In a new filing with the Securities and Exchange Commission concerning its upcoming IPO, Zynga is expected to unveil two key management and board changes at the online gaming phenom:

Chief Business Officer Owen Van Natta — who came to the San Francisco-based start-up several years ago to help CEO Mark Pincus grow it and develop it — will step down from his job and become a strategic adviser focusing on major partnerships. He’ll still remain board member at Zynga, but will give up millions of pre-IPO shares by moving out of his operational role.

And director and venture investor Brad Feld will leave the the board, which VCs sometime do as companies move to a public offering and add members with more specific business experience.

In his place, longtime entrepreneur and investor Sunil Paul, who founded a company called FreeLoader with Pincus many moons ago, will join the board.

Zynga confirmed the changes to me in a statement by Pincus:

“Owen is a valuable business partner. He’s made great contributions to Zynga and continues to be an important part of our team.”

Sources said the changes related to Van Natta around are not part of a recent controversy around a Wall Street Journal story about clawing back of some share options grants of early Zynga employees who had become less involved in the company. While the company cannot actually take back already vested shares owned by those staffers, the article has put a lot of scrutiny on Zynga and raised questions about how to cope with the kind of hyper-growth some Internet firms experience.

That’s certainly been the kind of rocket ride Zynga has been on, as it has grown from a small social gaming company on Facebook to a high-profile public company.

Zynga is in the final stages of its IPO process, answering questions from the SEC that are typical. If all goes well, Zynga execs are expected to go on a road show after the Thanksgiving and go public by the end of the year at a market valuation of close to $20 billion.

That was different from when Van Natta officially got to Zynga in the spring of last year — after a rocky experience running the doomed Myspace. At the time, he told me at the time that planned to be focused on scaling the business and did not consider himself a long-term operating executive.

Since then, he has helped Pincus hire a series of experienced gaming execs, including a chief operating officer, a chief marketing officer and others.

Zynga was Van Natta’s third high-profile Web company in recent years. He was a top early exec for Mark Zuckerberg at Facebook until early 2008, and in 2009 he took over News Corp.’s (NWS) MySpace, a job that lasted less than a year.

Early in his career, Van Natta was also was a top strategy, marketing and deal exec for Amazon, which bought an early social networking start-up called PlanetAll that he worked at.

It will now be interesting to see what Van Natta does next, but it is unlikely he will take a permanent position. He is a longtime angel investor in Silicon Valley, including in hot start-ups such as Asana and still holds a significant stake in Facebook.

But, in moving out of his job at Zynga, he will be giving up many millions of shares of a rich trove he was given when he arrived at the company. That said, Van Natta already owns millions of accelerated vested shares and will get another large grant as a board member.

Translation: Don’t cry for Mr. Van Natta, Silicon Valley — he made $42 million last year from Zynga shares alone.

Demand Media beat Wall Street expectations in the third quarter, posting a loss of five cents a share. Investors had expected it to lose from four to six cents.

Revenue was up 25 percent to $85.1 million, compared to $65.4 million in the same period a year ago. Minus traffic acquisition costs, sales increased 26 percent to $78.1 million from $62.2 million.

The stock of the Santa Monica, Calif., social content company has suffered in the quarter due to worries about its traffic and growth, but it has recently bounced back after hitting all-time lows.

After losing almost nine percent today, in profit-taking ahead of earnings after a recent price surge, Demand shares rose over 17 percent in after-hours trading to $8.30.

Some more details, according to a Demand statement on the Q3 financial results:

Content & Media Revenue increased 27% to $50.7 million, compared with $39.8 million in Q310.

Traffic acquisition costs (TAC), which represent the portion of Content & Media revenue shared with Demand Media partners, of $3.4 million, or 6.7% of Content & Media revenue, compared with $3.2 million, or 7.9% of Content & Media revenue, in Q310.

Content & Media Revenue ex-TAC grew 29% to $47.4 million, from $36.7 million in Q310.

Registrar Revenue increased 20% to $30.7 million compared with $25.5 million in Q310.

In addition to its more high-profile content business, Demand also has a domain registry unit.

“We reported another strong quarter as we continue to build Demand Media’s foundation for long-term growth,” said Richard Rosenblatt, Chairman and CEO of Demand Media in the statement. “The Company is uniquely positioned to deliver data-driven professional content through its robust content publishing platform. We are now in the process of optimizing that platform while increasing our investment in video content and enhancing the quality, engagement and user experience of our sites.”

There will be a conference call at 2 pm PT today, which I will liveblog (as long as it is lively!).

Until then, enjoy the official Q3 earnings press release:

3Q11 Earnings ReleaseFINAL

Groupon has priced its public offering at $20 a share, several dollars above the expected price range of $16 to $18. That will garner $700 million for the start-up, which is only several years old, at a valuation of close to $13 billion.

The offering for the Chicago-based daily deals site — which has had a controversial IPO process — was well upwards of 10 times oversubscribed, meaning there was a lot more demand than supply of its stock.

To alleviate the difference, Groupon has apparently added five million more shares to its offering, totaling 35 million shares sold.

Groupon has endured an unusual amount of criticism over a variety of issues — including accounting treatments, executive turmoil and growth prospects. But investors did not seem to mind all the noise and clamored to get into a possibly lucrative IPO.

The relatively small float of shares — about six percent of total — and that intense interest allowed Groupon to cherry pick its new shareholders.

It will be interesting to see if, as it endured loud critics when it was private, if short sellers will pile onto the social buying company now that it is public.

Executives from Groupon, including its CEO Andrew Mason (who has seemed to have gotten a nice haircut and suit for occasion), have been hawking the company — which sells an assortment of discounted services from a variety of local merchants — to investors all over the country over the last several weeks.

The company is set to go public tomorrow under the GRPN ticker on the NASDAQ.

The problem with true hyper-growth … It’s the problem like baking a cake in three minutes.

— Marc Andreessen, talking about growth at Y Combinator’s Startup School this weekend

Yahoo is drastically rejiggering its marketing division, according to an internal memo sent today to employees from its Chief Marketing Officer Elisa Steele, in a move that seems to leave her future role unclear.

Steele was brought to Yahoo over two years ago by now-fired CEO Carol Bartz — whom she had been very close to — and charged with turbocharging and reorganizing the unit, which has never been strong.

While Steele certainly did overhaul the marketing department, some of her efforts, such as Yahoo’s pricey “It’s You” advertising campaign, have not worked out. And, largely due to the ongoing turmoil at the company, its brand has suffered under her watch.

The changes, which appear to be at the behest of Steele (though you never know at Yahoo!), will shift the major marketing functions back to the regions of the Silicon Valley Internet company from its current global centralized one.

“I believe we now need to bring marketing decisions, marketing talent and marketing budgets closer to the customer — and into the regions that depend on these critical plans,” she wrote. “We need to further link our marketing strategies to revenue growth, sales objectives and overall accountability.”

Since Steele took over the marketing department at Yahoo several years ago, she has been moving those powers to a more centralized system.

No longer.

In the internal memo, which I obtained and is embedded below, Steele outlines the shift, which will remove a lot of that control of marketing from the HQ and out to its business units.

Steele said in the email to the marketing team that she will remain at the company as CMO for now, although seems to indicate that she is also evaluating her future role.

“My current role as CMO on CEO staff is unchanged,” she wrote. “However, whatever I decide to do next for my career is my choice — and I’ll think about that on my own timeline.”

Sounds like an eventual departure to me, with Steele trying hard to stress she was going out on her own motor, even though giving up contro of big parts of your unit is unusual.

In any case, Steele obviously is betting now that on-the-ground control of marketing will help improve things for the beleaguered company. Here’s the memo:

Team,

It is critical for Yahoo! to grow faster and become more agile. We need to make decisions to accelerate the Regions’ growth plans around the world, and Marketing plays a crucial role in helping develop, support and execute these plans. We’ve built an integrated marketing machine that is an asset to help the company grow now and into the future. When we assembled a global and centralized organization in 2009, we took the opportunity to create best practices, establish consistency, deepen domain expertise, enhance functional capabilities and innovate for one of the biggest brands in the world. And, in the past 12 months, Global Marketing took home dozens of industry awards for marketing leadership in integrated consumer marketing, digital marketing and event marketing – including the acclaimed Cannes Lions, a Clio, a Webby and IAB Awards. Our Marketing achievements have been broad, deep and well recognized.

Now that we have this strong capability, it is time to leverage it even further. I believe we now need to bring marketing decisions, marketing talent and marketing budgets closer to the customer — and into the regions that depend on these critical plans. We need to further link our marketing strategies to revenue growth, sales objectives and overall accountability. Therefore, I want to put the marketing programs and tools we’ve developed right with the Sales and Audience teams responsible for the business outcomes.

It is with this in mind that I recommended a marketing reorganization plan to align to these objectives, accelerate decision-making and simplify roles. The plan centers on decentralizing the current global team into 2 types of specific teams:

1. Regional Marketing: Our regional marketing teams will move to report directly to the Regional leaders in Americas, EMEA and APAC.

2. Corporate Marketing: Our strategic brand, communications and marketing services teams will remain centralized and report into HQ.

This was my proposal to Tim for the best interests of Yahoo! today, and I am glad he agreed with my thinking. I really hope you will endorse and support these changes, too. Yahoo! needs your help and expertise to insure this important next phase is successful.

I want you to know how proud I am of your achievements and contributions. I also want to thank you for the incredible support you have shown me over the past 2.5 years in the current organization. It’s been an amazing brand adventure and working with each of you has been a great source of satisfaction.

My current role as CMO on CEO staff is unchanged. However, whatever I decide to do next for my career is my choice — and I’ll think about that on my own timeline. First, I will work with Tim, my peers and all of you to ensure a smooth transition — and that is my focus for now.

We have a meeting scheduled with the marketing leadership team on Monday and I can address any questions you may have about this transition.

Thanks,

Elisa

That’ll buy a lot of digital pushpins.

(UPDATE: Pinterest and Andreessen Horowitz confirmed the new funding, which is $27 million. The firm’s Jeff Jordan will join Pinterest’s board.)

In an interview, Jordan said that the amount of interest in Pinterest — get it? — was a big reason for the deal.

“People love the product, even though it is only in beta so far, with consumers who use it voraciously,” he said. “It’s elegantly social.”

Co-founder Ben Silbermann said the focus at Pinterest — which has only eight employees — was to “provide users with a place to discover and share in an inspirational way … we want to help people get in touch with their interests in real life.”

The start-up, which has no revenue to speak of yet and is still in invite-only mode, has become the hottest start-up of late in Silicon Valley, given its quick growth and compelling idea that has been called “experiential shopping.”

To me, it is just a really cool way of finding stuff of all kinds — from kids’ toys to inspiring quotes to travel tips — using a very savvy crowd of users via social visual bookmarking.

It’s kind of like Oprah on steroids, with users creating and sharing virtual collages on the handsome and easy-to-use site. Others can than “re-pin” them and great stuff rises in rank.

The site has previously raised $10 million from Bessemer Venture Partners, valuing the company at $40 million.

That legacy — and his influence on the lives of people around the world — is inestimable, and we will be talking about him and his amazing, interesting life a great deal in the coming days and weeks.

But as the sun comes up here in New York this morning, still mourning the departed, we are forced to confront more immediate and material concerns. Insensitive though it may seem to consider at this moment, Apple is not simply a great company — it has also proven over the last decade to be a great investment, and as such is one of the most widely held stocks in the world. Its largest shareholders are the big mutual fund companies like Fidelity, the Vanguard Group, State Street Corp. and T. Rowe Price, who among them own more than 15 percent of Apple’s shares.

And as Apple’s value, as measured by market capitalization, has ballooned from less than $10 billion a decade ago to north of $350 billion as of yesterday, the anxiety about the mortality of its founder has regularly caused its value to swoon. Over the seven-year course of Jobs’s illness, Apple shareholders have had to come to terms with the so-called “Jobs premium,” the extra value attached to the company’s shares that existed as long as he was directly involved in mapping company strategy and applying his unique touch to its products.

The conventional wisdom among Apple analysts now is that Apple investors, once known for their hair-trigger reflex to sell on any whiff of rumor, have gained a more complex and reasonable understanding of the situation. Apple, without Jobs, will still be Apple, and for the immediate and medium-term future, there is no reason to believe that its strategy and execution will falter in his absence.

But as I wrote in August, when Jobs resigned his position as CEO, it’s important to understand that Apple’s long-term vision has been deposited deeply within the DNA of the company. There is a script for the next several years. Products are mapped out, schedules are set, components have been purchased, manufacturing deals have been inked. In short, everyone at Apple knows what their job is and will continue to do it without missing a beat. The path ahead is no less clear today than it was yesterday.

No doubt the shares will be volatile as the markets open today. But that volatility will be much less than might have been expected years ago. It wasn’t so long ago that analysts predicted that, upon the death or departure of Steve Jobs, the company would lose as much as a third of its value. That’s no longer likely.

Today, investors seem to understand intuitively that the fundamental reasons to invest in Apple remain unchanged. The growth trajectory and profitability in the sales of its products remain the envy of the industry. There are predictions that Apple will sell more than 100 million iPhones next year, and nearly 30 million iPads in the second half of this year. Mac sales continue to set records quarter after quarter.

For all its strength in North America and Europe, Apple still has significant room to grow overseas. There are already signs of progress. In its most recent quarter, Apple reported revenue in the Asia-Pacific region of $6.3 billion, amounting to 22 percent of sales, and more than triple the sales seen in that region a year ago. One key market — China — remains a strategic priority for CEO Tim Cook and his team. Apple is still something new to the people of China, and introducing them to the brand on an ever-widening scale will be an interesting journey.

If history is any judge, it will be a fruitful introduction. Wherever it goes, Apple’s brand seems to succeed. Ask anyone familiar with it — it is easily one of the best-loved and most recognized brands. And yet when branding experts measure its brand equity, it ranks high but surprisingly also shows room to improve.

Just this week, Interbrand, a consultancy that focuses on corporate brands, released its annual survey of the world’s Top 100 brands. Apple is ranked No. 8, one notch above the Walt Disney Company (of which, ironically, Jobs was the largest shareholder), and two notches above Hewlett-Packard; the company had seen the largest year-over-year improvement in the value of its brand. It’s informative to consider some other names that appeared in the Top 10: Stalwart consumer brands like Coca-Cola (No. 1), General Electric (No. 5) and McDonald’s (No. 6).

Yet it’s also interesting to note that among the technology names that appeared in the Top 10 of the Interbrand survey, Apple wasn’t at the top: That distinction goes to IBM (No. 2), Microsoft (No. 3), Google (No. 4) and Intel (No. 7). Rather than a weakness, I think this fact speaks to Apple’s potential.

The story of Apple has never been one of narrow horizons. It has always been about looking ahead. Not just to the next quarter or to the next year, but of seeing how the march of technological progress can be harnessed to make life better in ways we can hardly grasp now. And yet when things like the iPhone materialize, they become part of us and quickly embed themselves into the very fabric of day-to-day existence. They’re not tools so much as extensions of our minds and identities. And that vision, so carefully articulated by Steve Jobs yet revealed only one product at a time, is still incomplete.

And so I find myself writing something that at once seems absurd and yet completely obvious: It may very well be, on this deeply sad day following the death of its founder, that Apple’s best days are still ahead.

Image via Jonathan Mak’s Tumblr.

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Steve Jobs Full Coverage »

Among the hot and hyped Web 2.0 scene, not many would pick out 13-year-old digital promotions site, Coupons.com.

But, on the heels of a recent $200 million funding — which valued the quiet Mountain View, Calif., company at $1 billion — and a surging online discounting market, it has nabbed another $30 million from Greylock Partners.

Greylock has already invested half that amount, via a secondary market transaction, and is Coupons.com’s first venture investor. Its previous funders have been institutional investors.

“Coupons.com have been quietly building all the key infrastructure in this area,” said Greylock’s Reid Hoffman. “We think they are poised for the massive shift that is coming.”

The new funds, said its CEO and co-founder Steven Boal, will be used for a variety of things, including an aggressive mobile and social push for the longtime site.

“We are now focusing on hypergrowth,” said Boal, who noted that coupon clipping is perhaps the original social media. “Saving is kind of hip these days, even if we have been around for a long time with this exact focus.”

Coupons.com had already moved in the mobile/social direction with the 2009 acquisition of Grocery iQ, a mobile app that lets users manage shopping lists and discounts on phones.

There will be more to come, said Boal, who said the growth of the category is inevitable as consumers use these devices to manage their spending habits.

Coupons.com will also use the funds to expand its staff from 288 employees now to more than 450 by the end of the year, operating in about 13 countries. While Coupons.com has been profitable on a cash-flow basis, all the new initiatives will be costly.

And, while that kind of expansion could remind you of the explosive daily deals sector — and it is easy to put Coupons.com in the same highly competitive arena as Groupon — the company operates more as a platform and a white-label provider of discounting services to manufacturers and retailers, especially supermarkets and chain stores.

In fact, Coupons.com provides a lot of such services for them, garnering $100 million in revenue this year, up from $60 million last year and $40 million the year before. Much of that money is made when a customer uses its site or sites it powers and downloads a coupon for redemption.

One area of promising growth, said Boal, is managing discounts on Facebook’s social networking site, which is increasingly being used by consumer goods companies to test promotions and increase loyalty.

“It’s a really interesting area as product companies can be really nimble in managing their promotions,” he said. “And the ability to really drill down on the response of a certain sector of consumer is very powerful.”

It goes without saying that newspapers that previously dominated this industry have been on the wane.

The massive funding also sets up Coupons.com for a possible 2012 IPO, especially given its dominance — it serves nine out of 10 big grocery chains, four out of four pharmacy giants and such — in the digital couponing sector.

Presumably, there would be no discounts for that stock.

Here’s the official press release:

COUPONS.COM ANNOUNCES GREYLOCK PARTNERS INVESTMENT

Company’s Rapid Growth Including Mobile and Social Couponing Solutions to Benefit from Greylock’s Expertise

Mountain View, Calif. — October 3, 2011 — Coupons.com Incorporated, the recognized leader in digital coupons, including online printable, social, mobile and loyalty card promotions, today announced an investment by Greylock Partners. Coupons.com, which recently raised $200 million from institutional investors, is transforming the multi-billion dollar coupon industry and accelerating the shift from the newspaper to digital. The investment, a secondary market transaction, will enable the company to tap into Greylock’s expertise as it continues to produce market-transforming couponing solutions, including its mobile- and social-based products and services.

“We are very excited to work with Reid Hoffman and James Slavet and the entire Greylock team,” said Steven Boal, CEO of Coupons.com. “Greylock’s expertise and relationships will prove invaluable as we continue connecting brands with consumers via money-saving offers at every touch-point across the digital landscape — including web, social and mobile — and along the consumer’s entire path to purchase.”

“We’re very pleased with our investment in Coupons.com and are excited about working with the team as they continue to build a substantial, market-defining company,” said Reid Hoffman, Partner at Greylock Partners. “Coupons.com is almost single handedly transforming the multi-billion dollar coupon industry by ushering the newspaper-dominated business to digital. The market opportunity the company faces is immense, and we look forward to contributing in any way to their continued success, particularly in the context of social and mobile solutions.”

Coupons.com powers the vast majority of coupons printed online via a network of tens of thousands of sites in addition to their flagship site, Coupons.com, which is the 39th most trafficked site in the country. Coupons.com Incorporated is also the go-to resource for manufacturers wanting to coupon-enable their digital marketing initiatives, and virtually every major consumer packaged goods manufacturer resides on the company’s client roster. The company is aggressively building its team, expanding its full time staff from 288 employees in June to more than 450 expected by the end of the year, a growth of over 50 percent during the six-month period.

In addition to capturing a growing share of the multi-billion dollar newspaper-dominated coupon industry, Coupons.com is also expanding the couponing market by lowering the barriers to entry for companies to offer coupons, enabling smaller manufacturers — which could not place offers in the newspaper insert because of budget requirements or category exclusivity restrictions — to utilize coupons to engage with consumers. In addition, Coupons.com attracts a new demographic of coupon users, who engage with new couponing methods like digital, social and mobile coupons, but typically would not engage with traditional paper coupons.

In a blog it just posted, Groupon said its recently hired COO, Margo Georgiadis, “has decided to return to Google (her former employer) in a new role as President, Americas.”

She was only hired in April, just months before the company filed to go public. Georgiadis was previously VP of Global Sales at Google.

(Interesting way to get a better title at the search giant, Margo!)

Georgiadis was in charge of the company’s global sales, marketing and operations at the Chicago-based social buying service.

Sources said that the hiring did not gel on either side.

It might not be Georgiadis’ fault. She replaced Rob Solomon, who was in his job for one year.

And here’s another: PR hire Brad Williams, a longtime Silicon Valley communications exec, who was there and then gone in what felt like 23 minutes.

It seems Groupon does not like Silicon Valley types or, perhaps, vice versa.

Since its IPO filing, in fact, it feels as if it has been a non-stop circus disaster at Groupon.

That has included immense controversy about its sketchy accounting, huge slugs of venture funding going to its founders and a lot of worries about its growth.

Today, in a Friday late afternoon dumping of bad news in hopes that no one notices (I do), Groupon also amended its S-1 public offering filing once again to change revenue metrics and also add a controversial internal letter that CEO and co-founder Andrew Mason sent to employees to counter its many and growing critics.

There appear to be many more shoes dropping soon, said sources, so stay tuned.

Until then, here’s the whole and very terse — for Mason — post:

Update on the Groupon Team

As a fast-growing company, we’ve done a lot of hiring this year, including on our senior executive team. Since the beginning of this year, we’ve made a total of 8 additions — that’s 57% of the total executive team. It would have been great if I could say that we batted 1,000%, but that’s rarely the case; after five months at Groupon, Margo Georgiadis, our COO, has decided to return to Google (her former employer) in a new role as President, Americas.

We’ve built a fantastic team that has proven itself highly capable, so this change won’t have an impact on operations. In fact, we are using it as an opportunity to reorganize in a way that reflects our evolving strategic priorities. Sales, Channels, International, and Marketing will now report directly to me.

Here’s a note from Margo: “Groupon is a great company and I feel privileged to have worked there even for a short time. It was a hard decision to leave as the company is on a terrific path. I have complete confidence in the team’s ability to realize its mission.” We wish her well.

The big maker of networking equipment, which had repeatedly predicted that revenue could grow 12 percent to 17 percent a year, set a new target for annual growth over the next three years of 5 percent to 7 percent.

“We want to be conservative and set realistic goals that we can achieve,” said Frank Calderoni, executive vice president and chief financial officer, during a meeting with financial analysts here.

Read the rest of this post on the original site »

Three of Silicon Valley’s more prominent venture firms — Khosla Ventures, Redpoint Ventures and the Founders Fund — are nearing the closing of new funds that will total almost $2 billion.

This despite a bad economy, turbulent markets and lackluster venture returns of late. That said, limited partners looking for an investment edge apparently seem to still be adding more dough to the VC kitty.

Sources familiar with the fundings, in fact, said the raises have been much easier than previous ones.

Khosla has raised almost $2.4 billion since 2009, including $1.3 billion in 2010. Its fourth is now nearly completed, at just under that, which the firm had previously signaled in regulatory filings it planned to raise.

The third fund has been spent on cleantech companies, but also on early-stage high-profile Internet start-ups such as Square.

Redpoint will focus its fund — which sources said was $400 million — on growth opportunities.

Its last fund in 2010 was $400 million, too. It has invested that money in start-ups, such as Jumptap, Kabam and Pure Storage.

Lastly, the Founders Fund — with high-profile partners Peter Thiel and Sean Parker — is aiming at a $350 million fund with a $150 million “cushion” to raise more. Its last fund of $250 million was raised last year.

Founders Fund has recently made investments in Path, Azumio and Topsy.

Yahoo is preparing to hire investment bankers and other strategic advisory firms, said sources close to the Silicon Valley Internet giant, as it seeks to figure out what to do next at the company.

The board of Yahoo, which ousted its CEO Carol Bartz today in a unanimous decision, is exploring a range of possible strategies to turn around its moribund growth, including possible acquisitions, shedding units, bringing in new investment partners and even taking the company private or selling it.

A sale is the least likely of options, said sources close to the situation, but — given today’s news — Yahoo might attract a lot of attention from investors seeking to take advantage of the company’s powerful but troubled assets.

“It is all on the table,” said one source close to the company.

Independent board member David Kenny, president of Akamai, is heading the strategic options committee in charge of managing the process, sources said.

No adviser has been selected yet, but sources said Yahoo is likely to hire Allen & Co., which advises many tech and media firms. It is currently advising AOL, for example.

Other candidates would likely be the typical panoply of choices, including big investment banks like JPMorgan Chase, Goldman Sachs and Morgan Stanley, and smaller boutique firms such as Qatalyst Group and Code Advisors.

Sources said whoever is hired will be charged first with doing an extensive review of the company that is more intensive than has been done before.

“There is a potential for enormous growth that the company has not been capitalizing on and should,” said another source. “The board needs to get this company on a trajectory for growth.”

Indeed, it does, as it has not under the leadership of Bartz. Revenue growth has stalled and product innovation has lagged.

The company will also be conducting a search for a CEO, which will be difficult because any new top exec will want to be part of such a companywide review.

Yahoo’s choice of an executive search firm has also not been determined, but is likely to be one of the big companies that specialize in the arena.

One thing is certain, said multiple sources: Yahoo will continue to focus itself as what it has previously called a “premier digital media company.”

What that means now, of course, will be determined in the months ahead.

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• Carol Bartz’s Last F%*& You — Now Aimed at Yahoo Board
• Yahoo’s Statement on Bartz Ouster
• Wall Street Likes Bartz’s Firing — Yahoo Stock Spikes on News
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Facing a barrage of negative press about its upcoming IPO, Groupon CEO and co-founder Andrew Mason took up a pen to counter critics of the social buying service.

Especially under scrutiny has been the Chicago-based Groupon’s accounting of its finances — along with worries that its torrid growth is slowing — both of which Mason addressed in detail in a pugnacious email memo to his thousands of employees.

Specifically referencing a recent article speculating that the daily deals site was running out of money, Mason said, in part:

“While we’ve bitten our tongues and allowed insane accusations (like in the article above) to go unchallenged publicly, it’s important to me that you have the context necessary to brush this stuff off.”

Mason also took on the controversial ACSOI — or adjusted consolidated segment operating income — metric that Groupon used in its initial filing and later stepped back from.

“The reason we didn’t realize everyone in the world would hate ACSOI (no, it’s not the same reason we didn’t realize everyone in the world would hate our Superbowl ad), is that we think it actually does a pretty good job at describing our marketing expenses in a steady state — we just didn’t realize there would be so many skeptics,” wrote Mason.

Mason also took some aim at competitors, such as LivingSocial and Yelp, in the email.

As for the public offering, which is expected next month:

“If there’s a silver lining, it’s that we’re almost on the other side, and the negativity leaves us well-positioned to exceed expectations with an IPO baby that, having seen the ultrasound, I can promise you is not one of those uglies.”

Then again, that is exactly what a dad-to-be would say about his baby, whatever it looked like.

Mason, when asked about the memo, declined to comment.

There is a lot more than that, so here’s Mason’s full email for all you pencil pushers to peruse:

Dear Groupon,

This weekend, I did a Google News search on our company — my first in awhile. The first story that popped up was called The Fall of Groupon: Is the Daily Deals Site Running Out of Cash? I laughed when I read the headline (in the car by myself, weirdly). First — with this article, the degree to which we’re getting the shit kicked out of us in the press had finally crossed the threshold from “annoying” to “hilarious.” Second, I was struck by the irony — I had just finished a board meeting last Wednesday saying this to myself: I’ve never been more confident and excited about the future of our business.

I realize that this sounds like the kind of thing that CEOs say when they’re trying to pep people up. First of all — I’m all about not pepping people up. If you don’t believe me, just ask my fiancée, Jenny “why don’t you ever say anything nice about me” Gillespie. Want another example? Look at the magazine covers in our lobby, which are there to make you sad by reminding you of the impermanence of success.

I’m going to spend the rest of this email explaining why I’m so excited. You need some ammo to argue back against your blog-reading “friends” (silently argue in your mind, that is — you can’t actually say any of this yet), and I’ve been told that the “what have you ever done with your life that’s so great?” rebuttal isn’t working as well for you guys as it has for me.

While we’ve bitten our tongues and allowed insane accusations (like in the article above) to go unchallenged publicly, it’s important to me that you have the context necessary to brush this stuff off.

I’ll summarize my excitement with four points: 1) Growth in our core business is strong 2) Our investments in the future — businesses like Getaways & NOW — look great, 3) We are pulling away from competition, and 4) We’ve built a great team that I would pit against anyone. In other words, all the stuff that one would want to look good? It looks good.

Many of the long-term unknowns of our business are becoming known, and we like the answers. I will now elaborate in a level of financial detail that will give Jason Child a stomach ulcer.

1. GROWTH IN THE CORE BUSINESS

Thanks to a tremendous effort by our sales team, August in the U.S. is shaping up to be a pivotal month. It appears that will revenues grow by about 12% over last month (which is a lot), while we cut our marketing expenses by 20% in the same period.

Beyond their obvious goodness, these numbers are important because they answer one of the main criticisms thrown at us in the past few months, relating to a metric we put in the S-1 called ACSOI (adjusted consolidated segment operating income) to help people understand how we think about marketing expenses. The reason everyone in the world seems to hate ACSOI is that it makes us look magically profitable by subtracting a bunch of our customer acquisition marketing costs from our expenses. The reason we didn’t realize everyone in the world would hate ACSOI (no, it’s not the same reason we didn’t realize everyone in the world would hate our Superbowl ad), is that we think it actually does a pretty good job at describing our marketing expenses in a steady state –we just didn’t realize there would be so many skeptics. I think it’s worth going deep on this one more time — brace yourself.

Our internal forecast shows two different types of marketing: what I’ll call “normal marketing” — which is NOT excluded from ACSOI — and “customer acquisition marketing,” which is. The way Groupon spends on marketing is unique in three ways:

1. We are currently spending more than just about any company ever on marketing — in Q2, we spent nearly 20% of our net revenue on marketing, while a typical company spends less than 5%. Why do we spend so much? The simple answer is “because it works.” But thats only part of what makes our situation special.

2. Our marketing — at least the customer acquisition marketing that we remove from ACSOI — is designed to add people to our own long-term marketing channel — our daily email list. Once we have a customer’s email, we can continually market to them at no additional cost. Compare this to Johnson and Johnson, McDonald’s, or most other companies. If I’m a Johnson, and I’m trying to sell you a box of Band Aids, I have to keep spending money on commercials and magazine ads and stuff to remind you about how sweet Band Aids are, even after you’ve bought your first box. With Groupon, we just spend money one time to get you on our email list, and then every day we email you a reminder of the sweetness of our metaphorical Band Aid. There is no cost of reacquisition — that’s unusual (and we created ACSOI to point that out). If Johnson wanted to follow the Groupon strategy, he would have to start a free daily newspaper about bandages and then run Band Aid ads in it every day.

3. Eventually, we’ll ramp down marketing just as fast as we ramped it up, reducing the customer acquisition part of our marketing expenses (the piece that we remove in ACSOI) to nominal levels. We are spending a ton now because we’re acquiring as many subscribers as we can as quickly as we can. We aren’t paying attention to marketing budget (just marketing ROI) in the way a normal company would, because we know that even if we wanted to continue to spend at these levels, we would eventually run out of new subscribers to acquire. So our customer acquisition spend drops severely to reflect the fact that eventually we’ll run out of people we can add to our email list. We view this internally as a very large one-time expense and then our job forever after will be to continually convert these subscribers into customers and to make sure our customers keep buying from us. Ongoing, the normal marketing dollars we spend are not something we would remove from our internal calculation of ACSOI.

I tried my best to explain this simply, but it’s not lost on me that if you actually understood this, you probably had to read it three times. It’s not easy stuff. It’s much easier to assume that we’re goons. So people can be forgiven for being suspicious. In fact, feel a little bad about how downhearted the critics will be when we don’t turn out to be a Ponzi scheme — those are good impulses for journalists to have, and I hope our non-evil ways don’t destroy their spirits.

Anyway, there’s a reason that I just went on about ACSOI. One of the questions that skeptics ask is, “when you ramp down marketing, won’t revenues stop growing as well? Aren’t you just buying growth?” Over the past several months we’ve been consistently reducing our marketing spend and yet revenues are still increasing at a significant pace. In Q1 of this year, marketing represented 32.3% of our net revenues. By the end of Q2 it had fallen to 19.4%. And it has continued to fall over the past several months all because we’ve been investing in our own long-term marketing channel — our email list.

Internationally we see the same trends — marketing is down, but revenues are up — every country is either losing less or making more. Even in young markets like Korea, where we’re still making massive investments, we’re seeing unprecedented growth. We started building our Korean team this January, despite the presence of two competitors that were larger than any we’d previously battled from behind. Thanks to the brilliant execution of the Korean team, we are set to be the market leader within months. We’ve never had a country grow as fast as Korea!

What about our joint-venture with Tencent in China? Did you read the article that Gaopeng’s CEO has kidnapped the first born children of all our employees and is putting them to work building a laser beam he’ll use to slice the moon in half? It turns out that that one isn’t true either. China is definitely a different market, but every month we inch closer to profitability. As has been our strategy in launching other countries — Germany, France, and the UK, included — our China growth strategy was to hire quickly and manage out the bottom performers. So far, that strategy has improved our competitive position in China from #3,000 to #8. Will we one day reach the dominant status we enjoy in most (come on, Switzerland!) other countries? It’s too soon to tell, but there’s no question in my mind that we’re building a business that will be around for the long haul.

2. NEW BUSINESS LINES ARE BOOMING

Travel and Product are enormous opportunities. After only a few months, they’re already making up 20% of revenue in some countries. We sold $2M worth of mattresses in the UK — in one day! Groupon Getaways will do $10M in its first calendar month — which you might think is awesome, but we’re actually disappointed with those results because we know how much better we’ll be doing soon.

While there’s still a ton of work to do, Groupon Now! continues to see weekly double digit growth. The model works and I believe it will play a major part in the future of our global business as more merchants and customers join the marketplace.

3. WE ARE PULLING AWAY FROM COMPETITION

If there’s a question I’ve received from Groupon skeptics more than any other, it’s, “how will you fend off the competition — especially massive companies like Google and Facebook?” I could give a dozen reasons to bet on Groupon, but it’s impossible to predict the future or the actions of others. Well, now the sleeping giants have woken up — and the numbers are showing that what was proven true with literally thousands of other competitors is just as true with the incumbents of the Internet: it’s kind of hard to build a Groupon. And since anyone with an Internet connection can track the performance of our competitors, I can be more specific:

Google Offers is small and not growing. In the three markets where we compete, we are 450% of their size.

Yelp is small and not growing. In the 15 markets where we compete, our daily deals are 500% of their size.

Living Social’s U.S. local business is about 1/3rd our size in revenue (and smaller in GP) and has shrunk relative to us in the last several months. This, in part, appears to be driving them toward short-sighted tactics to buy revenue, like buying gift certificates from national retailers at full price and then paying out of their own pocket to give the appearance of a 50% off deal. Our marketing team has tested this tactic enough to know that it’s generally a bad idea, and not a profitable form of customer acquisition.

Facebook sales are harder to track, but are even less significant at present.

My point is not that our competitors will fail — some may actually develop sustainable businesses, or even grow — after all, local commerce is an enormous market. The real point is that our business is a lot harder to build than people realize and our scale creates competitive advantages that even the largest technology companies are having trouble penetrating. And with the launch of NOW, I suspect our competition will have an even harder time in light of the natural barriers to entry that are needed to build a real-time local deals marketplace.

4. OUR TEAM

This is the fluffiest of the four points, but maybe the most important — we’ve built a global team of hungry entrepreneurial operators and seasoned executives that rivals any team I know of. Almost every day, I find myself in a scenario where I silently think, “I can’t believe I got this person to work for me — that failure of judgement is perhaps their single flaw.”

I point out the team because while today the business is strong and it appears we must endure success for awhile longer (despite its impermanence), we will inevitably be challenged with issues we didn’t predict — and when that happens, the quality of our team will be a deciding factor in our ultimate long-term success.

FINAL THOUGHTS

I wrote this email because when I read some of the press this weekend, I realized a rational person could read this stuff and wrongly conclude that we’re in trouble. The irony is hopefully clear: We’ve never been stronger.

And while we’ve refrained from defending ourselves publicly, you’ve continued to create our best defense, with every department innovating new practices that are taking our business to the next level. Thanks for staying tough, determined, and agile throughout this process. For now we must patiently and silently endure a bit more public criticism as we prepare to birth this IPO baby — a breed for which there are no epidurals. If there’s a silver lining, it’s that we’re almost on the other side, and the negativity leaves us well-positioned to exceed expectations with an IPO baby that, having seen the ultrasound, I can promise you is not one of those uglies.

I’ve been as candid as possible — hope this sheds some light on things. Reply with your questions if anything remains unclear. Amidst all this, I hope you remember what we’re doing here — we are making history together. I guess you don’t get to build something that reshapes the local commerce ecosytem without getting a few bruises. I’m so proud of the work we’re doing, and I feel extraordinarily lucky to work on what I think is the best thing that’s happened to small businesses since the telephone We’ve invented something that is catalyzing millions of dollars of local commerce every single day in 45 countries and fills the lives of millions of customers with unforgettable experiences — it’s pretty remarkable.

Looking forward to getting this behind us!

Andrew

P.S.: I almost forgot to address the nonsense about us running out of money in the article above. If you apply the same logic used in the article, you’d have concluded long ago that companies like Amazon and Wal-Mart were running out of cash too. Both have often had payables far in excess of their cash. Finance geeks call this a working capital deficit. It’s normal, manageable and a lot of folks actually believe it’s good thing and would kill to get paid from their customers long before they have to pay their suppliers. We are generating cash, not losing it — we generated $25M in cash last quarter alone, adding to the $200M we had before. In other words, we’re doing the opposite of running out of money.

Speaking of “it looks good,” here is Conan O’Brien with a Tourette’s version of Mason’s new catchphrase: