Frank Sennett | Interview
Over the last year or so, as our Editor-in-Chief Frank Sennett has been reporting and writing his book on Groupon—Groupon's Biggest Deal Ever—he's not only had to contend with the critic in his head, but the critic a few cubicles over. Never a fan of Groupon—largely because of the way it promotes casual consumerism and sends out painfully unfunny e-mails—I've had a few lively debates with Frank about the company.
Now that I've read the book, my opinion of the company hasn't changed, but my admiration for the boss man has grown. The book is a quickly paced, intelligent narrative of entrepreneurship that does an admirable job of addressing and assessing the various highs and lows of Groupon's short history. It reminded me of the great sports books that encompass a single season, in which locker-room tension and personnel shifts add drama to the competition. On a day when Groupon's shares actually rose to $9.66 (down from the IPO pricing of $20), Frank and I sat down to talk about the company's controversial past and murky future.
So my first question is, at what point when you were writing this book, did you realize you were selling out?
It’s a good question. The temptation of all the half-off sushis is tough to resist.
I’m obviously joking, but Groupon is such a controversial company, and the book is a great account of what happens, but it takes a positive view of the company. Now that the book is getting out there, do you feel like you have to answer for that at all?
I think when as a journalist you try to predict the future, you’re at your worst. The climax of the book is their euphoric IPO day. And I have all the caveats in there, but yeah, the tone is positive and upbeat. If I had three more months, the tone would not be nearly so positive and upbeat at the end. I stand behind it, but yeah, there’s a little cognitive dissonance from the time when the triumphal music is playing to now, where their market cap is basically on par with what Google offered them in 2010. It’s a snapshot in time for sure.
I know why I don’t like Groupon, but why do you think people care so much about this company that there are that many strong opinions about it?
Yeah, it’s great to write about a company like that. To a certain extent, Andrew Mason—his personality plays a part in that. He’s sort of ratcheted that back a bit now, but I think that both helped and hurt them. They got a lot more hype than LivingSocial or other daily deals companies in part because of his personality. But there were other people, such as yourself, who were kind of offput by him. I also think there’s a real sense of a core group of small merchants who had bad yields, and advocates on their behalf, who feel it’s not great for small businesses. That’s been a thread. There are people who find there are significant governance issues with the IPO, where they had to revise their earnings. And then, as Rob Solomon says, they took almost a billion dollars off the table in the last investment round. Rob is convinced that’s responsible for some of the backlash, because people thought it was just too greedy. And then the Super Bowl thing was a big moment. They did an ad for an audience that had not seen them before. For those jokes to work, you had to know the company. If you didn’t know the company and you’d seen those, you’d think, What the hell?
There’s a quote in the book where Groupon co-founder Eric Lefkofsky says, “I’d rather have a good business with bad press than a bad company with good press.” But it seems to me that 99% of that business is marketing and good feelings toward the company.
I think I know how to square those two things for you. One of the pieces of news in the book is that the week after the Super Bowl, they had their best sales week ever, and more sign-ups than ever. I think that what he’s poo-pooing there is the work we do. With their direct marketing and their efforts, they’re doing fine. The bad press, he could shrug off as long as the business was growing. But of course, if it reached a critical mass, then you can have [a situation] where everybody walks away. So yeah, you’re tempting fate a little bit.
I can never understand why people like Groupon, because to me it’s just a coupon company that does little more than encourage casual consumerism. But what the book helped me understand is that there’s a problem-solving aspect to the company that gets merchants excited.
Their whole plan is to be what they call the dashboard of local commerce. So if you had fifty sandwiches that are going to go bad, you can put out a Groupon Now, and theoretically unload those sandwiches. And they have the daily deals, which Time Out Chicago has used to great effect. For certain businesses, it’s great. It’s more effective and cheaper than a direct-mail piece, and it fits our demo, and the renewal rate is as good or better than any other channel. So for us, it worked great. But for a high-end restaurant, I think a lot of them are saying, “It doesn’t make sense for us.” [Groupon is] really trying to offer more, so a merchant can say, “I need this suite of products.”
But there’s that one line in the book that drove me crazy: "In other words, Groupon wants to sell customers the thing they didn’t know they wanted but are desperate to buy when they see it." That’s the worst.
That’s a Mad Men line, right? I would say I don’t like to fill my house up with junk, but I like experiences. I went back and counted the Groupons I bought last year and it was 16, and most of them were experiences. Membership at the Nature Museum, stuff like that. That was definitely one of Andrew Mason’s early goals, to get people to be tourists in their own cities.
I do wonder, as the novelty of Groupon wears off, when you’re essentially a company that offers coupons: How loyal can customers be to a coupon company?
That’s the big question. The other one is their take-rate, how much they take from each deal. Right now it’s still over 40 percent. I was surprised that they’ve been able to maintain such a high percentage. If they can maintain a high take rate, if people will continue after the first blush of novelty has worn off—
Right. If the point is the discounts, I’m loyal to the discounts, not the company.
Whether it’s LivingSocial, or somebody like that, there will be another major player in the market. And I think daily deals users are pretty promiscuous, I don’t think there’s anyone who says, “I’m a Groupon guy!” There are certainly things they can do with the size of the subscriber base they have, where they’re going to have to press those advantages.
The headline about Groupon right now is that their stock is half off. I wonder if that creates concern among their merchants.
Ultimately, if there are enough of those headlines, then yeah, it can create a sense of instability. But they were very close to turning a profit in the first quarter, they have a lot of cash, they’re rolling out new products. So it feels to me like they can get past this.
It’s just amazing to me that people get that excited about coupons. It’s like buying $20 shares in the receipt printer at Jewel. It’s also just depressing to me that it started off as The Point, which was set up to help nonprofits, and now it’s offering half-off paintball.
Right. And you heard some of the voices of the early employees, who were more depressed than you are, because they were nonprofit-type guys. They went to work for a nonprofit and thought they would change the world. And as I say in the book, yeah [Andrew Mason] changed the world—but he changed the way it shops.