First, a confession. When it comes to my writing interests, I have a split personality (more properly called Dissociative Identity Disorder. For the technically mined, details of this disorder are spelled out in section 300.14 (dissociative disorders) of the DSM-IV. In practice, having this illness means I write about Greed and also about the latest comings and goings of Google (this blog) and cloud computing (Eye On The Cloud). Amir Efrati of the Wall Strret Journal is the only fellow I know who shares these interests. He recently gave us the skinny about how Google’s discussions with Groupon failed to yield a transaction. AllThingsD had previously reported that Google offered $5.3 billion to buy Groupon, with a further $700 million as an earn-out to be based on Groupon’s ability to hit certain performance milestones. Groupon showed Google the door.
Back in February 2008, Yahoo’s board famously turned down a $44.6 billion offer from Microsoft, demanding much more. But as of December 3, 2010, less than two years later, Yahoo’s market capitalization (share price time number of shares outstanding) had fallen to $21.3. A total of $21.3 Billion in market capitalization had gone whooshing out the door. And that’s after Carol Bartz, Yahoo’s new CEO did her magic and founder Jerry Yang was booted out of the CEO’s seat and relegated to being “Chief Yahoo” and a Director. Earlier this year, before all the recent changes, Yahoo reached a 52-week low of 12.94, 21% or $4.5 million lower after bottoming out lass November 2009 at 9.39, 42% below its current price.
Amir’s article which explains that Groupon’s “business model [works] by mobilizing a force of more than 1,500 sales and customer service employees to call and deal with restaurants, tanning salons, and helicopter tour guides,” rather than dreaming up complex and innovative software written by the “best and brightest” engineers.
It reminded me of a story I tell in my book, History of Greed
“Alexander the Great, King of Macedonia, visited Jerusalem in the year 332 BCE, as recouted by Flavius Josephus in Antiquities of the Jews, (xi. 8, §§ 4-6). The Talmud records (B. Talmud Tamid 32b), that he asked for a souvenir of his visit. “The Rabbis presented him with an orb (an eyeball). Alexander weighed it against all his gold and silver, but the orb was not out-weighed. ‘What is this?’ Alexander asked. They said, ‘It is the orb of an eye of a flesh and blood man, that is never satisfied with any riches.’ [Alexander] said to them, ‘What proof is there that this is so?’ ‘Take a little bit of dirt and cover (the eye), so it can no longer see,’ they said.’ It will be outweighed immediately.’ It was.
Commenting on this story, Rabbi Judah Loew, known as the Maharal of Prague (1525-1609) explains that an unceasingly hungry eye was the defining characteristic of Alexander. Even after he was an emperor of historic stature, even after he was “the Great,” he was not satisfied and sought to conquer new frontiers. Following his desire to reach the “ends of the world and the Great Outer Sea”, he invaded India, but was eventually forced to turn back by the near-mutiny of his troops, who had tired of war. Alexander died in Babylon in 323 BCE, before having the chance to realize a series of planned campaigns, beginning with an invasion of Arabia. In the years following Alexander’s death, his empire was torn apart in a series of civil wars, which resulted in the formation of a number of states ruled by Macedonian nobility.
As the Rabbis warned, Greed eventually did him in.”
My point in relating this tale is to disagree with Shira Ovide who cheered on Andrew Mason. She notes, “Facebook was weighing an acquisition offer from Yahoo that could have been worth $1 billion, and Zuckerberg also was being wooed by Microsoft, Viacom and others.” According to TechCrunch, Facebook’s pre-IPO valuation stands at $50 billion in the secondary market. She implies that Groupon could be worth the same or more if they wait it out, and that Mason was smart to wait it out.
She could be right. But personally, and I realize that my age may be showing, think that a few years down the road, Andrew Mason and his merry band of greedy investors will regret turning down Google’s offer and will find themselves, like Yahoo today, being valued at far less than the “big guy” was willing to pay today, to solve an immediate problem.
Right now, feels the heat from Facebook and wants to catch up in local search and in social networking, where it feels inadequate. But even if Groupon’s running rate, as rumored, is $2 billion in the last quarter is it really worth three times sales? Is its technology and sales force so unique that what they accomplished in two years someone with Google’s resources cannot emulate in two?
I bet that when Steve Ballmar goes to bed each night he says a special little prayer thanking God or whatever Higher Power he believes in, for being turned down by a greedy Jerry Yang. Saved him billions and billions. He did a simple revenue-sharing with Yahoo on ads, and kept all the money he would have needed to pay out.
I think Eric Schmidt, Google’s CEO deserves kudos for knowing when to talk away from the car table. The stakes just got to high, and the gamble wasn’t worth it.
Watch. He’ll skin the cat another (much cheaper) way.
Let’s see who turns out to be right.