Groupon: Send in the Clowns

According to VentureBeat writer, Matthew Lynley, Groupon belongs in a circus. In his article yesterday entitled, Compared to Zynga, Groupon is run by a bunch of clowns, he compares the efficiency behind the two otherwise very different business models. The title alone is priceless for the images it conjures up.

Earlier this week the Farmville creator filed for an IPO expected to raise about $1 billion. Groupon filed its S1 early last month for an initial public offering valued at $750 million. They’re just the latest in a growing number of startups getting in line to offer shares on the open market. LinkedIn started selling its shares in May and LivingSocial is said to be selecting bankers for an IPO valued at up to $15 Billion.

But Lynley says that’s where the similarities end and Groupon shows itself as a hulking model of inefficiency.

Compared to Groupon, which has enormous administrative costs and is hemorrhaging a lot of money, Zynga is a ruthlessly-run, well-oiled machine. The social gaming company has kept its administrative costs to a minimum and, while it hasn’t kept up with Groupon in terms of revenue, has been the most profitable company to file for an initial public offering this year.

Lynley also points out that Zynga has considerably lower marketing costs, spending a mere $40.2 million in the first quarter of this year compared to Groupon’s hefty 208.2 million. Groupon’s administrative costs represent about a third of its operating expenses, $178.9 million in this year’s first quarter alone while Zynga only shelled out $27.1 million for the same time period.

It’s an interesting comparison but as one person, Jeremy M, points out:

These are two completely different companies requiring very different infrastructure. Just because they are in the same broad social “space” doesn’t mean they are comparable. This is like comparing Walgreen’s and Barnes & Noble because they are both in the “retail” space. Amazon had a history of big losses before going public too. Does that mean Amazon is also run by a bunch of clowns?

I agree. While it’s easy to compare the financial numbers of the two companies, beyond that it becomes like the proverbial apples and oranges. The dynamics behind what generates those dollar signs are completely different. Even if you wanted to use Zynga as a model of efficiency when compared to Groupon, you’d need to dig a lot deeper than which company spends less money.

Source: VentureBeat