized — Rakesh Agrawal @ 7:09 am

Some of you undoubtedly noticed that I didn’t write up my views on Groupon’s earnings.

It’s not because Groupon suddenly proved that I’ve been wrong for the past year. To the contrary, Groupon’s earnings report reinforced everything I believe about the company. Since earnings, I’ve bought even more puts against the company. I believe that the markets continue to misread the company and that the company takes very deliberate actions to confuse the markets. There are a number of intricacies of accounting that come into play. (In this case, unlike in the past, Groupon isn’t doing anything wrong.)

The primary reason I didn’t write up my analysis is that it doesn’t help small businesses or entrepreneurs. It would primarily help professional money managers and hedge funds.

My goal all along has been to help small businesses and entrepreneurs. The byproduct of that has been helping professional money managers. But professional money managers can afford to pay for my analysis; many of them value it and already do. It’s counterproductive for me to give that analysis away.

This situation illustrates the two markets for financial news: the consumer market and the professional market. Over the past year, a number of people have told me that I’m providing professional-grade analysis in the consumer media market.

Unfortunately, the two markets also pay vastly differently. It’s incredibly hard to make meaningful money in consumer media. You need a lot of scale. But if you have unique information in the professional markets, it’s worth a lot of money.

Tiering of information is very common. Bloomberg and Reuters are two of the world’s highest quality news organizations. But they fund their news operations with the massive profits they make from their professional products. I was talking to someone earlier this week who told me, “If there’s one thing we can thank Wall Street bankers for, it’s funding two high quality news sources.”

There’s another challenge with writing sophisticated financial analysis for the consumer press: many people don’t understand it. Then I have to deal with comments and personal attacks from people who have no clue what I’m talking about. That provides a negative value for me. When I’m talking to hedge funds and mutual funds, at least I know they understand the core of my argument. (Even if they don’t always agree.)

Going forward, I’ll continue writing about business models and elements of the story that affect small businesses and entrepreneurs. I want to help both of those groups succeed.

May 11, 2012

Bet with Alex Lawrence

Filed under: Uncategorized — Rakesh Agrawal @ 8:24 pm

I have a bet with Alex Lawrence that is a derivative of my bet with Paul Kedrosky. If I win my bet with Kedrosky on 5/15, I win the bet with Lawrence. This means that at the end of trading on 5/15, Groupon is worth less than $6 billion, the price that Google reportedly offered for Groupon.

Stakes: loser buys dinner at restaurant of winner’s choice when we’re in the same city.

May 10, 2012

More PR tips for startups

Filed under: Uncategorized — Rakesh Agrawal @ 6:22 am

Here are some more PR tips for startups:

  • Be out there. Reporters often get story ideas or thoughts for sources by doing Google searches or looking through blogs. If you have a strong presence elsewhere, it increased the odds that a reporter will contact you.
  • Follow up. If you’ve engaged with a reporter, be sure to offer help along the way. When I was in New Orleans recently, I wanted to do a piece on how cell networks deal with large surges in demand. Verizon loaned me several devices. After I had a day to play with them, Verizon’s PR team checked in to make sure the devices were working.
  • Details matter. Verizon PR knew that I was going to be testing the devices at Jazz Fest. They pre-loaded the Jazz Fest app on both devices. That was a thoughtful touch that I definitely noticed.
  • Don’t email links to the exclusive you just gave a competitor. That’s a pretty surefire way to ensure you won’t get coverage.
  • Pay attention to what’s going on in other news. If Facebook updates their S-1 on the day you had planned to talk about your product, you might want to re-consider your launch. It may not seem fair, but that’s life. Chances are that your story won’t see the light of day.
  • Pay attention to reporters’ schedules. If there are specific reporters you are targeting, follow them on Twitter. I’ll tweet out when I’m traveling or on vacation. Those are generally not the best times to reach out.
  • Pay attention to reporters’ own quirks. Many people tweet out their pet peeves about PR people or what they look for in stories. Be on the lookout for those.

May 6, 2012

Weekly reader: GrubHub, Yelp, Groupon, computer science

Filed under: groupon, yelp — Rakesh Agrawal @ 8:23 pm

I was in New Orleans for Jazz Fest this week, but managed to get more writing in than I expected.

For the first time this week, we saw Groupon drop below 50% of its initial IPO price of $20, closing the week just below $10. Anyone who invested at the IPO and help (are there any of these people?) would have lost half their money.

This coming week, I’ll be in San Francisco. To make up for my lack of Groupon writing the last two weeks, I’ll be doing one Groupon post each day.

My work

GrubHub is bringing restaurant ordering into the 21st century – GrubHub is giving restaurants converted Kindle Fires to confirm orders. This is making it easier for restaurants while at the same time reducing customer service costs. It’s the kind of smart thinking I like to see in local.

Why Yelp is the Digg of local – Yelp has essentially failed to innovate in the last three years. It’s using an old publishing model that doesn’t make sense. But for consumers, it’s delivering one-size-fits-all results that really fit no one.

Top sales talent leaving Groupon as its woes mount – Many Groupon deals these days are seeing really low volumes. This breaks the overall Groupon model, which was predicated on selling thousands of units to cover the extremely high cost of sales. As volumes drop, salespeople can’t earn enough money on commissions and the best ones are leaving for greener pastures.

Silicon Valley needs to end its snobbery about computer science degrees – In the wake of Yahoo CEO Scott Thompson’s resume scandal, I take a look at Silicon Valley’s snobbery around computer science degrees. I want to be clear that I’m in no way defending Thompson. He lied and there should be serious repercussions, both from Yahoo! and the SEC. (Otherwise, what’s the point of having CEOs certify statements to the SEC?) But I think that Silicon Valley ends up getting tunnel vision because of the focus on C.S. degrees for roles that don’t need them.

Me quoted elsewhere

When Yelp advertisers yelp at rates – CBS MoneyWatch takes a look at Yelp advertising. I continue to believe that Yelp local advertising is a terrible deal and no advertiser should ever run ads at the rates Yelp charges. (I’m rarely this absolute — even with Groupon, I can think of cases where running a Groupon makes sense. I can’t think of a case where I’d recommend Yelp to a business.) I found more examples this week that I’ll write about soon.

April 29, 2012

Weekly Reader: Groupon, Sonos, why air travel sucks

Filed under: groupon, sonos, weekly reader — Rakesh Agrawal @ 7:18 am

I didn’t write any posts this week!

I spent the first part of the week in Chicago chatting with current and former Groupon employees and with the folks at edo Interactive, Braintree and GrubHub. GrubHub has a very interesting product that will be announced on Tuesday; I think it’s an important step in the market. I spent the second part of the week in New Orleans for Jazz Fest.

I will have plenty to say about Groupon based on my Chicago conversations in the next few weeks.

Although I didn’t write, I was quoted elsewhere.

Me quoted elsewhere

3 On Your Side: Daily Deal Fatigue – I talk to CBS Philadelphia about the consumer side of Groupon and how consumers can protect themselves. Actually, I didn’t talk to anyone in Philly; they just recycled video from an interview I did with CBS San Francisco. (I don’t think SF has aired it yet.)

Sonos at 10: Speakers command attention — I talk to USA Today about Sonos, a company I really like.

Surviving The Road Wars Of Economy Travel — I talk to Forbes about why air travel sucks. It’s mostly because vast majority of consumers aren’t willing to pay for it. If people were consistently willing to pay more, we’d have higher quality.

Other interesting nuggets

May 20th has been set as the date for my monthly wine and cheese event. DM me for details.

April 22, 2012

Weekly Reader: Facebook virality, Twitter patents and Groupon’s Lefkofsky

Filed under: daily deals, facebook, groupon, twitter — Rakesh Agrawal @ 8:46 am

This contains a summary of my work this week. I had two very important non-Groupon stories this week, on Facebook and Twitter.

My work

Secrets of Facebook’s success: Virality — Facebook’s photo tagging feature was an important driver of its growth. Traditional marketing approaches aren’t as effective as products that are designed to take advantage of the social nature of people. Google+ misses the basics. While Google spends millions running beautiful Oscar ads, they ignore very basics of product design necessary for social interaction.

Can Twitter and Yammer fix our broken patent system? – Twitter announced a new agreement with its employees that Twitter will only use patents for defensive purposes and will not become a patent troll. Employees who invent for Twitter will have a say in how Twitter can use the patents. As an inventor, this has a lot of appeal. Could this be a sign of more sanity in patent battles?

Chicago Tribune talks to Groupon chairman Lefkofsky; asks the wrong questions – A Chicago Tribune business columnist sat down for an extended interview with Groupon chairman Eric Lefkofsky and failed to ask the hard questions, such as: Why did you take so much money off the table pre-IPO? How is it that you made so much money on previous companies and investors were left holding the bag.

“It just works” rules – I’m launch a new feature on VentureBeat where I’ll be taking a look at brilliantly designed products. My goal is not to traditional product reviews, but to help product people learn from great design. Do you have a product that fits my criteria? Shoot me an email.

Staying connected with friends for frequent travelers – For someone who travels as much as I do, staying in touch with friends can be a challenge. Here’s a strategy I came up with.

Other interesting nuggets

The Perils of the Daily Deal Customer – A first person account from a merchant on her daily deal experience. The merchant’s experience is exactly the result I expect from the economic model of the daily deal. At their core, daily deals create unserviceable demand from untargeted customers at massive discounts.

I just finished the final hellish weeks of a Groupon deal I ran a year ago. I’ll probably never do one again. If enough merchants grow to feel the way I do — and many already do — Groupon and its countless imitators will wither and die because they will not be able to get enough businesses to participate in the deals you so enjoy.

Why aren’t we going back for more? Because daily deal customers are worse than normal customers in every way imaginable.

April 19, 2012

Staying connected with friends for frequent travelers

Filed under: Uncategorized — Rakesh Agrawal @ 4:08 pm

Since the mid-90s, I’ve been a frequent traveler. I’ve flown more than a million miles and stayed the equivalent of several years in hotel rooms. All of this can take a big toll on friendships and relationships.

I recently came up with a new approach to help me stay connected to friends and family: I committed to hosting a monthly wine and cheese gathering.

This does a number of things for me:

  • I get a fun evening with friends.
  • It makes it easy to meet up with a lot of people at once.
  • It forces me to clean my place at least once a month.
  • It forces me to unpack my suitcase at least once a month. Too often, I’ve lived out of a suitcase, even when I was actually “home.”

Having this outlet is also good for business as it helps ward off loneliness when on the road.

At once a month, it’s not a significant time commitment and the benefit is well worth it.

I also try to time it so friends and business associates who are visiting from out of town can see my friends and connect with Silicon Valley.

Because it’s in my home, I don’t post the details. But if you’re a regular reader and are visiting SF, shoot me a note and I’ll see if I can extend an invite.

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