Archive for eCommerce

Groupon’s Fired Chief Takes Full Responsibility

Groupon Stock from Yahoo Finance
Groupon’s Stock has fallen by over 80% since IPO Source: Yahoo! Finance

Business Insider published yesterday the goodbye letter written by Andrew Mason, Groupon ex-CEO’s, to Groupon’s employees.

In this letter Andrew Mason admits being fired and takes full responsability for Groupon’s failure : “From controversial metrics in our S1 to our material weakness to two quarters of missing our own expectations and a  stock price that’s hovering around one quarter of our listing price”.

This admittance is probably one of the best things Andrew Mason has done for the company he founded.

He was not alone to be misguided. Most importantly, he was not alone in misguiding others by overstating Groupon’s market value when raising $1.3 B dollars from investors and later issuing Groupon’s stock at $20 in its Nov. 2011 IPO. After a very short rally, Groupon’s stock price fell to below $5, where it’s staying now.

Hopefully, Groupon’s board will be wiser in the guidance they give to the next Groupon CEO.

Groupon’s Stock Price Yo-yo

Groupon's Stock Price As of Dec 9 2001
Groupon’s Stock Price As of Dec 9 2001 – Source Bloomberg

One -hopefully last- post about Groupon‘s stock price (GRPN), for the sake of completion. Groupon’s stock price has been going up and down (max $31, min $15) like a yo-yo since the stock’s November 2011 IPO. It is now back up to above its $20 issuing price.

Most analysts are skeptical or downright negative about Groupon’s financial fundamentals. I am. GRPN has assets such as its popular brand name and its significant lead over LivingSocial, its Nr 2. But Groupon hasn’t yet built the sustainable money-making machine that would justify its current price/sales ratio — more details in previous posts below.

But who cares about fundamentals? GRPN’s stock price is not determined by the company’s financial fundamentals but rather by investors’ anticipation of their fellow investors’ behaviour and by issuing conditions — such as a very low float of less than 5% of the stock which also largely explains the large current variations.

In some sense, GRPN is not much different from Western governments: raising and spending money like there is no tomorrow.  Let’s hope that at some point they can turn (around) into some serious, financially sound business!

Groupon’s IPO Stock Price

As Groupon’s IPO nears its debut on November 4th, the company is rumored to want to increase its stock issuing price due to the positive reception of its IPO roadshow. Some call this “not leaving money on the table”.

It would be a risky game for the company to raise its price in this already highly speculative and risky IPO. Groupon needs the cash. Investors need to see a high upside. VCs need liquidity. Nobody wants to see an IPO that flops, and even less so Groupon collapse, as argued by Rocky Agrawal in Venturebeat.

Groupon’s IPO stock price could at first rise well above the current asking price of $16-$18 as a result of the well orchestrated speculative rally. Past the IPO fever of the first day(s), many smart investors will take their profit and the price will fall to the lower levels more closely related to the company’s financial outlook – as happened in most recent IPOs.

By raising its price, Groupon could chill investors and prevent the rally.

There are major flaws in Groupon’s fundamentals : 1) growth slowdown, 2) commission erosion, 3) short-term liabilities, 4) diminishing revenue per subscriber, 5) questionable operating efficiency, 6) questionable management ability to lead a quoted company. This issues are not addressed in the rosy picture painted by the company’s roadshow. According to these fundamentals, Groupon does not command the price it is currently asking for, and even less so a higher price.

But Groupon could be one of many stock prices decorrelated from their companies’ fundamentals.

These issues are discussed in the remaining of this post which updates and expands on a detailed analysis I published in June under the title Groupon Bashing Unleashed

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Tribute To John McCarthy

 

John McCarthy Stanford 2006
John McCarthy Stanford 2006 Picture from Wikipedia

John McCarthy, often dubbed the “father of artificial intelligence” (AI), passed away on October 24th 2011. He was a scientist of genius whose work is now bearing fruit, among others, in cloud computing, knowledge management and natural language processing. May he rest in peace.

Not much connection with eCommerce? Well, stay with me as I’d like to pay a small tribute to a great man and share a few insights I draw from his life and work… Read more

Kindle Fire: 1st Mobile Shopping Device

 

Kindle Fire
Kindle Fire by Amazon

Analysts are upping their forecasts for Amazon Kindle Fire’s US sales to 5 million before year end. Departing from its first e-book incarnations, the Kindle Fire is a full colour, touch screen tablet with a proprietary browser called Silk.

Most commentators are discussing what it will do to media distribution and the iPad.

In this post, I argue that the Kindle Fire is not an eBook, much more than a rich media tablet, probably our first real mobile shopping device

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Facebook Timeline: Bigger Share of Life

Facebook's Timeline

Facebook's Timeline Displays the User's History Along a Time Line

Facebook has recently introduced a slew of new features such as the ability to subscribe to another user’s news feed without counting him or her as friend and the ability to define smart lists of close and less close friends. Thank Google + for that!

But the most important Facebook innovation, now officially released, does not owe anything to Google. It’s the new version of Facebook users’ profile called the timeline. The timeline displays along a time line the entire history of a user’s Facebook activities — posts, pictures, likes etc. — since he or she joined Facebook. It’s a great tool for users. Most importantly, it is a great marketing move from Facebook because it creates an environment where the social network can hope to get a even bigger share of life of its users.

On this post I argue that eCommerce sites should take a leaf from Facebook and launch their own customer time line… Read more

Groupon bashing unleashed

Only two weeks ago, local-deal start-up Groupon was acclaimed as an unprecedented eCommerce success and its IPO was as hotly anticipated as Facebook‘s. Since then, however, Groupon’s S1-Filing disclosed a cumulated $540 million loss on a cumulated $1.4 billion Gross Transaction Value. Suddenly, all love for the eCommerce posterchild seems lost and every aspect of the business is slashed. I believe critics should have been wiser earlier and the investment bankers who hyped up Groupon are to blame.

Bertolt Brecht Picture from Bundesarchiv Source Wikipedia

Bertolt Brecht Picture from Bundesarchiv Source Wikipedia

“Do not let anybody put you on a pedestal because once people realize you’re just human, it’s you that they destroy, not the image they created”. Groupon’s CEO Andrew Mason should probably meditate this thought from German author Bertolt Brecht.

Andrew Mason and Groupon, the company he co-founded in 2008, became the talk of the town after the company raised $135 million in April 2010 and, even more so, after it raised a whopping $950 million in January this year. With over 80 million online subscribers in more than 40 countries, Groupon dominates the booming local deal market it has contributed to create. Until recently, most observers were in awe. To name but one example of the Groupon-groupies: Last August Groupon was described by Forbes as the “fastest-growing company in Web history” and “what the dot-com boom was supposed to be all about“.

Well, now it seems that Groupon is rather exactly was the dot-com bust was about: a completely inflated valuation. Since Groupon has released its S1-Filing and revealed a cumulated loss of $540 million, criticism is raining on every aspect of the business. Worse, the critics are among the most influential voices in finance and eCommerce: Bloomberg, The Street, Marketwatch, The Economist, the FT, the Wall Street Journal, thisismoney.co.uk, Huffington Post, TechCrunch and more.

Below I review the 5 most critical points why Groupon is overvalued: 1) Inflated revenue and income; 2) Lack of merchant and customer lock-in; 3) Bad deal for private IPO investors; 4) Leadership flaws; and, most importantly, 5) Lack of financial value multiplier Read more

+1 and Postrank further Google’s social strategy

On May 31st at the AllThingsD conference, Chairman Eric Schmidt publicly took responsibility for having failed to move faster with Google’s social media strategy when he was still the company’s CEO.

Two days later Google announced two social media developments: the full availability of the Google +1 button , including on WordPress ;-), and the acquisition of social media analytics company Postrank.

LinkedIn’s share of life

Last week, the share price of social network LinkedIn soared on its first day of IPO – up to over $90 from $45 – bringing the company value to over $10 billion. LinkedIn has captured a large “share of life” of its 100 million users – a community larger than Japan. Extracting value from such a big share of life is hard work, and even harder is to sustain and grow this value. eCommerce sites can learn from LinkedIn how to focus on a share of life of their users they can chew, meaning: turn it into valuable information for their users and themselves.

Network effects of social media are overestimated

LinkedIns Freemium Model

LinkedIn's Revenue : A Freemium Model

With 100 million members, LinkedIn is one of the largest social networks in the world and claims to be adding 1 million new members each week.

Those who invested in LinkedIn may have based their share price estimate on Metcalfe’s law of network effects which says that the value of a network grows proportionally to the square of its size, meaning very fast.

But Metcalfe’s Law does not directly apply to social networks because they are not pure communication networks but rather social media.  As a social media, LinkedIn’ value depends on the value of its content. LinkedIn derives its revenue from subscriptions and advertising. Currently 41% of its revenue comes from hiring solutions — essentially premium database access sold to employers, 27% from premium subscriptions to employees and 32% from advertising.

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F-Marketing & F-Commerce are not f-words

I could not resist the pun with the f-word (Wikipedia link for the non-native US speakers among us). In this post, I discuss the F-Commerce and F-Marketing buzzwords and tell you about great sources of information on these topics.

F-Marketing stands for Facebook Marketing, more often called FB-Marketing than F-Marketing. FB-Marketing is huge and falls under Social Media Marketing, often abbreviated as SMM.

F-Commerce seems to be the preferred short form for Facebook Commerce, which I haven’t seen referred to as FB-Commerce (unclear why).

– Another abbreviation is WOM for Word-Of-Mouth Marketing which is used to talk about online viral marketing, mostly by PR agencies.

Like all Internet innovations, SMM, FB-Marketing and F-Commerce deserve a whole army of observers, commentators and consultants, including this blog. I have counted in my own database of sources over 50 blogs dedicated to these issues. This is not counting the many more general online marketing sites that include sections on these issues.

I like blogs because they’re often very rich in content. Among the SMM, FB-Marketing and F-Commerce blogs quite a few are pretty good. Being social themselves, they invite expert guest contributors and freely share their wisdom.

My favorite ones are the very hands-on ones. Some target small and medium-sized businesses but everybody can get insights from them because they contain easy-to-read tutorials and give very practical tips. Here they are 10: Read more