Struggling online deals pioneer Groupon has firedits quirky founder and CEO Andrew Mason amid worries that people are tiring ofthe online restaurant, spa and Botox deals that Groupon built its business on.
In a refreshingly candid memo to staff, Mason said Groupon'semployees "deserve the outside world to give you a second chance. I'mgetting in the way of that. A fresh CEO earns you that chance."
Shares jumped more than 4 percent in extended tradingfollowing Thursday's announcement, which had been anticipated for months.Executive Chairman Eric Lefkofsky and Vice Chairman Ted Leonsis were appointedto the Office of the Chief Executive while a replacement is found.
Mason made no qualms about what had happened.
"I've decided that I'd like to spend more time with myfamily. Just kidding — I was fired today," Mason, 32, wrote. "Ifyou're wondering why. you haven't been paying attention."
He referred to controversy over the accounting practicesused in regulatory filings ahead of Groupon Inc.'s November 2011 initial publicoffering of stock as well as "two quarters of missing our own expectationsand a stock price that's hovering around one quarter of our listingprice."
"The events of the last year and a half speak forthemselves," he wrote. "As CEO, I am accountable."
The announcement came one day after Groupon reported abigger-than-expected loss and gave a weak revenue outlook for the currentquarter. The guidance had fueled investor worry — which started even beforeGroupon's IPO — that people are suffering from fatigue over the frequent emailsflooding subscribers' inboxes. There were also worries that the company'sefforts to broaden into an e-commerce powerhouse haven't been paying off.
Groupon said Mason was not available for interviews.
His ouster has been "fairly widely expected" giventhe company's performance, said Gartner analyst Michael Gartenberg. Mason wasCEO, after all, "and as the expression goes 'the buck stops there,'"he added.
"The question is whether this as a business model canlast," Gartenberg said. "It's easy to replicate and under a lot ofpressure. The question is where the company goes from here.... Clearlysomething wasn't working, isn't working."
In a statement, Leonsis said, "Groupon will continue toinvest in growth, and we are confident that with our deep management team andmarket-leading position, the company is well positioned for the future."
Groupon Inc. makes money by taking a cut from the onlinedeals it offers on a variety of goods and services. Investors have questionedwhether that business model is sustainable and leads to growth over the longterm — and whether the company can not only grow its customer base but makemore from each subscriber.
Groupon had the advantage of being first, but the model iseasy to replicate. It has spawned many copycats after its 2008 launch, fromstartups such as LivingSocial to established companies such as Google Inc. andAmazon.com Inc. Chicago-based Groupon Inc. also has faced scrutiny about itshigh marketing expenses, enormous employee base and the way it accounted forrevenue.
"There was always a sense that Groupon had a lot ofgood ideas but no real focus," said Benchmark Capital analyst DanielKurnos, adding that with Mason's ouster the board made the decision to try to"get the ship moving in the right direction."
Can a new CEO answer all their problems? Kurnos doesn'tthink so. But maybe he can get Groupon more focused and steer it toward moretraditional businesses. Groupon Goods, for example, which sells products ratherthan restaurant or spa deals, has been performing well. With its deals,Groupon's challenge is to balance pleasing merchants who sell the deals withpleasing the customers who buy them, he added.
"A lot of people want to say that the daily deals businessis a zero," he said. "I don't think that's true."
Mason, a Northwestern University graduate and former punkband keyboardist, founded Groupon in 2008. By 2010, Groupon was available in 25countries and its staff ballooned to nearly 10,000, many times that of otherInternet darlings such as Twitter, Facebook or Zynga Inc., the other fallenstar of the latest swath of Internet IPOs.
Gartenberg, like other analysts, wasn't surprised by Mason'souster, but by the fact that "it took them this long." He called theway it came out "refreshingly honest."
"There was no pretense that he is leaving to pursueother interests or spending more time with his family," he said.
Groupon's stock has lost about 77 percent of its value sincethe IPO after losing $1.45, or 24 percent, to close Thursday at $4.53. Afterthe announcement of Mason's ouster, the stock gained 19 cents to $4.72 inafter-hours trading. The modest 4.2 percent gain, compared with the 24 percentdrop earlier in the day, is a sign that investors will need more than the CEO'sfiring to start believing in Groupon again.