Market sentiment seems to say that if you hate your money, invest in Groupon (Nasdaq: GRPN). Investors loathe its wacky accounting scheme, its countless competitors, and its potentially unsustainable business model. Why in the world should anyone invest in such a tenuous business? The answer lies in CEO Andrew Mason.
Andrew Mason, that crazy guy?
Sure, Andrew Mason's previous business experience rests one step above running a lemonade stand (he started a bagel delivery service as a teenager). And sure, Mason, his cofounders, and investors have already cashed large sums of money out of the business (about $943 million from $1.12 billion raised before its IPO).
But Mason also works with an imaginative spark reminiscent of Willy Wonka -- and with just as many eccentricities. In an industry harangued for its lack of competitive advantage, company culture and innovation will be the keys in setting Groupon apart from rivals. Mason's own personality dictates Groupon's culture, and thankfully Mason is usually well received. A few examples of Mason's gags, according to the Wall Street Journal:
- Keeping a room in Groupon's headquarters for a fictional resident named Michael, set up with a bed, toilet, old TV and old iMac.
- Filming an April Fool's Day joke in which he pretends to sell monkeys for a week, while dancing to Shania Twain's "That Don't Impress Me Much."
- Hiring a man to wear a tutu and silently walk around the office.
- Starting "Grouspawn," a scholarship program for kids whose parents used a Groupon on their first date.
And on the innovation side, Groupon is reaching beyond its regular daily deals. It just released "Clicky the Clickable Value-Wheel," a virtual wheel that customers can spin to win Groupon discounts. It has "Now! Deals" for customers looking for a deal they can redeem instantly. It now also sells "Goods," or physical merchandise.
Aren't competitors just as innovative?
Sure, no doubt a competitor like Google's (Nasdaq: GOOG) Offers or Travelzoo (Nasdaq: TZOO) also crank out ideas. Google Offers capitalized on the search engine's power as an aggregator of information, and, at the end of October, created partnerships with preexisting daily-deal providers like Active Network's (NYSE: ACTV) Schwaggle. But, Google Offers is available in only about 40 cities, and Schwaggle only lists 25 cities on its site, compared to Groupon's over 193 North American markets (and 45 countries).
Travelzoo's model is innovative in itself, combining a travel site with daily deals. And as fellow Fool Brian Stoffel reports, its average cost to acquire new subscribers has fallen from about $2 in 2009 to under $1.25 in 2011, while its net profit margin jumped from under 6% in 2009 to over 14% in 2011. This means beyond growth and innovation, Travelzoo knows how to run its underlying business -- something Groupon has yet to prove.
But back to Mason …
A founder in charge usually means the founder's passion drives the company. An honest CEO usually speaks well for company reporting. However, here's Mason showing his honesty in a Time Magazine interview: "To me, as somebody who likes to come up with ideas, it's kind of stupid; like, I've had way better ideas, way cooler ideas." That level of honesty could irk you, or give you hope in Groupon's future exploring Mason's other ideas.
In the end, Mason's style could drive the company forward, or just be him enjoying himself while waiting to leave Groupon for something better. If you believe in Mason and his ability as the daily-deal industry's Willy Wonka, Groupon could be the contradictory investment opportunity of a lifetime. As venture capitalist Niko Waesche said:
… there's a huge need out there amongst local merchants, local shopkeepers, local services to actually advertise their services in an effective way. If this wasn't a market that existed, then Groupon could never have grown so fast. If Groupon adjusts itself just a little bit … the market is out there ... Groupon is not going to disappear, it's going to improve its services and hopefully have a very bright future ahead of it.
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