Dumping its CEO won't fix Groupon

(MoneyWatch) After disappointing results and slowing growth, the board of Groupon (GRPN) meets today and will talk to CEO Andrew Mason about his performance. The news came out with a surprise question to Mason at a conference in New York yesterday.

Given that the company's stock is down 83 percent since its debut last year, it isn't surprising that the board would want to talk to Mason. In fact, it would only be surprising if this had been the first conversation about the subject. However, even if the directors gave Mason the heave-ho, it might not do much for the company's fortunes. Its problems are more an issue of fundamental strategy and business model, not of the person at the top.

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Mason has certainly been involved with his share of problems, including the following:

• The controversial 2011 Super Bowl ad, followed by Mason's apology that fell flat
• SEC questions about Groupon's accounting standards
• The funneling of hundreds of millions of raised capital into the pockets of insiders
• The Mason memo with insider talk that appeared around the time of Groupon's planned IPO
• Massive losses in the past
• Drastically slowing growth

At first glance, it would seem that Mason might not be a healthy influence on the company that he initially started. And, as Bloomberg reports, the board will let him know:

Some directors plan to voice frustration with Mason's efforts to find new areas of growth amid ebbing demand for online coupons, and they will urge the board to weigh the advantages of seeking a new CEO, a person with knowledge of the matter said this week.

The stock price rose at the end of Wednesday, suggesting that investors were cheering the possibility of an immediate Mason departure. However, the real issues that face Groupon have everything to do with the entire concept, not necessarily who's running it on any given day.

Making money on daily deals is very difficult. Merchants, who have to provide the discounts, are getting smarter and demanding higher percentages of the money that consumers pay for deals.

In addition, Groupon is a company that has historically seen a drop-off in customer interest and activity after they had bought deals for a while. Growth in the customer base masked that trend, but the quarter-to-quarter expansion of customers is slowing significantly. For example, in the third quarter of 2012, Groupon reported 39,525,000 active customers, which means people who had bought deals within the trailing 12 months. That was an increase of 1.479 million from the second quarter, or 3.9 percent. In the same quarter in 2011, there were 28,906,000 customers -- an increase of 5.869 million, or 25.5 percent, from the previous quarter.

But that was just before Groupon announced that it would significantly cut back its spending on marketing, which not only drove growth, but a steady flow of red ink. To make Groupon grow again and yet make money will mean significant shifts in what the company has been. Ironically, that is a path Mason has started down, trying to offer a business infrastructure for small businesses that might tie merchants to Groupon, and not see it as a now-and-again marketing tool. Perhaps a new CEO would have a brilliant idea of how to set the company aright, but that would involve essentially recasting it into something it has never been before.