Last week, Andrew Mason was fired. This did not come as a surprise even to his most ardent supporters. Accounting scandals and plummeting share price notwithstanding, there were plenty of reasons to lose faith in Mr. Mason. His tenure as CEO of Groupon (GRPN) can be summarized by the statement, he never acted like a CEO. He went out of his way to be quirky, goofy and eccentric. He wanted to sell an image of himself as the outlier genius who built global enterprise while bucking conventional wisdom. If you paid attention to Mr. Mason and Groupon, you know what I'm talking about. But what is impressive is that he nearly succeeded with his ambition. He built a multi-billion dollar global company by revolutionizing the world's second oldest profession - retail.
The story of Groupon very closely mirrors the early history of Amazon (AMZN). Amazon also revolutionized retail by bringing it online. And like Groupon, Amazon had a tremendous amount of growing pains. Early on, Amazon had almost refused to make a profit instead opting for growth. Jeff Bezos saw that the web was the future. Even as Bill Gates had declared the Internet as a "fad", Jeff Bezos poured everything he and Amazon had into building one of the most formidable retail operations ever. As a result, Amazon reported losses quarter after quarter and year after year. In fact, many wondered if Amazon was capable of being profitable. Common arguments against Amazon included that its margins were too small; it had too big of an operation; Mr. Bezos had no experience in managing a large organization, and so on. These are the same arguments that were made against Mr. Mason and Groupon.
Worse yet for Amazon, many new competitors entered its territory. Everyone from BN.com (BKS) to Wal-Mart (WMT) wanted a piece of Amazon's market. Amazon's future seemed bleak. The stock price dipped below $6. Investors, pundits, and analysts lost faith. It was widely believed that Amazon would never be profitable; therefore, it was a short. However, Mr. Bezos understood that capturing the market and building sticky relationships with both his customers and producers would ultimately be the difference between success and obsolescence. Growth mattered above everything else. And he was right. Nearly 20 years later, Amazon is now one of the most successful and powerful companies in the world. In fact, the only two things that Wal-Mart's CEO loses sleep over are unions and Amazon.com. And Barnes and Noble seems on track for the same fate as Borders book stores. What is also extraordinary is that Jeff Bezos achieved this vision without much fanfare. Jeff Bezos may be the smartest guy in business whose voice you've never heard.
Now onto Groupon. Other than differences in their respective CEO's egos, what I just said about Amazon's early history can also be said about Groupon. Unfortunately, that is where the similarities may end. Although I believe Groupon was also on its way to global success, it may no longer have the chance to because the Goupon Board fired the guy with the vision.
Despite the challenges, Groupon was capturing its market. It expanded its operation to sell goods and services all over the world. It created a payment system that would improve loyalty among its small business customers. It is aggressive in the way that it finds and builds relationships. Ironically, business wasn't that bad either and outlook was fairly bright. Although Groupon did report losses and a declining growth rate, its growth rate remains at nearly 30%. This was despite continued slowing in Europe as a result of an endless recession. Moreover, daily deals or group buying as a category still has room to grow. Less than half of consumers are aware of this kind of shopping experience. It saves consumer money and clears the shelves for retailers. It is a win-win for everyone involved and Groupon was on its way to perfecting this model. More importantly, it was doing all of this better than its competitors, including LivingSocial which as you may know is a subsidiary of Amazon. In other words, Andrew Mason was beating Jeff Bezos. Unfortunately unlike Amazon, Groupon started in the wrong era.
Amazon was founded in the mid 1990s. It started and went through it growing pains during an era when profitability was no longer a tool for valuing companies. Instead, we had things like eyeball traffic, time spent on website, and page views as the new measures of value. Even though it was not profitable, Amazon did well in all of these measures. So, people threw money at it. Its share price went through the roof even as it was hemorrhaging money. More importantly, investors during this era wanted companies to capture the market, keep competitors at bay, and grow at any cost. It was not until 1999 and the tech bubble burst that investors began demanding profitability. Until then, investors were patient and willing to accept losses as long as the company was growing. Had Groupon started during this period, Mr. Mason may still be the CEO. Groupon would have been given enough time to grow, develop, and generate consistent profits. Unfortunately, the 90s are dead, and Groupon started a decade and half too late. Groupon investors chose profitability over growth.
Worse yet, Groupon may not have anyone who can step in and lead the company to some kind of resurrection. Groupon was Mr. Mason's vision. It isn't a mature company that needs a caretaker CEO. It is a growing company that needs a visionary, and how often do you find those? I believe they fired Mr. Mason too soon. I believe it was shortsighted. I believe the Groupon Board could have imposed some discipline on Mr. Mason like forcing him to close his Twitter account, staying away from Facebook (FB), and demanded that he keep his mouth shut and office door closed. But they did not do any of that. They responded to pressure and had a very short view. Groupon needed patience to grow into something special. Unfortunately, we may not have that patience. That is why I went from being a Groupon believer to being highly doubtful of its future.