Groupon is leading us into the next tech bubble - but it may just implode on its own before then

by Knowlton Thomas

One must wonder how often Groupon CEO Andrew Mason regrets turning down Google's generous $6-billion buyout offer.

After all, that was a secure, stable, surefire way to get really rich, really fast. Now, Groupon's pushing for an IPO, but there are concerns abound—fierce competition, complaining merchants, and red ink bleeding everywhere.

Many viewed LinkedIn's IPO as the first step toward a tech bubble. After a decade of virtually no major tech companies going public—fear still lingering as the dust and ashes of March 2000 settled—2011 seems to be the year that sees the confidence of companies and investors arise alike, setting up a stage not unlike that in the late 90s.

LinkedIn surged to 160 percent of its opening stock price on its debut, signalling that investors are starved for a piece of this Web 2.0 and 3.0 action. But the valuations for these companies—Skype, Facebook, Twitter—are insane, given their revenues and profits (the latter of which doesn't always even exist).

Groupon is a textbook example: valued concretely at $6 billion and by some at two or even three times that, the company—named by Forbes the "fastest growing company ever"—has yet to profit. In fact, it's incurring losses that it admits will continue for the "foreseeable future."

Today, TechCrunch ran a guest post by Rocky Agrawal called "Why Groupon is poised for collapse," noting the many follies of why most merchants shouldn't bother doing business with Groupon based on its lopsided business model.

Even if Groupon manages to avoid self-destruction, its negative press will surely weigh heavily when it comes time for an IPO. How can it be worth $6 to $25 billion when hundreds of other companies employer strikingly similar tactics, when its reputation is shaky at the best of times, and when it struggles to profit?

All of this means that if Groupon does end up pulling off a LinkedIn-esque stock market launch... that it could actually be the worst case scenario of all.

Chicago, Illinois, United States

Launched in November 2008, Groupon features a daily deal on the best stuff to do, see, eat, and buy in a variety of cities across the United States. We have about 200 wonderful people working in our Chicago office (a handful of whom you can see to your right), along with a smattering of people in Groupon's other cities. Our company philosophy is pretty simple: we treat our customers the way we... more

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Knowlton Thomas

Knowlton Thomas

Knowlton is the managing editor of Techvibes and author of Tempest Bound. Based in Vancouver, Knowlton has been published in national publications and has also appeared on television and radio. Previously he was an editor for New Westminster weekly The Other Press and served on its board of directors. When not working, Knowlton enjoys hiking, tennis, and martial arts. more

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