2011-06-06 Cashing in on coupons: Groupon files for $750 million IPO

Intelligence Report - 06/06/2011
By Mark Glaser & Desiree Everts




Cashing in on coupons: Groupon files for $750 million IPO

Hot on the heels of LinkedIn's big debut on Wall Street and rumors that social gaming giant Zynga will file for an IPO, Groupon, the daily-deals coupon site, announced it's filed to raise $750 million in an initial public offering. The NY Times' Michael De La Merced calls it "one of the most eagerly awaited initial public offerings of the year," noting that investment giants Morgan Stanley, Goldman Sachs and Credit Suisse have lined up to underwrite the stock sale. Earlier reports have pegged Groupon's valuation at between $15 billion and $20 billion. Forbes' Tom Taulli expects the IPO to be a "blockbuster," saying that Groupon has been able to maintain its competitive edge thanks to a "great customer experience, relevancy of the offers, a large merchant base and a quality brand." The company, which earlier this year spurned Google's reported $6 billion buyout offer, "leads in the deal space," according to Wired's Sam Gustin. (For more on the coupons space, see the Research item below.) So is it another sign of a social tech bubble? Forbes' Steve Schaefer said that debate is "only going to grow louder with companies like Twitter and Facebook still looming as IPO candidates." The filing offers a close look at Groupon's financials and reveals how quickly it's grown: revenue of $644.7 million in the first quarter of 2011, up from $44.2 million a year ago. That growth is hard to argue with, said ZDNet's Larry Dignan, adding that "Wall Street is likely to help Groupon raise up to $750 million without blinking." But GigaOm's Ryan Kim argues that while those numbers look impressive, the company "is still not profitable" and faces increasing competition from Living Social and Net giants Facebook, Google and Amazon, which have all launched local deal offerings recently. And AllThingsD's Peter Kafka points out that in January the company raised almost $1 billion, but a couple of months later it had $209 million. So where did all that money go? "Almost all of it went right back out the door, to employees and early investors," he said. Groupon CEO Andrew Mason explained in a note to potential investors: “In the past, we've made investments in growth that turned a healthy forecasted quarterly profit into a sizable loss. When we see opportunities to invest in long-term growth, expect that we will pursue them regardless of certain short-term consequences.”


Twitter snaps up TweetDeck, AdGrok

Twitter's management and monetization troubles have been no secret in the tech world. So it made two bold moves to try to bolster its credentials among power users and in advertising, buying Tweetdeck and AdGrok. "TweetDeck is the preferred third-party app for the Twitter 'power users' like journalists, bloggers and celebrities, so information about what sorts of topics and trends these people follow could prove valuable as Twitter seeks new ways to monetize itself," according to Forbes' Parmy Olson. CNET News' Don Reisinger agreed, saying "TweetDeck is arguably one of the most useful tools available in the social-networking ecosystem." A looming concern among users, however, was that Twitter could decide to phase it out. PC World’s JR Raphael asked whether Twitter would "want to maintain the integration with competing services like Facebook and Foursquare under its company banner? Would it be in Twitter’s best interest to leave TweetDeck’s robust customizability in place?...I’m not so sure it would.” But Tweetdeck CEO Iain Dodsworth looked to ease those concerns in an interview with AllThingsD’s Peter Kafka, saying he “can’t see [TweetDeck's multiservice integration] going away anytime soon.” Not long after the TweetDeck buyout, Twitter announced its acquisition of AdGrok, a web advertising company. Two of AdGrok's founders will be engineers on Twitter's monetization team, while the third founder, Antonio Garcia-Martinez, has taken a job with Facebook, according to AllThingsD's Liz Gannes. "Twitter has said it would like to build a self-serve platform for its Promoted Tweets and Promoted Accounts advertising products. It seems like a natural fit for these guys," she wrote. AdGrok plans to shutter its AdWords management business and wipe out its servers by June 30 in order to focus completely on bolstering Twitter's online advertising technology, according to PC World's Juan Carlos Perez. VentureBeat's Tom Cheredar speculated that Twitter's purchase of AdGrok may signal that it's "ready to start formulating what kind of data is relevant to performance rather than rely on third-party services to do it." What's certain, he added, is that Twitter is "looking to create a much more involved advertising platform for clients wishing to promote their messages."

Facebook's foray into sharing media, TV

Facebook apparently has a big appetite for media sharing. The New York Times' Ben Sisario and Miguel Helft say the social-networking giant is planning to make sharing of users' "favorite music, television shows and other media as much a part of its site as playing games or posting vacation photos." They said the company is in talks with various online music services, including Spotify, to "develop a tab or widget that would display a user’s most-played songs and provide an easy way for friends to hear them." Facebook wants to do the same thing for news and video content, they added. Rumors about Facebook teaming up with Spotify had been swirling earlier this month, but Forbes' Parmy Olson recently confirmed the partnership, saying sources close to the deal told her it could be launched in "as little as two weeks." Reports made it seem as if Facebook had focused just on Spotify for media sharing. "There's so much money yet to be made, and both parties want a slice of it. Spotify has the catalogue and the streaming tech; Facebook has the reach and the clout," said Time Techland's Giles Turnbull. But the NY Times' Sisario and Helft said Facebook is looking for multiple partners for its plan. They added that the company’s media plans are part of its effort to become a hub for all kinds of online activities. The social networking giant believes that "people increasingly define themselves through the media they consume," they said. Facebook CEO Mark Zuckerberg underlined his interest in music, entertainment and media at the e-G8 forum in Paris, saying that companies in those industries would benefit by integrating with social networking. “I hope that we can play a part in enabling … the companies that are out there producing this great content to become more social,” he said at the forum, according to GigaOm's Colleen Taylor. “We’re going to see a lot of the transformation in these industries over the next three, five years.” Another way to look at it is that Facebook wants to become the "operating system of the web," said Mashable's Ben Parr. But to be the web’s central dashboard, "it needs to have access to the music, movies, TV shows and books of its users."


Hack attacks shake up media companies

For awhile the Internet was abuzz with the news that murdered rap star Tupac Shakur was alive and living in New Zealand. At least 3,000 readers “liked” the story on Facebook and many more on Twitter debated whether or not it was true, according to Forbes' Parmy Olson. The report had appeared in a PBS NewsHour blog called "The Rundown," but was quickly revealed to be a hoax and the result of a website hack. A hacker group called LulzSec claimed responsibility for the breach, as well as for a series of other break-ins targeted at Sony and Fox.com, according to the Wall Street Journal. The Journal pointed out that not only have corporate network break-ins become common, but any kind of organization can become a victim. "While hackers once generally had targeted companies that stored financial data or had classified government information, culprits today are expanding their sights to other corporate secrets or seeking information that can lead to valuable data down the line," the Journal reported. With the PBS attack, the hackers did more than post a fake new story. They also posted a list of usernames and passwords for the content management system's users and administrators. The group said it was "less than impressed" with the Frontline "WikiSecrets" documentary about WikiLeaks, so they sought revenge. David Fanning, executive producer of Frontline, told the New York Times' Brian Stelter that the hacks shouldn't simply be called pranks. “This is what repressive governments do,” he said. “This is what people who don’t want information out in the world do -- they try to shut the presses.” Media companies like PBS are "particularly vulnerable to such attacks because they depend on online advertising and subscription revenue from websites that can be upended by the clicks of a hacker’s keyboard -- and because unlike other targets, like government entities and defense contractors, they are less likely to have state-of-the-art security to thwart attacks," wrote Stelter. Many amateur hackers also aren't concerned with the consequences. InfoWorld's Robert X. Cringely agreed, saying that hopefully over the next few years "we'll see legislation making hacking a much more serious crime than it already is and offering local law enforcement more resources to fight it."


Internet ad spending hits record high

Even a frail economic recovery couldn't slow down the steamroller that is online advertising. Online ad spending hit $7.3 billion in the first quarter of 2011, a new record, according to a report released by the Interactive Advertising Bureau. That's a 23 percent year-over-year increase, according to AllThingsD's Peter Kafka, who added that he would normally note that these "boosts are coming off a low base, but that’s no longer the case, either -- 2010 was pretty good for most of the web ad business, too. Unless you’re talking about Yahoo or AOL, which have lagged the market." MediaPost's Gavin O'Malley said it's further evidence of an industrywide recovery. "The resurgence in display advertising highlighted the broader online ad recovery," he said, noting that while spending in that category went up a mere 4 percent in 2009, it leaped 24 percent in 2010 to $9.9 billion. PC World's Juan Carlos Perez noted that companies are taking more of their ad dollars online. Plus, the "growing amount of time people are spending on social media sites like Facebook and Twitter, as well as watching full-length movies and TV shows on sites like Netflix," helped bolster ad sales, he said. Meanwhile, a new IDC report shows that Yahoo is no longer the king of display ads. Google has taken the crown, with 14.7 percent of the market, up from 13.3 percent in the fourth quarter of 2010, according to Mashable's Todd Wasserman. But some good news for Yahoo and other traditional display ad providers like AOL and Microsoft is that Google's growth in display ads hasn't come at the expense of their own display businesses, which are powered mostly by large, brand advertisers, said PC World's Perez. Google is mainly tapping its core small and medium-size search advertisers to spend additionally on the Google Display Network, Perez said.

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eMarketer: Online coupons going mainstream

More people are seeking out daily deals and online coupons like those from Groupon and LivingSocial. New research from eMarketer shows that nearly half of U.S. adult Internet users, or 88.2 million people, will redeem an online coupon or code this year. That growth rate will likely slowly decline through 2013 since most people who tend to use online coupons already do so, according to the eMarketer report. But already, household usage of online coupons has "nearly doubled since 2005," eMarketer said, noting that Experian Simmons expects 22 percent of households to redeem coupons online in 2011, up from 12 percent in 2005. Groupon, the top coupon site, which recently filed for an IPO, has grown from 2 million subscribers to 85 million over the past year and a half, while No. 2 LivingSocial went from 120,000 subscribers to 28 million, according to the AP's Ellen Gibson. In just three years, daily-deal websites have transformed local advertising, she said, "delivering faster results than other marketing methods. Store owners get immediate revenue and can see exactly how many customers an offer brings in." Groupon is looking to speed up these results even more. Over the past few weeks, it's been rolling out Groupon Now, a mobile application that gives users just hours to find local deals based on their location. In a story noting Groupon's possible tie-up with Foursquare, Mashable's Ben Parr said: "Groupon Now is so vital to the company that internally it’s known as Groupon 2.0."

Of Note

Schmidt Says Google’s Social Networking Problem Is His Fault (AllThingsD)
The Google chairman says he "screwed up" over social networking and was aware of the threat of Facebook but didn't do enough about it

YouTube Enables Creative Commons Videos Sharing (NY Times)
The company wants to help people find videos online that are intended to be borrowed and re-edited without fear of violating copyrights

Google +1, Facebook Likes & the Battle for Web Commerce (GigaOm)
The search giant takes aim at Facebook Likes by adding a "+1" sharing button for web sites. Should we trust the fidelity of these social signals to begin with?

Magazine Editors Are 100% Sure Tumblrs Are Driving Subscriptions, But They Can't Prove It (Business Insider)
Editors say Tumblr can target a community that might not be familiar with a brand's print publication or its website

FTC Plans New Online-Ad Rules (WSJ | Digits)
The agency is overhauling its guidelines on online advertising in an effort to better address new technologies

Huffington-ization Of AOL Continues With Daily Finance Reset (paidContent)
Some recent hires and other moves demonstrate HuffPo is putting its stamp on the former AOL News operation


openquoteI use all this technology, Facebook, Twitter, all that, but sometimes I wonder who is in charge. Sometimes I feel like I'm an app, moving through the world, producing this output. It's like: who is using who?closequote

Gary Shteyngart, writer

Gary Shteyngart on how he stayed ahead of the 21st-century curve (The National)


The OPA Intelligence Report is a bi-weekly email summarizing and commenting on important news and research for the online publishing industry. As always, feedback is welcome at feedback@online-publishers.org.