Groupon to Go Public — And Then Where?

The point of the company that eventually became Groupon was initially to inspire group action around a political or social cause. It was called ThePoint.

The point of Groupon… well, that may yet to be determined. The company, which filed an S-1 today with the Securities & Exchange Commission for a $750 million initial public offering, is known as a group-buying firm offering deep discounts on everything from hair removal to horse rides, complete with clever copy in each offer. It has seen a meteoric rise in revenue, earning $644 million in the first quarter of 2011 alone, up from $713.3 million in all of 2010. It has 83 million subscribers across 43 countries. And, as CEO Andrew Mason revealed this week at AllThingsD’s D9 conference, about half of its 8,000 workforce is in sales. Groupon has some serious feet on the streets.

The daily deals game is hardly won, with Groupon and its main competitor, LivingSocial, together owning just a single-digit share of the $150 billion ad market. The key to these companies’ future likely lies not in what they do today but how they leverage the relationships they’re developing.

In a recent interview with Street Fight, Tige Savage, a partner at Revolution, which invests in LivingSocial, discussed this view: “Bigger companies with more entrenched scale have the ability to make the economic machine work better,” he said. “I think where companies are going to be successful – this sounds canned, but I really mean it –  it’s the innovative players in the market. I don’t think it’s the daily deals business, but that daily deals is a piece of transformation in local commerce and advertising.” (A full interview with Savage will be published next week.)

If so, Groupon has some ground to make up. It’s well known that Groupon has alienated its customer base of local merchants with revenue cuts of 50% or more. Going public may not change that sentiment overnight. Scott Wise, president and CEO of A Pots & Pans Production, a management company in Indiana that runs seven restaurants, including Scotty’s Brewhouse, Scotty’s Lakehouse, and Thr3e Wise Men Brewing Co., told Street Fight in an email: “Unless they change their business model, I think they will not attract the restaurant owner very long. The way it was set up will not work for established concepts. I think they went public at the right time because it was a business model that would not last the test of time without an injection of cash to change the model. I talk to a lot of people in the restaurant industry and they all agree with me. I hope going public helps them tweak the ever-changing environment of the online consumer. Restaurants don’t want bargain hunters, we want loyalty committed to value and service.”

So what will the point of Groupon (and, by extension, LivingSocial and others) be, going forward? How will they leverage those 4,000 feet on the street? Perhaps one has only to look at opportunities that lie in other drab cash-cow industries that connect local merchants to consumers, such as yellow pages, or to consider that Groupon has been partnering with local publishers to offer deals to their customers. With so many relationships being formed, Groupon may be able to offer merchants a one-stop shop for coupons, local advertising and, if it wants, many of the services offered by yellow pages.

Stephanie Miles contributed to this report.