From 12 Billion To Nothing How Groupon Lost Everything 1080p

Groupon, one of the fastest-growing companies in history, a $12 billion IPO, 35 million subscribers, and an offer from Google for $6 billion, which they turned down. Today, Groupon is worth less than $300 million. The founder was fired with severance of $378, yet that's not even the strangest part. Accounting fraud, outrageous and false advertising, a giant Ponzi scheme, misleading investors, all to give founders one big payday. This is the story of Groupon, one of the strangest tech companies in history. Okay, so what the heck is this company? Think about the last time you tried to cancel a subscription. The hidden fees, the endless steps, the annoying support. But the company has all the power, and you have none. What if you could change that? Andrew Mason and Eric Lefkovsky felt this very experience trying to cancel an annoying phone plan, and then they had an idea. In business, there's a concept called bargaining power of buyers. If you're one customer of many, you have no leverage. But if you're one of few customers, or you get thousands of customers together, suddenly the price moves in your direction. So why not just do that? Mason turned that concept into Groupon, a marketplace plus a coupon engine. Get a massive group of buyers together and use that collective power to get better discounts and better terms. A local merchant like a restaurant offers a steep discount, say 50%. Customers buy a voucher through Groupon instead. Groupon collects the money, keeps its cut, and passes some to the merchant. The merchant gets new customers, the customer gets a deal, and Groupon gets a cut. Sounds great. Unfortunately, this model had a gigantic gaping flaw. But for now, Groupon was spreading, and fast. Groupon launched in November 2008. By the same time in 2010, Groupon had over 35 million subscribers. Over 6 million were on the daily mailing list. Forbes said, the company is on pace to make $1 billion in sales faster than any other business ever. 2,700 employees, coupon discounts in 300 cities, valued at $1 billion in just 16 months. They were attracting a lot of attention, and not just from users. In late 2010, Google offered to buy Groupon, and you can see why. They wanted the algorithm, the merchant network, the 35 million email subscribers. Great for Google. Google started negotiations at $3 billion. Over several weeks of back and forth, the number climbed to $5.75 billion, the largest acquisition offer in internet history at the time, just ahead of Yahoo's acquisition of Broadcast.com at $5.7 billion. Every board member would gain hundreds of millions. Co-founder Eric was looking at $1.8 billion, and Mason would have pocketed $420 million. But there was a problem. The deal might not even go through. Google was already facing two separate antitrust investigations at the time. The board feared the deal could be tied up in antitrust review potentially for 18 months. The Justice Department could ultimately kill it all together, but Google really wanted Groupon. So to mitigate the risk, they offered an $800 million breakup fee if that happened. But even with that, if the deal collapsed after a year in limbo, Groupon could be ruined. Growth would stall, hiring would freeze, competitors would catch up. They had to make a decision. On December 3rd, they called Google and killed the deal. Mason later said, We went through a period of introspection and self-doubt, and then ultimately emerged in a state of supreme confidence, like, okay, we're the best company in the world. Groupon believed they could be worth 10 times more than what Google offered. Groupon was ready to go, but some of their confidence may have been misplaced. After rejecting Google, in January 2011, Groupon raised $950 million in a round of funding, the largest round of its kind for an internet company at the time. But this was nothing. What they were really gearing up for was an IPO which could be worth billions. That was the real payday. New York investment bankers projected Groupon's valuation at anywhere from $20 billion to $30 billion, far more than what Google offered. Groupon's valuation soared to such heights in just three years of existence. But there were two problems. One, Groupon wasn't profitable. Not unusual for tech startups, but this was different. They reported an operating loss of $420 million for 2010, and two, they were running out of money. And quick. By spring 2011, just months later, Groupon only had $209 million in cash left. They had just raised $950 million. What happened? Even though the company was losing money, they paid out over $800 million to insiders, including $300 million to Lefkovski. But something else was happening at Groupon. They were leaning into some unique marketing, something that could hurt their IPO. In February 2011, they ran three Super Bowl commercials. This is Timothy Hutton. The people of Tibet are in trouble. Their very culture is in jeopardy. But they still whip up an amazing fish curry. And since 200 of us bought at Groupon.com, we're each getting $30 worth of Tibetan food for just $15 at Himalayan Restaurant in Chicago. Save the money. Unlock great deals in your town. Groupon.com. Groupon paid roughly $3 million per spot. And there's more. Cuba Gooding Jr. on Endangered Whales, Elizabeth Hurley on Amazon Deforestation, and Timothy Hutton filmed at a Himalayan restaurant in Chicago. The backlash was immediate. NBC's Adrian Mong reported the ad managed to do the impossible, unite the Free Tibet movement and Chinese nationalists in their shared outrage. On China's Sina Weibo, over 28,000 messages about the ads appeared within minutes. But it was worse than just some bad PR. Groupon had been trying to expand into China through a partnership with Tencent. That was now in serious doubt. Mason pulled out all three ads within five days and said, We hate that we offended people and we're very sorry. But were they? Well, unfortunately, there is a pattern. In the UK, the Advertising Standards Authority received over 162 complaints within three months regarding Groupon's misleading promotions. He breached advertising codes 48 times in the first 11 months of 2011 alone. A San Francisco tour operator filed a class action lawsuit claiming Groupon was baiting users with tour ads for deals that didn't even exist. The Federal Trade Commission had received over 140 complaints over false advertising and misleading discounts. At the same time, state investigators in Connecticut and Illinois were questioning whether Groupon's expiring vouchers were even legal. All of this was happening right before the company went public. And investors were watching. Would all this ruin Groupon's chances? Would they crash and burn? November 2011, Groupon was priced at $20 per share, valuation $12.7 billion. The stock opened at $28 on day one, market cap around $16 billion. One of the biggest tech IPOs since Google itself and almost three times Google's offer. It was a huge success. But they didn't have time to celebrate. Once a company goes public, everything is on the table. Now that people could look closer, they found Groupon had been lying to everybody. Unlike Groupon, we try to ensure our videos are as accurate as possible. That's why we link our sources below. So please subscribe, it helps our videos grow. Thank you. When the SEC looked into Groupon, their finances were a bit… weird. Groupon had been reporting revenue in a very specific way that made the numbers seem bigger than they were. The full value of every deal sold before merchants took their cut was reported as revenue. $1.52 billion in just six months. Huge. But under standard accounting rules, that number wasn't real because Groupon didn't keep all that money. When adjusted properly, the real figure dropped to just $688 million, less than half. That has pretty huge signs of fraud, especially since investors had just bought shares thinking Groupon was making serious bank. But it got much worse. The $688 million figure itself was still under investigation. Why? Well, instead of using standard accounting methods, Groupon introduced its own metric called ACSOI. Yeah, they invented their own accounting method to look profitable. Not only that, they weren't treating marketing as a normal expense. Instead, they classified it as a long-term investment. This meant losses appeared smaller while profits looked larger. And this wasn't the only issue. Another flaw in the reporting system had been there from the very beginning. The pitch sounded simple. Offer a 50% discount, then give Groupon half of what you make. A $100 service becomes just $25 for the business, and in return, new customers, but not loyal customers. A study from Boston University analyzed over 16,692 deals and found that customers who used Groupon gave it strikingly lower rating scores. On average, they were 10 or even 20% lower. And these customers weren't loyal to Groupon. They were loyal to the discount. Research from Harvard Business School found that many businesses were actually losing money. So merchants just stopped signing up. Just months after its IPO, it was all falling apart. Reporters began digging deeper into the founders' backgrounds, and what they found shook investors. Apparently, in his previous company, Levkovsky used racketeering and terrorist tactics and alleges that he basically tried to drive the company to near bankruptcy to then buy it on the cheap. An email was found relating to another dot-com company he sold, which said, Let's start having fun. Let's get funky. Let's announce everything. Let's be wildly positive in our forecasts. Let's take this thing to the extreme. If we get whacked on the ride down, who gives a ----? The time to get radical is now. We have nothing to lose. These lawsuits were eventually settled out of court. But it still somehow gets worse. By December 2012, Mason had been named Worst CEO of the Year by CNBC. February 27, 2013, Groupon reported a net loss of $81 million for the quarter. The stock dropped 24% in a single day. The next morning, Mason was fired. Though his goodbye memo was quite funny. After four and a half intense and wonderful years as CEO of Groupon, I've decided that I'd like to spend more time with my family. Just kidding. I was fired today. If you're wondering why, you haven't been paying attention. His severance was six months of salary, but Mason had voluntarily cut his own salary in 2011 to $756.72 per year. Half of that is $378.36, so that's what he got. Levkovsky, who had collected somewhere between $300 and $382 million before the IPO, took over as co-CEO. Yet even as it was crashing and burning, Groupon's personality was still very much alive. They offered a once-in-a-lifetime chance to take an ocean voyage to the site of Titanic sinking with a DVD of the movie signed by a Leonardo DiCaprio impersonator. Yeah, I'm not making that up. Oddly specific deals like baby naming rights or being tucked into bed, among even stranger things. Though these stunts couldn't stop the inevitable. Multiple CEOs came and went, multiple pivots failed to save it. In 2015, it shut down operations in seven countries and laid off 1,100 employees. By 2022, revenue had collapsed by 80% from its peak. Then in 2023, the stock hit an all-time low of $2.89. The next year, Groupon reported $492 million in revenue, but still lost $59 million. The multi-billion-dollar tech giant is now a shadow of itself. Today, the company is worth less than $300 million. What a strange company Groupon was. This is the problem discount services can face. People become loyal to price and the discount and not the brand. In a moment, the merchants realized that and it all fell apart. The Super Bowl, the FTC, the accounting, the CEO, none of it was bad luck. Same mistake, just different departments. There's a surprising number of these tech stories. Huge explosion, massive offers, IPOs, then the product sort of dies. Wish.com has an even crazier story, including a private meeting with Jeff Bezos himself. Click here to learn the rest of that story. But until then, I'm Hari and I'll see you guys on the next one.