Groupon: why we need to stop viewing it as a tech company

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Groupon

Groupon CEO Andrew Mason was fired after more than four and a half years during which he managed to cash out US$30-million and holding more than 46-million shares of the public company, valued at nearly US$1.4-billion at its peak.

In January, CelebrityNetWorth estimated his net worth had crashed to about US$230-million. Groupon’s share price has continued to fall since January.

Groupon’s woes are not good news for the tech sector because it’s broadly perceived as a tech company yet it’s not.

Groupon’s fall from grace has already affected many other tech IPOs even though it should never have been treated as a tech company. It employs more than 10,000 staff, mostly in sales, and has no breakthrough technology or services.

This is not the profile of a tech company, which typically has a small staff and is able to scale up without needing to recruit thousands of workers. A tech company scales through software and hardware and not by adding copywriters and sales teams.

Groupon’s valuation at IPO certainly benefited from its association with the tech sector but that association hasn’t worked well for the tech sector. Groupons dramatic fall in share value of more than 85% has cast a pall over the tech sector and tech IPOs among institutional and retail investors.

Because it continues to be considered a tech company by most media outlets, Groupon’s problems will continue to drag on the perception of tech and tech company valuation.

This Groupon effect could last well into 2013. But maybe investors will see that this Groupon discount will turn out to be a good deal because they can find undervalued investments.


This article by Tom Foremski originally appeared on Silicon Valley Watche, a Burn Media publishing partner.

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