Groupon has apparently turned down as much as a $6 billion acquisition offer from Google. They’re thinking that if they grow their business out a little more, an IPO or subsequent acquisition could bring them as much as twice as much. I have three letters for them: TFM!!!
What, you say, is TFM? Some of you may remember Pointcast. It was a darling of the very early Internet days. In fact, it was a pre-Internet company, providing dial-up access to its information resource. I actually was a delighted user of their screen-saver product (and still wish I had something like it). Rumors had it that Rupert Murdoch and News Corp. had made a $450 million offer to acquire the company. I was on the advisory board of ad-tech at that time and we had Chris Hassett, Pointcast’s CEO, on stage and asked him about the rumors. He wouldn’t confirm them nor deny them, indicating that there was a lot of discussion about how best to maximize their value and saying that he believed it would be best maximized via an IPO. “IPO?,” someone in the audience called out, “TFM!!” “TFM?,” Hassett replied. “Take the f***ing money.”
Two-and-a-half years later, Pointcast sold the company. For $7 million.
Do you really believe that Groupon’s position is so unassailable and their approach so unrepeatable that there’s no risk to their future opportunity? Would you turn down $6 billion??
It boggles my mind but maybe it was a good idea to turn down the $6 billion. If, that is, you believe these rumors of a $15 billion IPO. I admit to not having looked at any financial models but my sense of this valuation is that it’s totally insane. On the one hand, you’d think that there’s some barrier to entry in this space, with the requirement to build out a local salesforce. On the other hand, I already get at least five or six discount offer emails a day, some with a local focus (e.g., LivingSocial), some with a national focus (e.g., Woot) and some (e.g., Thrillist) which bridge the two. And the people who do those mailers (e.g., Valpak) are getting into that business as well.
There’s a lot of competition from entrenched players already. There’s going to be growing competition from big players (e.g., Google, Facebook). Pretty soon, everyone is going to be playing this game. Is Groupon really the killer implementation? Or are they getting out just in time? Again, I’m no valuation expert but I think these numbers are just wild.
UPDATE 2 1/14/2011
Interesting take from Greylock, one of the VCs investing in Groupon. They say two things for why they invested in Groupon:
- The power of data. I’m not convinced Groupon has any inherent advantages or different slants on this subject to merit a stratospheric valuation.
- This is a winner-takes-most kind of market. I see no justification for that assertion. On any given day, I’ll peruse a few of these offers and purchase based on what’s most interesting to me, not the source which originates them. I don’t think they have any inherent advantages in offer acquisition that make their offerings any better than anyone else’s. There are so many local merchants that consolidation in merchant acquisition is unlikely to occur. I can think of no example where there has been this consolidation other than maybe Craigslist and eBay, and their approaches (zillions of items) are different than Groupon’s and others’, where they offer one or several deals a day. I think there’s room for many players and that you will actually see aggregators step in and consolidate multiple offers from multiple sources in a single email. (Come to think of it, I should start that business.)