Friday after close of the stock market Groupon reported accounting irregularities that resulted in a restatement of earnings for their 4th Quarter of 2011.
Prediction: Groupon will go down in stock market history as the greatest publicly perpetrated scam ever.
I think it's finally becoming obvious to everyone that there is no sustainable business model but the question then is "How did this happen?". Why did so many people buy into this as investors and why did the merchants who are being hurt by this model buy into this scam?
Answer: It's in our human nature to scam and be scammed.
Tulip-mania, Subprime Mortgages, Bernie Madoff and Groupon all are cut from the same psychological cloth and that cloth is invisible; yet it also is dazzling to our desires!
That is the reason Groupon has succeeded as a scam to this point. It plays perfectly on two very basic human desires. Those desires are...
1. The desire for the "Free Lunch".
2. The desire to believe we are *all* "Above Average".
As humans we have evolved to look for the shortcuts, the cheats, the easy ways out, the fountains of youth, the perpetual motion machines, the "free lunches".
In this universe with it's annoying characteristic of entropy all we see is things winding down, getting old, becoming obsolete, tending to chaos and disorder. It's depressing.
But we are dreamers so we fight it by using our brains to innovate ways that offset or slow this perpetual degeneration. Entropy evolved innovation-mindset into humans and so we always looking for that clever shortcut to at least slow or in some cases reverse this process of decay.
And we have really fought a good fight with entropy. We have bootstrapped ourselves from roving bands of hunter/gatherers living in caves into a race that has broken the bonds of it's planet and is reaching for the planets and stars. So when the global recession hit and small merchants and large were hammered by consumers who stopped spending, the situation was ripe for an innovation that would address that problem.
The market is huge, and with consumer's distracted by social media and mobile apps, the merchants are having trouble reaching consumers with traditional advertising and marketing. So when the daily deal discount craze hit the recession-strapped consumers were driven by the "Free Lunch" desire that Groupon embodied. It was a new "free" lunch, near enough to free anyway, every single day! The "free lunchers" pounced in force and the Groupon scam was off and running.
On the other side of this equation the merchants were driven by both types of desire. The Free Lunch desire in the merchant was mined and accessed because Groupon would pay the merchant upfront within a few weeks for agreeing to do, and then launching, a Groupon campaign.
Within a few weeks of the day a deal launched on Groupon the merchant would get a couple thousand dollars from Groupon!! Cool! Free Money! This was their "cut" of the campaign. So ahead of the main part of the 2 to 4 month coupon rush starting a merchant gets "cash in hand" before they've really had to put a lot of resources into supporting that coming coupon rush.
It's just like spending money on a credit card thinking it's money you already earned. Then within days to weeks they see more people coming in the store and they get an emotional rush from the increase in traffic that allows them to ignore the fact they are losing a *lot* of money on each of those transactions.
The whole thing is perfectly designed to manipulate the emotions of a merchant into thinking that *they* are getting a free lunch for giving customers a free lunch!!! Truly this is a brilliant scam that prays on the weaknesses and insecurities of the stressed out merchant's mind in the midst of a recession.
Making it even more powerful as a scam, the "Above Average" desire was also mined here by Groupon. The sober, thoughtful merchant might see through the "free lunch" part of the scam. So Groupon pushed every merchant to believe that "your business is way *above average* in quality/service/cool/a... compared to your local competition."
"All you need to do is use Groupon to get a customer in the door once and your *above average* quality product or service would have those discount hunters coming back again and again after that first visit because of course your business is way *above average* and just needs to get initial customer visits and people will beat a path back to your door for ever, ever, ever after!!"
Obviously, by definition, all businesses can't all be "above average".
So what we have here is one of the most perfectly executed psycho-emotional lending scams in the history of humanity. This scam will go down in history along side "tulip-mania" and "sub-prime mortgages" as one of the biggest instances of "Emporer's New Clothes"-hysteria ever.
Groupon is "The Emporer's Free Lunch" and anyone who invested in it just spent several years, or maybe only a few months now, talking about what a "lovely savory tang" this stock has and "how filling and satisfying it is."
In reality you have been eating spoonfuls of air and you are about to pass out from lack of nutrition once all the restricted stock becomes unrestricted in June. Watch out below!! Here comes Groupon!