It’s not the technology
Wednesday, August 29, 2012/
The final gasps of air are wheezing from the group buying bubble of 2011 with market leader Groupon’s share price firmly under $5, a quarter of its IPO value in November and a fraction of the $31 the stock reached in the heady days shortly after it was listed.
It’s tempting to lump Groupon in with the disappointing performance of stocks like Zynga and Facebook and to say all the current technology stocks being floated are overvalued.
While there’s no doubt many of the last year’s IPOs were overvalued, it would be a mistake to consider Groupon a technology stock.
Groupon – like all the group buying services – is not really a technology stock. It’s a sales-driven operation where the flow of deals is the core of its business. If there are no deals flowing out the door, there is no business.
Technology is important to group buying services, but these type of businesses existed long before the arrival of computers or the internet. Think of discount coupons you could clip from magazines, vouchers on the back of shopping receipts or the various buying clubs for products like wine.
Unlike companies such as Google, Facebook, Apple or Microsoft, group buying services could have been created without the existence of the web.
Sure Groupon would have been a different company without the web and deals wouldn’t have been delivered by email or shared through social media but their basic business was feasible in the 1950s, or even 1850s.
All too often today we focus on the technology and forget the basic business. While computers, social media and the internet are important tools, they are not the reason most of our businesses exist.
Technology may be the difference between a business surviving or failing in today’s changing economy, but a more fundamental mistake we can all make is forgetting why our customers choose to use our products and services. We can have the shiniest computers, funkiest offices and most amazing mobile website, but if we stop delivering value we’ll stop making money.
In some respects Groupon is a great example of this, a business that redefined an existing market through applying technology as well being one that used modern tools to turn itself from being a failing campaign management website to an enterprise that caught the world’s attention.
Groupon’s problems have come about because the business was overvalued and management have had to use desperate measures to justify those sky high valuations. As a result, quality’s suffered and both consumers and merchants have become dissatisfied.
None of Groupon’s failures have been because of the technology, but tech was only incidental to the company’s success as well.
For all businesses, the basics remain the same – add value and don’t get too greedy.
Paul Wallbank is one of Australia’s leading experts on how industries and societies are changing in this connected, globalised era. When he isn’t explaining technology issues, he helps businesses and community organisations find opportunities in the new economy.