The Words That Doom Groupon

Groupon (Nasdaq: GRPN  ) CEO Andrew Mason is shifting strategies, The Wall Street Journal reports. In an employee meeting that the newspaper listened in on, Mason sounded like anything but his normal goofy self:

  • Groupon must focus on "quality and control" and "not taking stupid risks."
  • The company will "talk a lot about" complying with accounting rules.
  • Groupon doesn't "have any margin for error."

It seems that playtime is over, and it's time to go to work. This, however, is not good for Groupon investors.

But isn't acting like a real business going to strengthen Groupon?
Mason's new focus on compliance instead of crazy ideas will lead Groupon away from the innovation that gives Groupon a chance. As I wrote earlier, the thing Groupon's competitors lack is Mason's Willy Wonka-style of business.

As CEO, his inane antics dictate the company culture and fuel its innovation. Groupon, with its myriad copycats, isn't going to win just by its daily deals, but with its foray into new businesses like mobile and instantly redeemable deals, physical goods, getaways, and "Grouspawn," a scholarship program for kids whose parents used a Groupon on their first date.

That's how Groupon competes?
While huge competitors like (Nasdaq: AMZN  ) , which has a 31% stake in LivingSocial and runs its own deal website, AmazonLocal; Google's (Nasdaq: GOOG  ) Google Offers; and eBay (Nasdaq: EBAY  ) , which runs its own daily deal website; could outspend Groupon and leverage their massive user bases, they likely couldn't get away with a tongue-in-cheek "Kidz Club" that features Pyles, an "anthropomorphic pile of trash." And that's where Groupon can differentiate itself and what holds the most promise for the future. The Kidz Club joke may not earn Groupon any extra revenue, but the creativity behind it could fuel other profitable ideas.

Groupon also must act quickly, as its first-mover advantage begins to erode. AmazonLocal now lets customers prefer certain deals to others. Google Offers recently partnered with Starbucks (Nasdaq: SBUX  ) and sold $10 gift cards for $5, with $3 going to the Starbucks-backed, nonprofit Create Jobs for USA.

So Groupon shouldn't worry about correct accounting?
Of course Groupon should honestly report numbers, and make the proper allowances for customer returns. By not doing so, it deceives both investors and itself. But Mason should appoint the proper leadership for the compliance roles and continue to lead with his own expertise of creativity.

If you don't believe in the future of the daily deals industry, and don't believe Groupon can come out successful, check out our free video report on the next big technological disruption. Jeff Bezos is personally invested in this technology, and there are select stocks you should know about in order to profit.

Fool contributor Dan Newman notes Groupon's lock-up agreement expires June 1. He owns shares of and eBay, but no other company mentioned above. Follow him @TMFHelloNewman.

The Motley Fool owns shares of, Starbucks, and Google. Motley Fool newsletter services have recommended buying shares of Google, eBay, Starbucks, and Motley Fool newsletter services have recommended writing puts on eBay. Motley Fool newsletter services have recommended writing covered calls on Starbucks. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (3) | Recommend This Article (6)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 29, 2012, at 8:46 PM, constructive wrote:

    The Willy Wonka style / "stupid risk taking" was destroying shareholder value. And if you don't believe that, you probably haven't read the financial statements.

  • Report this Comment On April 29, 2012, at 9:42 PM, GrumpyOldGuy wrote:

    <<The Willy Wonka style / "stupid risk taking" was destroying shareholder value. >>

    Yah, only GOOG with it's tons of cash can do stupid stuff and get away with it.

    And Groupon will never be GOOG.

  • Report this Comment On April 30, 2012, at 2:06 AM, kellogg9 wrote:

    I tend to be a big time BAH (Buy and Hold) type of person. I dont do much risk taking so i tend to look to ETFs and follow the index closely. I think there will always be up and downs over the course of a portfolio especially over 8 more years (2020) but that is expected. One gets into a serious panic when they start watching stocks religiously.


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