Groupon Worth $1.2 Billion? Not So Fast

TechCrunch is reporting that the group buying site Groupon, which raised a $30 million round at a $250 million valuation in December from NEA and Accel Partners and has raised $35.8 million altogether, is raising more money right now at a stunning $1.2 billion valuation. You can read the story here.

In light of the news, it might be interesting to contemplate the fate of some of Groupon’s predecessors, including the once-popular group-buying site MobShop, which raised $51 million from Marc Andreessen and Mayfield Fund before going belly up in 2001. As with Groupon, analysts loved, loved, loved the idea of MobShop. As with Groupon, MobShop had plenty of competitors. Know what? They all disappeared. Maybe it was purely bad timing. Maybe it was, a little bit, the sustainability of the concept, too. You decide. Is Groupon really worth $1.2 billion or are we heading down a well-worn path?

From a 2001 New York Times story:

MobShop Inc., one of a handful of companies offering group buying on the Internet, is closing its consumer operations, on the heels of the recent announcement that its chief competitor, Mercata Inc., was going out of business.

Group-buying companies, also known as demand aggregators, allow consumers to pool their buying power to purchase goods at lower prices. The approach initially received considerable attention from analysts and financiers, who called it one of the Internet’s most innovative consumer opportunities…

Mercata, which was majority owned by the Microsoft co-founder Paul Allen’s Vulcan Ventures fund, said on Jan. 4 that it would cease operations because it failed to raise more money, canceling a planned $100 million stock offering…

MobShop’s revamped strategy, along with Mercata’s failure, casts doubt on the viability of aggregate buying as a consumer business. In the price-aggregation model, prices go down as more consumers bid for them, creating bulk deals. The idea was that consumers would spread the word, creating a more effective marketplace over time.

Some analysts remain optimistic that group buying can work on the Internet and believe that the recent problems of Mercata and MobShop had more to do with market conditions than the concept itself.

But other companies offering aggregate buying to consumers have also struggled, including Priceline WebHouse Club, which shut down in October., a group-buying company founded by Swedish entrepreneurs, filed for bankruptcy protection in December.

UPDATE: Marc Andreessen writes in to give me his “$0.02”:

I don’t know much about Groupon, but the other major difference is: 1999 versus 2010. 100x+ the number of Internet users times 100x+ bandwidth per user times 100x+ users more comfortable using the Internet for ecommerce and many other things in their lives = a massively larger market for Groupon than Mobshop. I.e., you wonder about whether Groupon is Mobshop; I wonder how many concepts that didn’t work between 1996 and 2000 will work now. I think lots.