Groupon CEO Andrew Mason: 'This business is a daily street fight' When I said I was travelling to Chicago to meet the chief executive, one colleague said I should really "stick it to them." In fact, the company has attracted so much opprobrium that when Andrew Mason, the chief executive in question, was caught having a beer with staff it became headline news. "We're still this toddler in a grown man's body in many ways," said Mr Mason during the meeting, details of which were leaked to The Wall Street Journal two weeks ago. He admitted that the revision of the accounts was "the latest in a string of us making an example of how bad we are at being a public company. We have to get good at this. Groupon, like many new technology companies, is a Marmite proposition. The critics really do not like it. They point to the accounting problems, the falling share price, the 31-year-old Mr Mason himself (not experienced enough) and a business model that many say is built on shaky foundations. The company needs to spend so much money on marketing to acquire new customers, the critics argue, that profits will be hard to come by. It is a money-burning machine. I meet Andrew Mason in a conference room called Funbelievable at Groupon's headquarters - 600 West Chicago Avenue, Chicago. Other conference rooms have names such as This Used To Be a Forest and Here Comes Trouble. Groupon likes to do things a bit differently. In Funbelievable, there's a dart board on the wall and a sign beneath it that reads: "Shhhh - we're still in our quiet period." Mason speaks slowly and with careful consideration. He's been described a bit of a goofer, a practical joker who once spread a rumour that he owned 20 cats (including one pictured on his head) and whose staff sparked an argument with the Hummingbird Society over whether the birds came from eggs (they do) or cocoons (they don't, even though Groupon insisted this was the case). Is this entrepreneur from Philadelphia really fit to be the chief executive of a publicly listed company? At one point, Mason asks how I think he comes across, not to the general public but to me, the interviewer. I say he's more sober than I imagined a man who once brought a pony into the office to give to visiting New York mayor, Michael Bloomberg, as a gift. In one interview last year, Mason was described as wearing a grey T-shirt that looked like it had been pulled from the laundry basket that morning. Today, Mason is wearing a crisply-ironed white shirt. It looks pretty new. Groupon is a "daily deals" site and an internet growth story of almost unimaginable proportions. From a standing start three years ago, it now reports $500m (£309m) revenues a quarter and insists it will be in profit within two years. Consumers buy discounted coupons for services such as restaurant meals, massages and hotel stays and "merchants," as Groupon calls the businesses it deals with, receive a boost in customer flow. Groupon takes 50pc of the coupon cost and the merchant is paid the rest. Its development has been astonishing. Three and a half years ago, Groupon's total employee count numbered five and it operated in one territory, the US. Now it has more than 10,000 employees across 48 countries - that's faster growth than Facebook. In the UK, the company has just taken on new offices in the City. In its Chicago headquarters a sense of constant expansion pervades, with trailing wires and new carpet packs littering the floors as the company takes on more and more space. In Mason's eyes, Groupon is more than a daily deals sight. When I describe it as such, he almost visibly flinches. At its grandest, Groupon wants to be to local commerce what Google is to search. Seriously. "It is a reflection of the size of the opportunity we have in front of us," Mason says. We don't think of ourselves as a daily deals sight by any means. What we realised after Groupon started to take off is that we were positioned perhaps more than any other entity to bring the internet to local commerce that revolutionises the way people buy things locally. In a way that is as fundamental and profound as what Google and Wikipedia did for information and what YouTube did for video. Mason's vision is global and based on domination. He knows that there are at least 500 competitors out there trying to carve out a space in the local commerce sector. Critics say that with global corporates such as Google, with its "offers" service, and MasterCard developing its own deal functions it will not be long before Groupon faces an existential threat, just another bright spark overtaken by the guys with the big money. "There has been a pervasive criticism that Groupon is easy to replicate and that competitors someday - when somebody gets around to it - will just pick up their foot and step on us," Mason says. I am not sure how much more evidence people need [but] that it is not how the story is going to play out. We've seen competitors of all sizes, the largest technology companies, the companies with the largest sales forces like Yellow Pages, as well as start-ups, all take a stab at the Groupon model and nobody has been successful. Generally, what people tend to underestimate is the cyborg nature of Groupon. We are a company that has the DNA of being both a technology company and a heavily operational company. This business is a daily street fight. That is part of what has made Groupon great. It is something very difficult to bolt on if your DNA is that of a pure technology company. Also, it is difficult to bolt on 'technology' to any other type of business and that has been proved time and again over the years. So the cultural DNA that Groupon has, has allowed us to tackle this local commerce space where so many others before Groupon have since struggled. Groupon sees itself as part advertising platform, part yield-management tool for businesses and part "discovery" site. Mason's ultimate aim is that the company's title becomes a verb, like Google, to denote any attempt to find out what's happening in a local area. "Time Out should beware," says one senior aide to Mason, describing the effort the company is making to develop its website content to include local listings. We want Groupon to be both the consumers' and the merchants' portal into any local commerce experience. We have a vision for enhancing every single local commerce transaction," Mason says. It is such an inefficient market place right now. If you walked down Main Street in any city, 80pc of the places are 20pc full. That is an efficiency problem and that is something that technology has solved in just about every other industry but it hasn't done it in the local commerce market place. Such statements must keep Yell, the UK Yellow Pages business that has a similar vision as a localised digital enabler, awake at night. At present, the main driver of Groupon's business is email, sent to subscribers with the deals of the day. Groupon is now looking at personalisation of that email service ("If you're a guy you don't really want offers of laser hair removal," Mason says) and developing its mobile service, called Groupon Now, to support its mega-growth. "All of our stats confirm that Groupon is uniquely well-suited as a mobile experience," Mason says. In part, it is because of our curated commerce experience - we are not focused on massive selection on search, which is difficult and unwieldy on a phone. We are making a recommendation of a handful of deals that are very easy to browse. It makes Groupon a sticky experience on a mobile device. In the same way that broadband was an enabler for YouTube to exist, we believe that mobile phones are an enabler for services like Groupon. Local commerce, without question, will be one of the fundamental use-cases enabled by mobile devices over the next several years. Mason insists that new compliance checks have been brought in after a series of businesses complained that such was the demand increase when they entered a Groupon deal, customers were left dissatisfied. The OFT highlighted problems with "reference pricing" (the amount Groupon was claiming consumers could save) and the ASA questioned the accuracy of claims made by, for example, some of the beauty products offered by the deals. Any time you are in a situation where you have grown as fast as we have, there will be issues you will encounter along the way - for example, the issues that the OFT articulated. But such is the journey to becoming a great company. We don't shy away from those things when we encounter them and we are tackling them full-on and making it right. What's unusual about Groupon is that, unlike a company like Apple, we don't control the full stack. Our job is to comb Main Street, attempt to ascertain what the great local businesses are and make a recommendation to our customers, hand it over to those merchants and keep our fingers crossed that all goes well. It is not an easy process. We have over 10,000 people here and a significant percentage of them are dedicated not only to getting those merchants to work with us but then vetting those merchants, going through quality assurance, asking all the right questions. We've had to become experts in more than 500 different categories of local businesses and I think these are the growing pains of creating a new industry. The inputs that we are focused on are merchant preparation - making sure that merchants have a longer time between when they've been accepted to Groupon and we have scheduled their deal, so that they can get prepared. Clearly, business "plane crashes" as Mason describes them could put off some companies. In 2011, a study by Utpal Dholakia of Rice University, Houston, said that 40pc of merchants would not repeat the Groupon experience. The research company, Forrester, also highlighted concerns that Groupon simply engaged customers who already bought the brand and did not bring new people to the business. Others have said that Groupon is a bargain-hunters site, where deal-hungry consumers will move from place to place looking for the cheapest price, whatever the quality. Mason disputes the criticisms. Studies commissioned by Groupon found that 91pc of businesses said they gained new customers from their deals promotion, 87pc of business owners said the promotion increased awareness locally and that nine out of 10 customers spend more than the face value of the discount coupon when they visit the business. The company has recently received the first findings of research by ForeSee, the US online retail research company, which are expected to show high levels of consumer and merchant satisfaction. The numbers are likely to be released shortly. ForeSee has also previously said that Groupon deals do increase business. Mason says that businesses will see Groupon as an increasingly important partner because of the digital kit it can offer. A new merchant centre application allows businesses to receive feedback from customers in real time. There is also the "scheduler" to help cope with customer flows and programmes which bring together data from all credit card transactions to show what customers particularly like. Mason has met local businesses to see what the problems are. "You hear so much about the plane crashes but that wasn't the story that we got from the merchants that hadn't re-featured [on Groupon]," he says. Typically, the problems that they had were operational problems around the way that their deal went, issues they had communicating with their sales rep, proper training up-front or the massive influx of customers they get towards the end of the redemption period when the Groupon is about to expire. As I was listening to these merchants' stories I was heartened to realise that a lot of these things over the last year we have actually fixed or are in the process of fixing. So we have introduced a feature called 'staggered expiration dates' which balances out the redemption spike that happens towards the expiration date. We are borderline obsessive about measuring merchant satisfaction and understanding the inputs and tackling those problems. One issue has certainly been price, with many businesses balking at the 50/50 split of the cost of the coupon between the merchant and Groupon. One business chief executive I spoke to who had met Groupon and not proceeded with a deal, said that the fact the company keeps the proceeds of any discount coupons sold which are then not used - customers pay up front for the deal - was also a problem. Mason says the company is sensitive to cost and that the 50/50 split is only a starting point. "We work with the merchant to put together a financial model that makes sense for them," he says. We have a tool that is our Return on Investment or profitability calculator. What I think people don't always understand is there are elements like overspend on these vouchers that make it effectively a smaller discount for the merchant. Then there are the repeat customers that merchants get. Groupon is paid advertising for these businesses. The bigger issue that we have had in merchant adoption is we are fighting an age-old stigma that local businesses have with the concept of discounting. It is one that for some reason doesn't exist in retail. If you go on Amazon, just about everything is sold at some type of a discount and we look at it the same way. We have made a ton of progress getting Michelin-starred winning restaurants and world renowned museums - all kinds of highly reputable businesses - that not only have never discounted before, but they have never done any type of advertising, to come to Groupon. Our average margin is something like 40pc. That is a reflection of the equilibrium that we have found in making sure that we are providing a positive and profitable Groupon experience for merchants in all the different categories which have inherently different margin structures. So, the 50/50 split is not set in stone? The short answer is 'yes'. Groupon floated on Nasdaq in November 2011, its share price jumping more than 50pc on the first day of trading to more than $26. Its IPO offer of between $16 and $18 valued the company at $13bn, which appeared to make sense of Mason's reported decision to turn down offers of a trade sale to Yahoo! ($3bn) and Google ($6bn). Since then, however, and after the widely reported accounting problems and question marks over profitability, Groupon's share price has sunk. Even an upgrade from analysts Evercore Partners last month failed to halt the downward momentum that led to the record low at close on Friday. Mason dismisses talk that walking into the hands of a technology giant may have been a better option than listing publicly. "I can't speak specifically to what did or didn't happen with Google, but look at where we are and look at how far we have come over the last couple of years," he says. We think there is an opportunity for Groupon to become one of those very few special companies that change the way that people live. And we feel really good about the culture that we have built, we feel really good about the team we have built and, ultimately, we don't want anything to get in our way of going after that big mission. Certainly, as with many tech start-ups, investors need a strong constitution to commit to Groupon. With little historical data and a chief executive who may feel more at home "chugging a beer" than sitting with the accountants, each road hump can lead to rapid ups and downs in the share price. Critics say that the company should have travelled more slowly and prepared more carefully, both for life on the public market and opening businesses in so many new countries. Solutions such as new compliance codes, a strengthened board and new accounting checks have been bolted on after the event. Surely that is putting the cart before the horse? Mason does not agree and makes an argument much used by technology companies - if you don't move rapidly you will be left gasping in the exhaust fumes of smarter young upstarts. MySpace anyone? "One could argue we made the mistake of moving too fast," he says. But I am pretty sure the pains that result from that mistake are far less than the pains from the mistake of moving too slowly. We invented a new industry, a new business model, that was replicated with an unprecedented fury, thousands of times, by start-ups and global corporations all over the world. We made a decision to move fast that has gotten us to where we are and if we hadn't made that decision we might not be here to lament moving at speed. It was an enormously competitive market and I feel very good about where we are largely as a result of some of the decisions that we made and our willingness to move with speed. There are obviously trade-offs that you make, but I think they are the right trade-offs. At this point we are a grown-up public company and we accept that reality and our priorities shift accordingly. Privately, Mason admits that he will have to change. He has told colleagues that he often chucks in "something absurd" just to get a reaction, not to succumb to corporate dullness, to keep things feeling at least a little edgy. But it is probable you will see less of that - fewer arguments about humming birds. No cats. No ponies. "If you're asking is it a different job, yes, it is very different," he answers when asked if he really is a toddler in an adult's world. It evolves, the nature of the day-to-day. My values have stayed constant, the behaviours or characteristics that allowed me to get the company from zero to 48 countries. This company has taken on, as part of its culture and part of what attracts people to work here, a willingness to not be boring. Discovery and surprise is inherent in Groupon, it is the experience we are trying to create for our customers every day, in that email in the morning. It is in our writing, it is in our marketing, so that will always be part of Groupon regardless of the number of jokes that I tell. I think we've talked about the issues that were raised in the IPO in the past and I don't want to relive them now. We addressed them properly. We are really focused on moving forward. The inputs that we are focused on, that I have always optimised for, are the long-term vision for the company and the value we are creating for our consumers and merchants. That is what I would want if I were an investor and that is what I would like the company to be focused on. Profitability will come, he says. The cash burn-through for marketing will be decreased. I think we've shown over the last several quarters the ability to reduce marketing as a percentage of revenue while continuing to grow the business. When I talk to our investors, they want us to build a great company. If I said to investors, 'would you like to get profitable in the next three days', they would say 'no, not if it comes at the expense of building a great company', and that is what we are focused on. Profitability will follow. So, fewer jokes and more spreadsheets? Mason laughs. His aide pipes up: "Andrew isn't actually that funny, you know." Mason tells a joke. It's not exactly Tommy Cooper but it gets a laugh. The odd thing is, he says the joke is off the record. Welcome to his new corporate world.