Groupon has fired its chief executive and the money-losing company faces several challenges, but Executive Chairman Eric Lefkofsky is undeterred. The Chicago-based e-commerce site, he said, is "inches away from greatness."
Lefkofsky, Groupon's co-founder and largest shareholder, speaking to the Tribune in his first public comments since Thursday's ouster of Andrew Mason, declined to discuss specific reasons for replacing Mason, though he pointed out at least one recent management error.
He also sounded as if he now agrees with the widespread sentiment that Mason didn't have the right skills to deal with the company's unique problems: It is global, large, technology-driven and growing fast, but it's also unprofitable, dogged by competitors and under intense scrutiny for its missteps.
Lefkofsky said he looked forward to hiring a CEO "who has experience dealing with the issues we're dealing with … who has been there and done that."
In spite of Groupon's troubles, "the long-term horizon of the company is fantastic," Lefkofsky said.
He'll have to forgive Wall Street if it casts a skeptical eye at his optimism. Even though it's less than 5 years old, Groupon popularized the idea of using the Internet to match local merchants and customers and it is now an established business. A new CEO isn't going to make the company's problems magically disappear.
Groupon is at a crossroads, not just because it has to find a replacement for Mason, the co-founder whose playful, irreverent style set the tone for the company's culture. Groupon faces shrinking consumer interest in its daily deals business that sends online coupons for everything from restaurants to pedicures to inboxes every day. And it has huge problems in its European operations.
Groupon is attempting to evolve its business model beyond daily deals into an ongoing, search-driven local marketplace. But the investment has been expensive. To boost growth, the company launched a separate business selling products at steep discounts. But that retail business has dragged down profit margins.
"While a new CEO may bring better skill sets (particularly in technology or online commerce), we believe that the challenges Groupon faces will only increase," wrote Edward Woo, an analyst at Ascendiant Capital Markets.
Lefkofsky supports the new course Mason had charted with input from him and other members of the board of directors.
In North America, email now drives less than 50 percent of Groupon's transactions. Half of local transaction volume comes from what the company calls its "deal bank," its searchable inventory of deals that are active for longer periods of time.
"This isn't about 'Oh, my God, we're going down the completely wrong road,'" Lefkofsky said. "Largely, the strategy and the business is going to continue down the exact same path it has been on."
He described Groupon as a "pioneer of curated commerce. We're selecting a certain number of deals every day, and then we're serving them out to people, sometimes via email, sometimes via mobile."
But the board decided that as the company enters the next stage of its evolution, the time was right to find "a new CEO that had some of those skills we need long term," Lefkofsky said.
In the interim, Lefkofsky and another director, former AOL Inc. executive Ted Leonsis, will run the company.
"Both (Ted) and I felt the company was inches away from greatness," Lefkofsky said.
That's a stretch judging by the stock market. Groupon's shares are down 75 percent in the 15 months since it went public at $20 a share. On Friday, in reaction to Mason's exit, the stock jumped more than 12 percent to close at $5.10.
While Groupon caught fire as a startup, it has stumbled repeatedly as it has grown. The company made embarrassing mistakes during the process of going public and then faced scrutiny over its accounting methods.
Since going public, Groupon has turned a quarterly profit only once.
In the fourth quarter, its net loss grew to $81.1 million, and the company projected weaker-than-expected operating income for the current quarter.
