Commerce Weekly: Groupon's long and winding road to an IPO

Groupon takes its show on the road, Square targets the mainstream, and contactless payment is coming to airplanes.

Here’s what caught my eye in the commerce space this week.

At last, Groupon’s investor show hits the road

GrouponIt hasn’t been an easy road to the NASDAQ for Groupon. Since it announced plans to go public last June, the leader in daily deals has lost its second COO in a year, endured an inquiry by the Securities and Exchange Commission, and had to make the embarrassing revelation that it was reporting revenues before paying merchants their cut. After delaying its investor roadshow in early September, Groupon launched it this week with an eye toward going public and raising $540 million on November 4. It’s seeking a valuation of $11.4 billion, which is pricey compared to other tech leaders (5 times projected 2012 sales) but less than half the $25 billion it was said to be considering earlier this year. Investor enthusiasm, it seems, has waned.

No sooner did Groupon pack up its PowerPoint and hit the road than Yipit, which aggregates daily deals, reported that Groupon’s most promising new service, Groupon Now, is off to a disappointing start. Groupon is promoting Now as “Groupon 2.0.” The hope is that strong growth in Now will offset its original product, the daily deal, as that method plateaus in popularity. On the Yipit blog, David Sinsky writes that since its May launch, Groupon Now has drawn in less than $1 million per month, less than 1% of the company’s revenue. Sales are strongest in Chicago, Groupon’s home market, but even in that locale, Now is only on pace to generate $1.5 million annually.

Slow start aside, I can’t help thinking there’s tremendous potential for Groupon Now because it puts the control in the retailers’ hands. As Groupon’s Now video shows (below), local merchants can offer deals whenever they have available inventory they want to move, whether that’s empty tables or merchandise on the shelves. They can define the deals, start them when they want, and end them when they’ve hit their limit. Whenever online companies have offered this level of control to sellers, the response has proved tremendous — think of eBay or ads on Google and Facebook. Groupon Now’s value proposition to merchants is far greater than the daily deals, where merchants must get in a queue and wait for their special day, on which they’re likely to be overwhelmed. What’s more, Groupon Now will allow for much lighter-weight, coupon-like deals. Frequent readers of this blog could have guessed that I’m pleased the narrator of the video passes up offers of discounts for a yoga class, Segway tour, and glamour makeover, choosing instead the more mundane but useful discount on a hamburger for lunch.

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Square and Walmart

SquareMobile payments company Square moved a step closer to mainstream ubiquity this week when Walmart agreed to sell its iconic card-swiping device at more than 9,000 stores. You can already buy the Square at Target, BestBuy, RadioShack or Apple stores — or you can get it for free online. The device remains targeted squarely at small- and medium-sized business, companies that don’t process enough volume to justify their own merchant accounts and use Square’s service to process credit card payments. Square’s marketing aims mostly at these small merchants, but in May it also launched its own mobile wallet, Card Case, which aims to let users run something like a tab at their favorite stores and pay by confirming the purchase on their mobiles — it’s similar to direct billing.

Square’s COO Keith Rabois has recently been positioning Square as a mobile payment alternative that doesn’t rely on an NFC-powered future. “I’ve never met a single merchant in the U.S. who says I want this NFC thing,” Rabois said in an interview with GigaOM founder Om Malik at last month’s GigaOM Mobilize Conference. Indeed, consumers don’t need any sort of mobile phone — NFC-enabled or otherwise — to complete Square transactions. It’s the merchant who provides the “mobile” in this mobile payment: the Square, plugged into a merchant’s phone (or tablet) takes the card swipe and processes the payment. With Square going on sale at Walmart, expect more merchants to be doing just that — though we don’t expect Walmart to be one of them.

Tap and pay at 35,000 feet

Flight passengers have gotten used to flight attendants swiping their credit cards to collect payment for chicken wraps and mini bottles of Merlot. Now, WestJet, a Calgary-based airline, will try MasterCard’s tap-and-pay PayPass system on some flights. NFC News reports that this system, once in place, will also allow NFC payments on mobile phones. But do passengers want to pass their phones to the aisle? American Banker quotes Brian Riley, senior research director with TowerGroup, as saying it might be a stretch. “While you might not mind handing your credit card momentarily to a stranger, the whole point of mobile payment is that you get to hold on to your phone; you don’t want everyone touching it.”

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