What Does It Mean if Groupon Is Indeed the Largest Mobile Commerce Company?
Groupon CEO Andrew Mason said nearly one-third of North American transactions in July were completed on mobile devices, up from 25 percent in December. Additionally, the average customer on mobile spends about 50 percent more than a customer on the desktop. Mason, who is known for being a funny guy, was dead serious in claiming that the local deals company has the largest percentage of transactions occurring on mobile devices of any major e-commerce company — at least that they know about.
But if you ask Wall Street, Groupon’s mobile efforts are worth practically nothing.
Groupon’s stock hit a new low this week after plummeting about 27 percent following its earnings release. Today, it’s essentially flat at $5.50 a share. At those levels, the four-year-old Chicago company is worth a piddling $3.6 billion, which is about two times the amount of cash it has on hand, or nearly half what Google offered to buy it for late last year.
With larger questions about Groupon’s growth prospects being asked, it’s hard to pay attention to any possible bright spots on the horizon.
Countless companies, from eBay and Amazon to much smaller firms, are trying hard to crack both social and mobile commerce. So, if Groupon does indeed have one of the biggest leads in mobile, what does it mean?
The falling stock price takes into consideration all of Groupon’s baggage, a load that would rack up substantial extra charges at an airline counter. The most recent concern is that the majority of the company’s growth is no longer coming from its super-lucrative coupons business, but rather from its lower-margin products business.
According to Mason, its mobile presence “makes us extraordinarily well positioned as we make this transition towards becoming the local commerce operating system.” He added that as effective as its email lists are for selling vouchers for spa services, restaurants or other activities, “the demand fulfillment opportunity is even larger than the demand generation opportunity.”
That message may as well be in code, but essentially what it means is that Groupon is well equipped to present a deal or offer when someone wants it, in contrast to its current business model, which is about selling offers in advance to generate demand for a business. To him, the opportunity is in creating “the first true global, local mobile e-commerce marketplace.”
Implementing this vision may be harder than Mason would like to admit.
For the past decade, mobile executives and others have promised that, someday, consumers will be alerted to nearby deals or specials on their phone as they walk by a coffee shop or a restaurant. For example, a free latte with a purchase of a scone, or free fries with a burger and milkshake. Perhaps, in a “mobile e-commerce marketplace,” a retailer wouldn’t necessarily push offers, but consumers could check their phone to find and maybe even purchase meals or items before walking in the door — a model that could look like Yelp plus the check-out experience all in one app.
Companies like Groupon and LivingSocial were considered clear front-runners for bringing these local commerce tools to scale, because both have a large user base and a dense enough footprint of local businesses for it to work. But LivingSocial recently backed out of providing instant offers, and I’d seriously question how many of Groupon’s customers are using the app to purchase offers in real time vs. purchasing everyday vouchers that are redeemed at some point in the future (the company does not break out those figures).
If Groupon is headed down this road of creating a “local mobile marketplace,” then it will intersect with other large organizations doing the same. EBay-owned PayPal is working with major retailers like Home Depot to roll out mobile services, including payments and other futuristic offerings. Likewise, Square made a huge move into the space last week when it announced that it will be processing all of Starbucks’ credit and debit transactions and that the java giant would invest $25 million in the start-up. Eventually, those two companies could also create a mobile network together for ordering lattes — not just paying for them.
In particular, Square’s deal with Starbucks must sting the most. Last week, Starbucks’ Chairman and CEO Howard Schultz went on a media tour with Square Founder Jack Dorsey to talk about the partnership. Remember, it was only four months ago that Schultz was on Groupon’s team before he abruptly stepped down from the board in April.