Groupon's new operations czar grasps shaky helm

SAN FRANCISCO Wed Aug 22, 2012 7:39pm EDT

People enter and leave Groupon Inc corporate office and headquarters in Chicago, Illinois, November 4, 2011. REUTERS/Frank Polich

People enter and leave Groupon Inc corporate office and headquarters in Chicago, Illinois, November 4, 2011.

Credit: Reuters/Frank Polich

SAN FRANCISCO (Reuters) - Groupon Inc's (GRPN.O) new operations chief, Kal Raman, is driving a major overhaul of the daily deals website's sales and payment processes to convince Wall Street skeptics that it is a serious technology company and not just a passing consumer fad.

Once hailed as the fastest growing Internet company in history, Groupon has shed three-quarters of its market value since its November 2011 debut on the Nasdaq, as a sharp slowdown in topline growth raised questions about the sustainability of its business of selling discount vouchers online.

Raman, a former Amazon.com Inc (AMZN.O) retail executive, was hired in April and has begun to overhaul Groupon's payments system, trim sales support jobs and push new technology. This month, he took over daily operations from Co-founder and Chief Executive Andrew Mason, who analysts say has lost the confidence of some investors.

Raman told Reuters Groupon is introducing four sets of technology to make its sales force, known as the "deal factory," more efficient, starting in North America and then Europe.

"The buck stops with me," Raman said in an interview on Tuesday. "Probably one or two quarters from now, Andrew should never be held accountable for the core business growth or lack of it."

But Raman deflected speculation that Mason's job is on the line after Groupon's dismal second quarter results.

He said he runs ideas past Mason all the time and the CEO gives a lot of input. Raman said he also talks many times a week with Executive Chairman and co-founder Eric Lefkofsky, who is "super committed" to Mason as CEO. A spokesman for Lefkofsky declined to comment.

"There's a lot of frustration with Groupon and investors are mainly concerned about management and competition," said Jeff Houston, an analyst at Barrington Research. "Mason has no experience running a multi-billion dollar company, so surrounding him with experienced operating managers like Raman is a good idea."

Houston compared the move to Pandora Media Inc (P.N), another young consumer Internet company where founder Tim Westergren is chief strategy officer while CEO Joe Kennedy is responsible for operations.

Groupon's shares are near a record low at $4.54, down from its $20 initial public offering price in November. Losses deepened after the daily deals purveyor missed analysts' forecasts for second-quarter revenue earlier this month.

Sameet Sinha, an analyst at B. Riley & Co, said Groupon might have grown too big for Mason to handle.

"Kal has a lot of work ahead of him," Sinha said. "Groupon has grown through acquisitions and has disparate assets in many countries. So for him to try and assimilate everyone is a gargantuan task."

COFFEE AND MORE

Groupon has been criticized for not being a real technology company because it employs thousands of people to call local merchants every day to persuade them to offer big discounts on everything from spa treatments to dinners.

That human-heavy focus has turned off some technology investors because a business that needs a lot of workers can be harder to grow profitably. Raman's four sets of new technology are aimed at addressing such concerns and improving efficiency.

The first is a system designed to automate the sales process, helping staff identify which merchants to call and when.

Second is a technology known internally as "Coffee," which shows sales people what deals have already run in a merchant's neighborhood and how well those offers performed. This should help Groupon's pitch men close deals faster, Raman said.

Third is an algorithm called SmartDeals, which matches Groupon's deals to the most suitable subscribers.

And then there is Merchant Center, an online tool that shows merchants data such as how many Groupon customers bought vouchers, how many have used them, and how much they have spent.

This technology push has already had an effect on Groupon's sales force. Headcount declined during the second quarter, mostly due to reductions in sales support positions, which are being automated, according to the company.

"Some people's jobs are no longer needed. That's part of a company evolving," Raman said, adding that his goal is to increase productivity rather than cut lots of jobs.

ELECTRONIC PAYMENTS

Groupon recently moved from mailing checks to merchants to sending money electronically to bank accounts. Raman said about 90 percent of merchants are on automatic payments now.

That change came after Groupon was criticized for paying merchants too slowly, which some analysts said helps artificially boost working capital.

"We have never taken steps to slow down payments," Raman said. "Of all the criticisms, that is just people wanting to pile on."

Raman is bringing a lot of this new technology to Groupon's European businesses. Sales automation is being piloted in the region and SmartDeals has already rolled out in major markets there. The Merchant Center is being introduced now, while Coffee will come to Europe in the third quarter, Raman said.

Groupon's European business has suffered partly because the company offered discounts that were too big, leaving some merchants dissatisfied. It has also paid merchants more slowly in the region.

Raman said Groupon has reduced the size of discounts on European daily deals and is testing faster payments to higher-quality merchants.

"The European business grew to billions of dollars in revenue from hundreds of millions in about a year," he said. "We have a solid base there and lots of merchants who still want to do business with us."

(Reporting By Alistair Barr; Editing by Tiffany Wu, Edwin Chan and Andre Grenon)

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