Om Malik has some good points in this article in which he looks at companies like Groupon that hold themselves out a technology companies, but whose business model and valuation (and value proposition) are not really in line with true tech companies. It is important for investors and the companies themselves to understand this the distinction between a technology company and a company that provides not technology products/services using the web or social networks as their sales pipeline. Otherwise one or both can have a rude awakening when their results (in terms of growth, development, and valuation) do no meet expectations.
The summer of discontent — well, that’s what it seems to be from the perspective of the not-so-new web darlings — might be coming to an end, but months (perhaps years) of misery awaits these erstwhile rocket ships. The news reports of late have reserved particular vitriol for Groupon (s GRPN), the company that has seen its market valuation decline almost 82 percent since its went public.
Over the weekend, The New York Times columnist James Stewart blamed network effects going into reverse for the declining fortunes of the new web companies, though I don’t think his argument applies to Groupon, which has its own unique set of challenges and isn’t in the same class of companies as Facebook (s fb). Today, Wall Street Journal reports that investors like Kleiner Perkins and T. Rowe Price have taken it on the chin with their Groupon investment, but for now they remain believers…
View original post 912 more words