When Groupon was launched in September 2008, no Wall Street guru could have foreseen that it would become a $30 billion giant that would spawn a motley crew of online imitators. In this era of pessimistic economic prognosticators, Frank Sennett's Groupon's Biggest Deal Ever arrives as a sustained breath of uplifting air. This account of founder Andrew Mason's supposedly nonsensical discount startup blends the appeal of whimsy and wackiness, with the abiding allure of the underdog. Editor's recommendation.
Groupon's Biggest Deal Ever: The Inside Story of How One Insane Gamble, Tons of Unbelievable Hype, and Millions of Wild Deals Made Billions for One Ballsy Jokerby Frank Sennett
The inside story of the meteoric rise of Groupon from startup to $30 billion online giant and the audacious genius behind it, founder Andrew Mason
In late 2010, Groupon made an incredible gamble. Rather than take Google's $6 billion buyout offer, founder Andrew Mason turned the search giant down and decided to go it alone. The experts thought he was/p>
The inside story of the meteoric rise of Groupon from startup to $30 billion online giant and the audacious genius behind it, founder Andrew Mason
In late 2010, Groupon made an incredible gamble. Rather than take Google's $6 billion buyout offer, founder Andrew Mason turned the search giant down and decided to go it alone. The experts thought he was insane. Groupon was little more than two years old and staffed from top to bottom with twenty-somethings. The wild ride couldn't last, but Mason thought otherwise, and with knowledge of a possible IPO he liked his odds.
A discount service that offers a deal a day at local merchants in countless cities in more than forty-three countries, Groupon is the fastest-growing company in Internet history and is as committed to innovating a new model for commerce as it is to creating an office culture and editorial voice based on radical transparency and absurd humor.
Groupon's Biggest Deal Ever is the exclusive and unparalleled account of the incredible rise of discount giant Groupon and the compelling story of its offbeat founder Andrew Mason as he created a juggernaut of online commerce and ignited a consumer revolution.
“Perfect for would-be entrepreneurs with a dollar and a dream... Mr. Sennett had an enviable level of access during his reporting, and it pays off in a highly readable series of vignettes that demonstrate just how much personality plays in high-stakes Silicon Valley deal-making... For students of start-ups, there is much to enjoy in this breezy retelling of three tumultuous years with hundreds of millions of dollars on the line.” The Wall Street Journal
“Fresh, fun, and exciting! A great inside business story wonderfully told.” Tony Hsieh, New York Times bestselling author of Delivering Happiness and CEO of Zappos.com, Inc.
“The 'insane gamble' referred to in the subtitle is the one in which Andrew Mason, the founder of the Internet coupon site Groupon, turned down a $6 billion buyout offer from Google...Told with an appealingly jaunty prose style (imagine Ben Mezrich but with even more enthusiasm), the story portrays Mason as a plucky entrepreneur, a laidback and politically incorrect school prankster who, on the other hand, is a sharp-as-a-tack computer programmer and a guy who's savvy enough to know a good idea when he has it... Is there a movie here, too, following in the wake of The Social Network? Well, there are no Winklevoss twins in the story, but don't bet against it.” Booklist (Starred Review, Top 10 Business Book of 2012*)
“By the end of the first chapter, Sennett's nuggets of detail swell into full-blown revelations. The Time Out Chicago editor in chief quickly plunges readers into Groupon's boardroom, providing one of the most detailed accounts of how close the founders came in late 2010 to accepting a $5.75 billion buyout offer from Google and why they ultimately rejected it… The cover of Sennett's book promises "the inside story" of the Chicago-based daily deal company that went from tech startup to multibillion-dollar initial public offering in less than four years, and that's what it delivers. Even the closest of Groupon observers will learn a lot. And they'll also hear from company insiders who rarely grant interviews… Through numerous anecdotes and observations, Sennett also captures all 360 degrees of Mason's personality, from his stubbornness and immaturity to his talent, dedication and loyalty… Sennett has provided us with a well-written and revealing first draft of the company's start.” Chicago Tribune
“[Groupon's Biggest Deal Ever] is the first comprehensive examination of Chicago's overnight Internet star; it takes readers from the company's start, through its almost-sale to Google Inc. in late 2010 to its IPO last fall.” Crain’s Chicago Business
“A fast-and-furious account of how Groupon and its young founder bucked acquisition trends by rejecting a $6 billion buyout offer from web titan Google.... A justifiably dramatic look at the machinations of a resoundingly successful startup and its 'Andy Kaufman of CEOs.” Kirkus Reviews
“Groupon CEO Andrew Mason takes center stage in this story about the company's founding, development, and explosive assent… It's refreshing and enjoyable to read Sennett's likable portrait of Mason ("the inexperienced CEO hiding a brilliant analytical mind behind a goofball demeanor") and Lefkofsky (nicknamed "Punchable" by Mason for his hard-edged, "alpha dog" attitude). Sennett succeeds in presenting a balanced view of the company, complete with bad press and "damaging controversy.” Publishers Weekly
“From the fast-paced opening pages, where we learn why Groupon rejected Google's $6 billion offer, Frank Sennett takes us on the wild journey of founder Andrew Mason's unlikely success and how it could just as easily have never happened at all.” William D. Cohan, New York Times bestselling author of Money and Power and House of Cards
“More Social Network than Barbarians at the Gate, this is an entertaining tale where the geeks meet money and power, and the skinny guys run away with the cash, only may be they don't.” Paco Underhill, author of Why We Buy, Call of the Mall, and What Women Want
“Ever wonder why you aren't one mouse click away from becoming a billionaire? Groupon's Biggest Deal Ever gives you a funny, compelling, blow-by-blow account of what stands between a clever idea and an internet fortune. You may never launch into cyberspace like the book's zany and tenacious heroes, but you will gain a new perspective on how ideas blossom and mega-deals get made, and you'll have fun along the way.” Jerry A. Webman, Chief Economist Oppenheimer Funds and author of MoneyShift: How to Prosper from What You Can't Control
“So what's a three-year-old company--one that's never made a profit, burns cash like there's no tomorrow and has an easily duplicable business model--actually worth? If the company's name is Groupon, the sky's the limit. Frank Sennett tells the gripping story of entrepreneur/carnival-barker Andrew Mason's gutsy decision to turn down a $6 billion buyout offer from Silicon Valley's 600-pound gorilla (Google) and plunge ahead with an IPO that valued Andy's excellent adventure at close to $16.7 billion. Groupon's Biggest Deal Ever proves that, on Wall Street, truth really is stranger than fiction.” Peter Passell, Editor of the Milken Institute Review and author of Where to Put Your Money Now
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Groupon's Biggest Deal Ever
The Inside Story of How One Insane Gamble, Tons of Unbelievable Hype, and Millions of Wild Deals Made Billions for One Ballsy Joker
By Frank Sennett
St. Martin's PressCopyright © 2012 Frank Sennett
All rights reserved.
If you believe the rumored numbers, it would have been the biggest acquisition in Internet history — and you definitely should believe the numbers. In the fall of 2010, online search giant Google offered nearly $6 billion to purchase Groupon, the upstart daily-deals site dubbed by Forbes as the fastest-growing company ever after it had become the quickest firm to rack up $1 billion in sales and the second-quickest, behind video behemoth YouTube, to hit a billion-dollar valuation.
From early October of 2010, when Yahoo! began targeting Groupon for purchase (more on that — a lot fucking more, as then-Yahoo! CEO Carol Bartz might put it — later), through sale negotiations with Google that lasted into December, the tension on the board ratcheted up to Cuban Missile Crisis levels. Online acquisitions didn't get any bigger than this.
Andrew Mason, the inexperienced CEO hiding a brilliant analytical mind behind a goofball demeanor, turned thirty on October 22 in the midst of dismissing Yahoo!'s interest. A few weeks later, Google came calling, contacting Groupon via Allen & Company, one of the investment banks Groupon was working with.
Mason was invited to Google's large Chicago sales office, along with Groupon chairman and co-founder Eric Lefkofsky, and then-president and -COO Rob Solomon. There they met with Stephanie Tilenius, Google's head of commerce, and Margo Georgiadis, VP of global sales. Everyone left the session feeling good about a potential team-up.
Negotiations proceeded at a rapid clip after the initial conversation. Mason visited Google founders Larry Page and Sergey Brin at the legendary Googleplex in Mountain View, California. Lefkofsky started working on deal points with Google chief business officer Nikesh Arora. You know that button on Google's main page that says: "I'm feeling lucky"? Arora was ready to push it. Except that Groupon was starting to enter a period of hyper-growth, increasing pressure on Google to raise its bid, which at that point had reached $3 billion.
By mid-November, negotiations had stalled over the final number, but the prospect of a sale was tantalizing to both Groupon's leadership and its venture-capital investors. On November 22, Lefkofsky told Solomon to grab some clean underwear: They were going to California to salvage the deal. They left with Mason, product VP David Jesse, senior VP of global operations Nick Cioffi, and Lefkofsky's investment partner (and fellow Groupon co-founder) Brad Keywell that afternoon in a chartered jet from Chicago's Midway Airport to San Jose. Even gaining two hours heading west, they didn't arrive at the Googleplex until after 5:00 P.M.
Mason, Lefkofsky, and Solomon were quickly shown to Arora's office, where they were joined by Web godfather Eric Schmidt, Google's CEO at the time and now the company's executive chairman, along with Page (who took back the CEO reins from Schmidt two months later), and deal architect David Drummond, Google's senior VP of corporate development. It was a high-wattage meeting by any measure.
Mason at that point was seven years out of Northwestern University, where he had majored in music. At six-foot-four, he struck some in Silicon Valley as a taller, more cherubic version of the comedian Dane Cook. When Mason wasn't intensely focused on solving a business problem, he could disarm even the harshest critic with a warmhearted grin that crinkled his eyelids. He was highly guarded about his personal life and emotions, which sometimes made him come across as cold to those who reported to him. But Mason was always willing to make himself physically vulnerable for the sake of a comedy bit — such as cultivating bizarre sideburns and performing a boot-scooting boogie as the cowboy-hatted pitchman for a monkey-rental service Groupon rolled out one April Fool's Day. Rumpled clothing and unkempt hair gave him a perennial Sunday-morning-in-the-dorm vibe — in fact, he briefly experimented with sleeping in his clothes so he could wake up a bit later in the morning — and he was so committed to defying the business world's superficial rules of behavior and appearance that he once showed up to lunch with a billionaire decked out in a bright-green tracksuit. But he did own business suits as well, and he cleaned up nicely when he wore them — not that he cared if anyone thought so.
Lefkofsky had already successfully taken other Web companies public, most notably InnerWorkings and Echo Global Logistics, both of which helped other businesses find efficiencies in their supply chains. Half a head shorter than Mason, Lefkofsky had something of a bantamweight boxer's aspect, the physical impression of coiled energy underscored by the fact that he was not afraid of conflict. He was a trim, youthful forty-two, and with his dark bushy eyebrows, ever-present glasses, and gray-blue eyes that conveyed both wry wit and sharp intelligence, he looked a bit like Groucho Marx without the greasepaint. Add in facial hair that just barely exceeded the definition of stubble and a wardrobe that consisted mostly of jeans, casual button-up shirts, and muted sweaters and you had the very portrait of an online mogul who seemed increasingly comfortable with himself.
Solomon also had been around the block a few times: Now in his early forties, he had enjoyed a six-year run growing revenues as the head of Yahoo! Shopping and became a corporate officer at Yahoo! An easygoing, well-liked, shaggy-haired former Berkeley water polo player who knows his way around a surfboard, he moved to travel start-up SideStep as president and CEO in 2006, overseeing its sale the next year to rival Kayak for $200 million, and then served a stint at VC firm Technology Crossover Ventures.
Still, this was a plunge into the deep end of the pool for all of them.
The meeting consisted largely of both sides telling each other how great this partnership would be. After observing the niceties, Lefkofsky, Mason, and Solomon were invited into a conference room with a whiteboard, where they negotiated for more than two hours with Arora and Drummond until they reached a number — the magic $5.75 billion — that they felt comfortable taking back to Groupon's board.
Around 9:00 P.M., Mason, Lefkofsky, and Solomon returned to the Rosewood Sand Hill, a luxury hotel in Menlo Park on Sand Hill Road, the fabled street of dreams for seekers of venture capital in Silicon Valley. The trio retired to Madera, the Rosewood restaurant where many a high-tech deal is sealed and celebrated. It was just before closing time, and they had the place all to themselves.
Lefkofsky marked the occasion with the premium tequila he's fond of, Solomon toasted him with a few fingers of Scotch, and Mason had red wine. It was a giddy, potentially historic moment: They were heading back to the Midwest in the morning on a glide path to being Google's biggest-ever acquisition. It was an astonishing outcome for a team of Chicago upstarts who'd started fleshing out the idea for a group-buying site just a few years earlier. The trio finished their drinks and, warmed by the glow of the restaurant's large fireplace, contemplated futures growing brighter by the moment.
Only one significant hurdle remained: Google couldn't guarantee the deal would close. The company did offer a sky-high $800 million breakup fee, but if antitrust concerns held up the sale for a year to eighteen months — and perhaps ultimately led the Justice Department to quash the deal — that would be cold comfort for Groupon. In the worst case, the Chicago company could be crippled. Stuck in limbo, it wouldn't be able to make key hires and strategic acquisitions to supercharge growth, and it couldn't go after new customers as aggressively as needed. Lefkofsky devoted two full weeks to building a workable contract from the term sheet, but without that guaranteed close, no one was comfortable with the deal. Meanwhile, the prospects for Groupon successfully staying independent were looking increasingly rosy.
After the last California trip, Mason and Lefkofsky initiated several tension-packed board calls from Groupon headquarters. The conversations, some of which took place on weekends as the sense of urgency grew, centered around a simple yet exceedingly difficult-to-answer question: Would it be absolutely nuts to turn down this deal? One thing's certain: The negotiations forced Groupon's leaders to explore the depths of the gold mine they were sitting on.
Those kinds of figures tend to focus the mind.
Groupon had cracked a code the Silicon Valley giants had failed repeatedly to solve: It had hooked local merchants up to a giant ecommerce machine and then delivered the resulting bargains directly to millions of consumers worldwide. Executed properly, this could be one of those once-every-decade business breakthroughs, perhaps on a par with Amazon's creation of an online-only retail superstore in the nineties. But if Groupon was a special company, Google's offer was pretty damn special, too.
As the biggest technology firm in the world, Google could provide Groupon with key advantages. Integrating daily deals into the dominant online search product could rapidly increase the reach of those offers. And Google's respectful post-acquisition management of YouTube suggested Groupon's team would be able to operate as a truly autonomous business unit, an impression Google did everything it could to reinforce.
So the model worked, in theory. But some of Groupon's key players, Mason chief among them, had the nagging sense that YouTube had sold itself too early. And even though the offer now on the table was nearly four times as large as the one that landed YouTube, the Chicago crew couldn't shake the feeling that they still might be cashing out too soon. But every argument against consummating the deal kept butting up against one number: 6 billion.
As the negotiations dragged on, most of the board came around to supporting the sale. Among the leadership team, Lefkofsky also leaned toward selling, Solomon was ready to accept either outcome, and Mason expressed both a desire to keep running the company and a willingness to go with Google if it could speed Groupon toward its goal of creating a new ecosystem for local commerce. If the majority shareholders wanted to sell, Mason could get excited about the ways in which the search leader might help his company grow, even though he was nervous about the fact that such acquisitions often fail.
But there were a few key voices — such as board member Kevin Efrusy, the man who'd led Accel Partners to invest in a nascent Facebook — pushing Groupon to see how far it could go on its own. Efrusy was joined in the pro-independence camp by board observer Roger Lee, general partner of VC firm Battery Ventures, another Groupon investor.
German entrepreneur Oliver Samwer, a big Groupon equity holder thanks to the sale of his European CityDeal clone to the company earlier that year, swung back and forth on the question like a weather vane in a tornado. Some days he'd insist on selling to Google at once; on others he'd argue that Groupon must remain independent because it soon could be churning $200 million a month in gross sales, way up from the $50 million it was doing at the time. The projected sales number seemed crazy, and by most standards it was. But by the second half of 2011, less than a year later, Groupon's gross billings actually topped $400 million a month.
By early December, it was time to make a decision. Solomon was fond of telling colleagues that if they turned down the largest deal ever offered to an Internet start-up, they'd ultimately look like either the biggest idiots in the world or the guys with the biggest balls. Toward the end of the process, Mason brought in Nitin Sharma, a data scientist who worked for Groupon, to make a presentation to Lefkofsky, Keywell, and Solomon. Sharma had crunched the numbers and, based on his jaw-dropping projections — Groupon could end up more than ten times larger if it fully optimized its data processes — he strongly recommended that the company remain independent.
That's when everyone started climbing down off the fence. Lefkofsky was neurotic enough that he might not sleep for the next eighteen months if antitrust concerns held up the Google deal, and now these new projections supported the Groupon founders' gut feeling that they had a lot of running room left with this still largely unexploited commerce model.
In the six weeks during which the Yahoo! and Google negotiations played out, the company's sales had exploded to some $50 million a month — twice what they had been just three months earlier. The leadership team started wondering if gross revenues in 2011 might top a billion dollars — or even $2 billion.
It was hard to project how steep the curve might be. The most successful Groupon to date, a November 24, 2010, Nordstrom Rack deal that sold $50 gift cards for $25 and grossed more than $15.6 million (representing about 2.5 percent of Groupon's cumulative total sales up to that time), pointed toward strong continued growth on the national retail front. Add in the fact that international sales were exploding and now accounted for more than half of the company's revenue and staying independent started to seem almost irresistible.
Mason and Lefkofsky holed up in a Groupon conference room and talked the proposed deal through one last time. They now believed their company was worth well more than $6 billion, but it was difficult to say precisely how much more — unless they chose to believe leaks from New York investment bankers who pegged Groupon's valuation at anywhere from $20 to $30 billion. That overheated speculation emerged as competition between Morgan Stanley and Goldman Sachs for lead underwriter status became so intense that Goldman CEO Lloyd Blankfein scheduled a visit to Groupon headquarters for two weeks into the new year so that Blankfein, one of banking's true masters of the universe, could pitch Mason and Lefkofsky in person.
Ultimately, they concluded the company had so much growth potential, and they were so passionate about the business model, that the only move left was to call Google on December 3 and kill the deal — a deal that likely would have been done if only the search giant had been able to guarantee a close. After Lefkofsky confirmed Keywell and Solomon's support for the plan, he pulled the plug.
"Emerging from that process, it felt like a butterfly emerging from the cocoon," Mason 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."
That's not how it looked from the outside, though. Groupon's rejection of Google sent heads spinning in Silicon Valley and shocked the rest of the world, even as it whetted the appetites of the banks for a Groupon IPO that might eclipse Google's own.
Was it hubris that led Groupon to remain independent? Seemingly millions of people drew that conclusion. And it's true that $5.75 billion would have represented an eye-popping payday for a two-year-old start-up. After all, Google had landed YouTube for the bargain price of $1.65 billion in 2006 and then picked up online advertising powerhouse DoubleClick for $3.1 billion a year later. Auction site eBay had earlier set the online-acquisition bar by paying $2.5 billion for videophone service Skype in 2005. Even accounting for inflation, Groupon would have set the all-time private cash-out mark for a Web start-up if it had only said yes to Google.
But with the steep revenue trajectory management saw in late 2010, they knew there was a significant possibility that if and when Google finally delivered the big check, Groupon's founders could be selling at a discount much steeper than the half-off sushi, mani-pedi, and boat-tour deals the company was known for. Even so, no one would have criticized Groupon for taking the money.
As the year drew to a close and serious competition began to emerge in the daily-deals space, only one question remained: Would Groupon's $6 billion gamble pay off?
Excerpted from Groupon's Biggest Deal Ever by Frank Sennett. Copyright © 2012 Frank Sennett. Excerpted by permission of St. Martin's Press.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Meet the Author
FRANK SENNETT is the Editor-in-Chief of Time Out Chicago. He is a graduate of Northwestern University's School of Journalism, earned an MFA from the University of Montana, and has published seven previous books.
FRANK SENNETT is the Editor-in-Chief of Time Out Chicago. He is a graduate of Northwestern University’s School of Journalism, earned an MFA from the University of Montana, and is the author of Groupon's Biggest Deal Ever and seven previous books.
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