NOT first! Where the heck is Rocky’s analysis of Yelp?

I had several people comment to me this week that they would like to see more timely updates in response to breaking news on companies. For example, the Yelp S-1 was released on Thursday and I probably won’t post my analysis until Monday.

So what’s up with that? No, it’s not because I’m lazy or slow.

For starters, I am not equipped to compete in the “first” game that the media like to play:

  • As much as I have formed a mutual admiration society with the folks at Bloomberg over the last five months, they haven’t (yet) comped me a Bloomberg terminal. I don’t get instant access to filings as they happen.
  • Even though it seems like it sometimes, this is not a full-time job for me. I’m usually juggling clients, briefings and other responsibilities. Unfortunately, I can’t drop everything else.

But, just as important, I don’t value the “first” game. If you strive to be first, more often than not, you end up regurgitating management’s story. To me, posting a leaked memo that management wants out is not a “get.” A “get” is posting critical analysis or information that management would rather not see published.

My renewed interest in financial journalism was sparked by a supposed local expert who was raving about what a great company Groupon is shortly after their initial S-1 filing. He clearly hadn’t read it and it just posted management’s talking points. Too many reporters don’t read the underlying documents that they’re reporting about.

Then there’s the fact that the information isn’t immediately actionable. Because Yelp is a private company that won’t be trading for at least a month or two, it doesn’t really matter if I don’t post until Monday. Given that dynamic, I’d rather do a more thorough analysis than make mistakes that need to be corrected later.

But in the meantime, if you want to read about Yelp, check out my five-part series on local search, specifically how Google Places is a strong competitor to Yelp.

Posted in journalism, newspapers, yelp | 5 Comments

LivingSocial tries yet another model

LivingSocial announced a new product today as part of its Instant service. It will allow users in the DC area to order food online for delivery. A premium offering allows users to order food like they order room service, complete with real plates and linens. A driver returns later to collect the dishes.

The best overview I saw on the move was at ChicagoBusiness.com. Chicago is the home of both LivingSocial archrival Groupon and GrubHub, which is directly competitive with this new offering.

Here is my take:

  1. LivingSocial seems to be flailing for a business model. They’re trying a lot of different, random things. What does the brand stand for anymore? Is it cheap deals by email? Travel? Local deals on your mobile phone? Restaurant menus and ordering?
  2. Will consumers on it mailing list who have been conditioned to look for deals of 50% off or more be willing to pay full price?
  3. Will consumers go to its destination site when they want to buy a meal?
  4. Is this any more convenient than picking up the phone and calling? I’ve tried a lot of online ordering services and they generally suck. I had an experience with The Melt this weekend that made me wish I’d just walked in rather than deal with the Web site.
  5. What will this do to take rates? Competitors like GrubHub charge substantially less than the 40%-50% that LivingSocial and Groupon have been charging for their daily deals products. Only a really desperate restaurant would give up that much of the ticket on an ongoing basis.
  6. Will restaurants that already have partnered with a provider like GrubHub feel the need to deal with another provider? In DC, the initial launch market, GrubHub already has many more restaurants than LivingSocial. I suspect some will, but many will not. (Unless LivingSocial can show the ability to drive a lot of volume.)
  7. The “room service” offering, while neat, is going to appeal to a much more limited audience. How big is that space?
  8. Can anyone scale a “room service” business considering all of the logistics involved?
  9. Will restaurants be able to offer food at a quality level that they want to be associated with in the “room service” offering? This includes presentation as well as food quality.

The broader issue I have is that there isn’t much new here. Even before more recent efforts like GrubHub, there were services like Takeout Taxi and Waiters on Wheels. None set the world on fire.

Besides, any product announcement that invites a comparison to Kosmo, one of the poster children of Web 1.0 excess, should make you nervous.

Posted in daily deals, groupon, livingsocial | Comments Off on LivingSocial tries yet another model

What’s wrong with journalism today, part 1

One of the great innovators in online journalism, Jim Romenesko, resigned from his position at the Poynter Institute, a journalism think tank of sorts. Among journalists, Romenesko practically invented blogging. Some reporters who claimed to never had read a blog read Romenesko religiously. He aggregated links to some of the successes and excesses of journalists, while regularly driving traffic to original news sources. What tech blogs consider the slashdot effect, Romenesko provided to journalists.

Romenesko resigned after Poynter called out attribution errors in his work. He sometimes lifted passages from the original source without putting them in quotation marks. Although his intention was clearly not to plagiarize (he linked to original sources), the Poynter blog post on the subject left a bad odor.

I’m not going to rehash what happened here; many journalists have already done that.

I’m going to focus on what’s wrong with the state of journalism today.

A little background on me, for context: I majored in journalism at Northwestern University’s Medill School of Journalism. I did a number of reporting internships in college. I launched some of the first online newspapers. I also attended a leadership seminar at the Poynter Institute early in my career. (Which I thoroughly enjoyed and learned from.)

For the past five months, I’ve engaged my own form of journalism while covering Groupon and the lead up to its IPO. My own role doesn’t fit into conventional notions of journalism. I’ve done a lot more analysis than most reporters do and I’ve done a lot more original reporting than most analysts. When I’ve done media interviews, I’ve been variously labeled a blogger, business journalist, analyst, author, gadfly and artist.

Here are some of the things that I think are wrong with journalism, and especially financial journalism, today. I make no claims to knowing all the answers. I made my own mistakes in recent months and I will call those out too.

Focus on petty details over the big picture

Too many people in journalism focus on minor details instead of the big picture. This was the case with Romenesko. Would I do what Romenesko did? Probably not. I try to be very careful in my attribution and identify other people’s quotes. But Poynter’s reaction was way more aggressive than it needed to be. The fact that it was essentially a cover-your-ass move on Poynter’s part made its actions even worse.

The purpose of attribution is to ensure that the original author gets credit for their work. Romenesko certainly did that.

I see an emphasis on petty details in journalism all the time. Part of this is because that’s something that’s relatively easy to do. This correction from The New York Times is my favorite correction found while reading Groupon stories:

An article last Sunday about Groupon, the e-mail marketer, misidentified the heritage of Zeus, whose name the company’s writers invoke rather than mentioning God. He is part of Greek mythology, not Roman.

That correction, published on June 5, after the details of Groupon’s financials were made public, didn’t correct this statement: “Groupon is raking in more than a billion dollars a year from these featured businesses and is already profitable.

The trivial detail of which mythology Zeus belonged to is something that editors can easily check. The big picture of a massive IPO by a company losing hundreds of millions was a bit harder to nail down. To be fair, Groupon went to great lengths to obfuscate its financials — but that’s all the more reason for diligence among journalists.

Objectivity is a lie

For a profession that presents itself as among the most honest, one of its core tenets — objectivity — is a lie. The Associated Press, NPR and others would like you to believe that their reporters and the stories they present are entirely objective and dispassionate. That’s bullshit.

Although they try hard to be objective, humans will innately give into bias. Source selection and story selection alone can cause bias. It doesn’t matter if you prohibit your reporters from attending the Rally to Restore Sanity as NPR and other outlets did; the fact that they wanted to go is the point. By prohibiting their participation, all you’re doing is hiding their biases.

This comes up all the time as news organizations struggle to adapt to social media. News outlets create social media policies to preserve the appearance of objectivity. These social media policies are fundamentally dishonest — they don’t eliminate the biases, they just keep the public from knowing about them. In its policy, The Associated Press says, “A retweet with no comment of your own can easily be seen as a sign of approval of what you’re relaying.” One journalist suggested that reporters modify the way they retweet to indicate that they didn’t endorse the item they retweeted. But merely the selection of what someone retweets can reflect bias.

My view is that it’s better to have that information out in the open. If a reporter has a bias, let’s get it out there.

There’s a big difference between being objective and fair. My coverage of Groupon hasn’t been objective in the sense that journalists tout. Heck, one of my earlier pieces was titled “Why I Want Google Offers And The Entire Daily Deals Business To Die”. Everyone who has followed my work knows exactly where I stand.

But I also believe I’ve been fair. When I see positive uses of Groupon, I write about them or tweet them. When others smack down Groupon for reasons I think are unwarranted, I call it out.

Traditional journalism rewards a fake balance in the name of objectivity that in reality often distorts the truth. If 95% of the businesses I talk to had bad experiences, is it really right to quote one business who had a good experience and one that had a bad experience as traditional journalism would have you do? I don’t think so.

Objectivity also does a disservice to readers in another way: it robs readers of the expert opinion of those who are among the closest people to a story. A reporter who is on the same beat for years should gain enough knowledge to recognize bullshit when they hear it. And news outlets should allow them to do so.

Next up: Illnumeracy and lack of time.

The Poynter Institute is given express permission to republish this series, with or without attribution.

Posted in journalism, newspapers | Comments Off on What’s wrong with journalism today, part 1

Amazon automatically unsubscribing users from AmazonLocal list

Amazon is automatically unsubscribing some users from its AmazonLocal daily deals mailing list. Deal fatigue, the idea that consumers are tiring of daily deal emails, has been one of the longstanding concerns with the daily deals space. Amazon’s move is another indicator that this is happening.

In one email, forwarded by a reader, Amazon wrote:

It looks like you might not be interested in receiving daily deal emails from AmazonLocal, so we will stop sending them to you.

If we are wrong and you wish to learn how to get up to 75% off at restaurants, spas, events, and more from local businesses near you, please click here. You will be taken to your city’s deal page. Once there, you’ll be able to reactivate your AmazonLocal email.

Amazon spokeswoman Michele Glisson explained the move: “Amazon customers trust us to provide relevant communication about our products and services, and recently, some customers were automatically unsubscribed from AmazonLocal emails due to inactivity.”

It makes sense: the Seattle-based retailer has relationships going back more than a decade with some consumers. Continuing to send unwanted emails would hurt that relationship.

Amazon sources many of its local deals from LivingSocial, which is a distant number two in the space to daily deals leader Groupon. Amazon has invested $175 million in LivingSocial. A LivingSocial spokesman declined to comment.

A Forrester report released today says that 49% of those who have never signed up for a deal site cited not wanting to receive more emails as a reason. That was also the top reason cited by those who had canceled a deal site subscription.

Posted in daily deals, livingsocial | 1 Comment

Investing in Groupon is like investing in a leaky bucket

If you’d told me 5 months ago that I would spend a lot of 2011 studying accounting, talking to businesses and saying bad things about a company that everyone once loved, I never would have believed you.

It all started at Floyd’s Coffee in the Old Town section of Portland — which, ironically, was running the very first Google Offer. I had planned to spend the day there to understand what customers thought of Google Offers, how many people came in and how they interacted with the staff. At that point, I’d spent very little time looking at the space. That day, Groupon put out its first S-1.

The first analysis I read, by a supposed expert in the local space, raved about the company. He essentially pulled all of management’s talking points and put them in the story. I knew the company was nowhere near as good as the picture he painted; but I didn’t know how bad it would turn out to be.

Five months later, I’m more convinced than ever that this is a terrible company for investors, small businesses and ultimately for consumers. Unless the company substantially changes its business model, investing in Groupon will be like investing in a leaky bucket.

Among the significant challenges that remain:

  • The daily deals business is past its peak. The best days for the classic Groupon are in the past. With its 3Q results, Groupon has largely proven that once it slows spending on marketing, growth stops. In its most established markets, Groupons sold are down more than 10%. In Boston, the number of merchants featured in 3Q is down a whopping 20%. Some look to Asia for exapansion: sure, Groupon can expand there. But the share of revenue it gets to keep in Asia is substantially lower than in the U.S. and Europe.
  • The only area where Groupon seems to be able to innovate is accounting practices. New product lines like Groupon Getaways and Groupon Goods are retreads of long-established e-commerce categories. Groupon’s entries in these categories show zero innovation. In many cases, they are turning back the clock 10 years. In 2011, I shouldn’t have to call to make a hotel reservation.
  • The future is all about targeting and self-serve. Smart businesses don’t want to blast a spam message to everyone in a region who might want a cheap massage. If I ran a spa, I’d want to reach people within 5 miles of my business, who weren’t already customers and who regularly spend money on spa services. I want qualified customers, not those who are “once and done.” And I certainly don’t want to discount to people who would pay full price. The Groupon daily deal model doesn’t support this. Once you target to this level, the volume and revenue on each deal is too low to support a sales force. The Groupon army that some people view as a moat will turn out be an anchor.
  • The future is mobile. Offers will be searched for, purchased and redeemed on mobile devices. Google and Facebook have a huge advantage in mobile. They already have hundreds of millions of people using their apps. Although Groupon Now is an OK product, it has little distribution. To be a player in this space, Groupon would have to buy distribution. It will essentially have to pay to re-acquire customers. Then it has to hope that those people will change their usual behavior and go search in a separate app. Google’s launch today of its Android Offers app should terrify Groupon investors. Google could include Offers as a pre-load in Android. Or it could surface the offers into Google Maps — something that people already use.
  • The management team seems to be incompetent. Groupon’s road to IPO has been an unquestionable shit show. They made up new accounting metrics. They ignored quiet period rules. They used a restaurant in their roadshow as a reference, apparently without checking to see if they’d say positive things. (The restaurant didn’t.) Management told employees they could sell on the day of the IPO. (They can’t.) They asked me to name confidential sources in exchange for access to the Groupon building.

All of that said, I’ve put in my request with my broker for shares in the IPO because Groupon has scientifically engineered their IPO to inflate share prices. Its float is one of the tiniest in the last decade. Most likely this thing will have a nice pop tomorrow.

If Groupon’s stock skyrockets tomorrow, it doesn’t mean I’ve been wrong about the company. But in the unlikely event it tanks, it’s a big sign that I’m right. (I realize that this might sound like the kind of thing that Groupon’s accountants would say, but it’s true.) We’ll need to wait at least 9 months to really know.

Maybe Groupon will find a real business model in that time.

I’d like to thank a few people whose help has been invaluable in all of my Groupon coverage: Jonathan Gaw, Ed Ketz, Mark Rogowsky, Brian Roemmele, Conor Sen, Semil Shah and Rick Summer. They’ve read early drafts, provided valuable insight into areas that I’m not an expert in and helped to keep me in check.

On the media side, I’d like to thank Dylan Tweney, Heather Kelly and Mo Marshall at VentureBeat; Herb Greenberg and Juliet Mendez at CNBC; Emily Chang, Cory Johnson and Diane Anderson at Bloomberg West; and Erick Schonfeld at TechCrunch.

Posted in daily deals, groupon | 9 Comments

Groupon’s road to IPO: Best resources for potential investors

This is a compilation of the best news coverage I see of the Groupon IPO. I won’t be including items from this blog on the list, but will include my work elsewhere.

Other sources:

My work on VentureBeat:

If you represent an institutional investor and would like to schedule time with me, please contact Pacific Crest Securities.

Posted in daily deals, groupon | Comments Off on Groupon’s road to IPO: Best resources for potential investors

My video analysis of the Groupon roadshow

On Tuesday, I led a live viewing of the Groupon IPO roadshow video on Chill, a great new site for interacting with others while watching video.

The video below includes my analysis of the Groupon roadshow, as well as my answers to audience questions.

My apologies for the hostage-taker video quality. I was serving as a one-man camera host, man, director, producer and editor. Clearly my friends at Bloomberg TV and CNBC have nothing to worry about.

Also check out my annotated version of the Groupon roadshow video.

Institutional investors looking to speak with me should contact Pacific Crest Securities.

A big thank you to my friends Brian Norgard and Andrew Skotzko for hosting the even.

Posted in daily deals, groupon | Comments Off on My video analysis of the Groupon roadshow

Groupon’s tricky S-1 math

Quick: How many people bought a Groupon in the third quarter?

The obvious, easy answer based on the latest S-1 is 29.5 million. That’s what Reuters wrote yesterday. (They rounded up to 30 million.) But that number is wrong.

What Groupon reports in their S-1 (in their quarterly results)  is how many people have ever bought a Groupon. Because it is listed in the quarterly section, someone who is not deeply studying the S-1 would assume that that is how many were sold in the quarter. Groupon intermingles quarterly results and cumulative results in the same column.

This is just one of the many tricks used by Groupon to hide data.

This method of reporting would hide sequential declines in actual purchasers of Groupon during the quarter. It’ possible that fewer people purchased a Groupon during the the third quarter than the second quarter. But we don’t know, because Groupon doesn’t tell us.

At times, reading the Groupon S-1 is like solving a GMAT data sufficiency problem. Do I have enough data points to find this information?

So how many people did actually purchase Groupons during 3Q?

  1. We know that the number of people who have ever purchased Groupons increased by 6.4 million from 2Q to 3Q. So at least 6.4 million people purchased Groupons in 3Q. That would imply that no one who had ever purchased a Groupon before purchased one in 3Q. So that number is clearly too low.
  2. We know that as of 3Q, 29.5 million had ever purchased a Groupon. If everyone who had ever purchased a Groupon bought one in 3Q, that would mean 29.5 million purchased one. That’s the number Reuters reported. Clearly that number is too high.
  3. We know that between 2Q and 3Q the number of repeat purchasers increased by 4 million. These are people who had purchased only one Groupon before and then purchased another one, making them a repeat purchaser.

Putting all that together, if you take the number of people who were new purchasers of Groupons (6.4 million) and add in the increase in the number of repeat purchasers (4 million), you end up with 10.4 million.

That number is also high because new customers who bought more than one Groupon in 3Q would be double counted. We don’t know how many of those there were.

But it’s low because some proportion of people who were already repeat customers in 2Q would also have been repeat customers in 3Q. If we assume that 60% of repeat customers in 2Q bought in 3Q, that’s another 7.2 million. (We don’t know what that proportion is; this is an estimate.) Adding that in, we get 17.6 million.

Is that number exactly right? No, but it’s a better number than the 29.5 million. (The biggest variable is what proportion of 2Q repeat customers repeated in 3Q.)

Groupon could easily report the number of customers who purchased a Groupon in a given quarter.

So why doesn’t it? It’s material information. The fact that the company goes out of its way to hide information like this should be a big red flag.

Posted in daily deals, groupon | 7 Comments

Think Groupon is a technology company? Think again.

Through much of its roadshow presentation, Groupon tries to make the claim that it’s a technology company. At one point, CEO Andrew Mason bizarrely uses a cyborg to illustrate how much the company is about technology. From a company perspective, that makes sense: technology companies get much higher valuations than other companies. But investors should think twice.

Here’s why:

Only about 5% of Groupon employees are in technology.

Only about 5% of Groupon employees are in technology.

According to Groupon’s latest S-1, only 5% of Groupon’s more than 10,000 employees are in technology. That ranks below “Unspecified.” The only group within the company that is smaller is city planners, who are responsible for scheduling deals.

To make matters worse, earning additional revenue requires a corresponding increase in employees. The size of departments such as editorial, sales, merchant services and customer service should grow in line with revenue increases. In its third quarter, revenues grew 9.6% and overall headcount grew 8.2%.

The company is already more than three times the size of Facebook in terms of employees.

Although two of the executives in the roadshow presentation tout their Amazon credentials, comparing Groupon to Amazon is a big insult to Amazon. The latter has invested in core technologies and infrastructure that have become the core of many Internet sites, including EC2 and S3. Although others invented cloud competing, Amazon has done more than anyone else to democratize and popularize it. Amazon invented Kindle and made e-books mainstream. It continues to innovate in supply chain and logistics.

Besides, the core problem in local is not a technology problem: It’s the reluctance of many small businesses to use Internet technologies. That’s a problem hundreds (if not thousands) of companies have wrestled with for 15 years now. Many companies have built self-serve platforms that few businesses used. Groupon’s innovation was to strip away the requirement for the business to use a computer, make Internet advertising less targeted, less efficient and more expensive — expensive enough that it could afford to pay a sales force.

But that’s a bridge at best. Eventually, probably in 3-5 years, businesses will use the Internet more for marketing. Once that problem is solved, real technology companies with massive built in distribution like Google and Facebook will dominate the space.

There are some technology intensive problems in local, such as mapping, routing and imagery. But those are mostly being tackled by Google and Microsoft; other companies (including Groupon) incorporate them in to their own products through APIs.

As further evidence of its technology expertise, Groupon touts its SmartDeals targeting engine.

I’ll believe that they’ve invented a great targeting engine when I stop getting deals for mani-pedis and The Body Shop.

Posted in daily deals, groupon | 43 Comments

Short-term, transactional thinking in a social media world

$7.60 bottle of water

$7.60 bottle of water

I woke up this morning to find a bill under my door for a $7.60 bottle of water, courtesy of the Palace Hotel in San Francisco.

Apparently the bottle of water next to the bathroom sink wasn’t free. There wasn’t any sign near the bottle that indicated that there was a charge.

I travel a lot and as an elite member in Starwood’s loyalty program. I often get free bottles of water, fruit, wine and other goodies. When water has a charge, there’s usually a hang tag on the bottle.

It turns out that there was a sign – but it was next to the TV. It said, “As a luxury service, Voss bottled water is available in your room. A seven dollar charge ($7) for each bottle consumed will appear on your guest folio.”

This tells me two things: 1) At some point they swapped out the higher end Voss bottled water for some generic stuff and this “luxury” hotel couldn’t be bothered to update the signage. 2) They don’t feel the need to be upfront about their pricing.

I don’t mean to pick on Starwood here. This happens at a lot of hotels. I sometimes don’t notice this stuff until I get my credit card statement. It’s usually not worth the trouble to call and complain and get a refund. But it does eat at me and annoy me. The last thing I’ll remember about your hotel is that you screwed me out of $8. Is that really worth it? Is that the impression you want to leave for someone who spent hundreds of dollars at your hotel?

Airlines are some of the most transactional companies out there. I’ve flown United (and Continental) extensively since 1999. A major reason that I’ve stuck with United for the last six years is that elite members have free access to Economy Plus seating with more legroom. Starting next year, lower tier elite members won’t be able to reserve the seats until check in. Someone at United decided that they could make more money selling the Economy Plus seats and only offering the ones that they can’t sell to lower tier elite members.

Instead of rewarding loyalty, they decided to generate short-term revenue. My response: I will shift as much of my flying to Virgin America as possible. I’d rather have an overall higher quality experience flying Virgin than take a chance stuck in some tiny seat on United flights. Not only will United not get any money from me for the better seat, they won’t get any fare revenue either.

Transactional thinking is all around us. This includes things like roaming charges on cell phone bills which can lead to bills for thousands of dollars, bank fees, rental car charges and Groupons where you get to the hotel and find out you owe an extra $100 because tax wasn’t included in the price you paid.

Transactional thinking also applies to people. Recruiters are a case in point. Many recruiters in Silicon Valley are transactional. I get a lot of calls from recruiters and many of them are solely focused on the current placement. I have talked to many who clearly don’t understand my skills and interests and push me to apply for roles that I’d be ill-suited for. This might help them earn a placement fee in the short term, but it isn’t good for me or the company.

Two of my favorite recruiters in Silicon Valley are Sara Huth and Stuart Liroff. Neither has ever placed me. But we have ongoing conversations. They take the time to know my interests and capabilities. We follow each other on Twitter and Facebook. They’re happy to refer me to others in their network, even though they don’t immediately benefit from it. And I’ll happily refer great people I know to them.

One of my new favorite people in Silicon Valley is Semil Shah. Every time I see him, he asks “How can I help?” And unlike many people, he genuinely means it.

Transactional thinking becomes even more dangerous in a world of social media, where consumers suddenly have a megaphone. Instead of just telling their immediate friends, they can tell the whole world. Social media can aggregate, amplify and empower. A single person who doesn’t like what your company is doing can use social media to significantly affect it.

At a grander scale, we’re seeing that play out with Bank of America’s $5 debit card fee. That fee was one of the catalysts for the Occupy Wall Street movement.

It’s easy to model the short-term revenue impact of new fees and other customer-unfriendly policies. But the power of pissed off customers is hard to put into a spreadsheet.

Update: When I went to check out, it turned out there were two bottles of water charged to my room. I only drank one. It turns out there were supposed to be both Voss water bottles ($7 each) and generic water bottles (free). But I never saw any Voss bottles and was charged for two. So in a best case scenario, there are different types of water and one is free and the other is not. How confusing is that? In the end, they removed the charges.

Posted in strategy, travel | 2 Comments