Groupon created a category.
The site pioneered daily flash deals, and in some ways, its recent struggles were a byproduct of its success. After Groupon proved the model, it faced competition from a variety of sources, including local newspapers, knock-off websites, and a daily deals app from Amazon.com.
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That's not an unfamiliar pattern. One pioneer paves the way, and then, an entire industry drowns when too many players jump into the market -- call it the "self-serve frozen yogurt effect". Now that the mania has ended and rivals like Amazon have shuttered their services, thisquestion for Groupon remains: Is a turnaround possible?
Not surprisingly, Rich Williams, an Amazon veteran and the company's new CEO, believes that the company has a lot going for it despite the struggles that have sent its stock price plummeting this year.
"It's a big task but it's an exciting one," he told GeekWire in a recent interview. He continued:
That's the optimistic attitude of a new CEO, and it's pretty much what Williams has to say. What remains to be seen is if the public still wants what Groupon is selling.
A tough marketplaceGroupon is built around local daily deals. It does sell travel packages and some merchandise, but it defines its business in its 2014 annual report around the localized daily deal model. "We operate online local commerce marketplaces throughout the world that connect merchants to consumers by offering goods and services at a discount," the company wrote.
And, as you can see from the chart below, Groupon still did the bulk of its gross billing in local deals in 2014.
Groupon's gross billings for 2013 and 2014. Source: Groupon annual report
As you can see, the company has grown sales even while its stock price has fallen. That raises the question of whether consumers have truly tired of daily deals, or if the market had just become too crowded.
The new CEO believes the market for its products -- specifically daily deals -- is still strong, and he wrote in a recent blog post that the idea that "deals are dead" is "tired and not supported".
Williams is essentially sticking with the current business model, but he's not naive to the challenges facing his company. In the blog post, he clearly blames some of Groupon's woes on media perception, which becomes public perception. He also believes the company has been judged on the faulty premise that "no one can win local".
He acknowledged that local is a hard business that has claimed many victims but pointed out that Groupon has had successes and failures locally and is now "the unquestioned leader at this point".
A question of perceptionThe biggest point Williams made in his post was an attempt to refute the idea that Groupon isn't growing and will soon go out of business.
"On one hand, this is just lazy. On the other, that this is misunderstood is largely on us," he wrote of people who make these points:
The problem, he acknowledged, is that the company has not consistently met the expectations it has set. To change that, the CEO wrote, his company needs to capitalize on its opportunities.
A recipe to win?In addition to citing the strength of his team, Williams believes Groupon can capitalize on its strong user base of nearly 50 million customers globally and over one million merchant partners. He also noted that even with all of its stumbles, the company has "a strong underlying model with a simple value prop that works for both consumers and merchants".
He pointed to three ways the company could leverage its experience, successes, and failures:
- Change its marketing strategy to attract new customers to its services. "Investment in new customers isn't a nice-to-have for a business at our stage, it's a requirement," he wrote.
- Continue to streamline and simplify its business, which may mean leaving or finding partners in countries where it can't reach scale.
- Drop consumer electronics, which are high revenue and low margin.
All of this makes sense, but Williams' success may come down to whether all of Groupon's failed competitors burned out the market for daily deals. That's possible, but it seems more likely that the company will profit from being one of the last men standing in a once-crowded space.
It might take a while for consumers to return (it takes a while after you get sick of frozen yogurt to want it again), but it's hard to picture a world where people won't want deals. At its core, Groupon is a good idea, and its recent failures were at least partly explained by an overwhelming amount of competition in the space.
That competition has largely disappeared, and Williams' tenure as CEO should benefit from that.
The article Here Is How the New Groupon Inc CEO Plans to Turn the Business Around originally appeared on Fool.com.
Daniel Kline has no position in any stocks mentioned. He often buys and forgets to use Groupons. The Motley Fool owns shares of and recommends Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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