So the New York Times is reporting that social commerce platform Groupon is preparing an IPO for this spring, valuing the group-couponing giant at a bubblicious $15bn. That’s around 10 times the investment poured into social commerce startups over the last 12 months (see list below). And to put it into perspective, $15bn is what Microsoft reportedly offered to buy Facebook outright – settling instead for a $240m investment back in 2007. And $15bn is 4 times the current valuation of Twitter following its latest round of investment. And 2.5 times what Google was rumored to offer to buy Groupon just last month.
So are we entering a social commerce powered ‘Bubble 2.0’? Let’s take a look at what’s been happening over the last year in the social commerce investment space:
- $15bn valuation of Groupon based on rumored IPO (Spring 2011)
- $950m investment in Groupon, social commerce platform (group-buy) (Jan 2011)
- $1.2m investment in ShopSocial, a new Shop-And-Tell social commerce app that will offer kick backs for sharing purchases – (currently no more than a holding page as a site) (Jan 2011)
- $6bn Google offer to buy Groupon social commerce platform (group-buy) (Dec 2010)
- $175m investment in LivingSocial social commerce platform by Amazon (Dec 2010)
- $10m investment in BeachMint, social shopping solutions (Dec 2010)
- $15m investment in Gilt Groupe, social commerce site (members-only flash sales) (Dec 2010)
- $31m investment in HauteLook, social commerce site (members-only flash sales) (Dec 2010)
- $6m investment in Payvment, social commerce software (shopping cart, payments) (Nov 2010)
- $30m investment in Lockerz, the teen ‘friends-with-benefits’ social shopping site with 18m members, including $18m from Zuckerberg/Bezos/Pincus sFund (Nov 2010)
- $5m investment in Yardsellr, social commerce app (f-commerce (Facebook marketplace)) (Nov 2010)
- $1.1m investment in ShopSocially, a social shopping site (shop with your friends) (Oct 2010)
- $20m investment in Etsy, social commerce platform (indie crafts marketplace) (Aug 2010)
- $15m investment in ShopKick, social commerce (check-in rewards) app (Jul 2010)
- $12m investment in Beyond the Rack, social commerce site (members-only flash sales) (July 2010)
- $16m investment in BuyWithMe, social commerce site (group-buy) (July 2010)
- $1.3m investment in Yipit, social commerce site (group-buy deal aggregator) (Jun 2010)
- $19.8m investment in Modcloth, social shopping site (indie fashion) with ‘be the buyer’ (customer driven inventory) program) (Jun 2010)
- $110m purchase of Woot, daily deals community by Amazon (Jun 2010)
- $7.5m investment in Swipely, Shop-And-Tell social commerce app that creates a social stream from credit card payments (May 2010)
- $11.2m investment in Blippy, the Shop-And-Tell social commerce app that creates a social stream from credit card payments (April 2010)
- $6m investment in PowerReviews, social commerce app (user reviews) (Mar 2010)
- $5m investment in Alvenda, social commerce software (f-commerce, shopping cart) (Jan 2010)
- $1.2m investment in ThisNext, social shopping site (Jan 2010)
That’s a lot of investor dollars for a nascent industry – $1.449bn in the non-exhaustive list above. So is the social commerce space overheating? Well, it is possible we are witnessing some ‘irrational exuberance’ that could create a demand bubble. But we think any irrational exuberance will be short-lived (hence Groupon is smart to IPO ASAP): In our view it’s a function of an initial rush, borne of pent-up demand, to invest in social media – on track for becoming the planet’s favourite media – now that social media has a real business case and real cash flow. Social commerce is like social media, only with money.
So for the many investors who have been itching to invest in social media, but have been waiting for a business case and cash flow, social commerce delivers. Far better to invest in a company that generates real money now, like Groupon (estimated revenue $800m-1bn) than a social media start-up that’s a great idea, like Twitter, but with no business model. Hence the early rush to invest in the social commerce industry.
But because social commerce is all about the money – the rest is just conversation, as Gordon Gekko would put it, we think any initial exuberance will be kept in check with hard numbers. For example, check out Paul Chaney’s 4-point reality check on f-commerce – yes, companies can help you sell on Facebook, but what you get right now is rudimentary and not a lot is getting sold on Facebook (yet) (sales volumes are low, managing back-end functions (integration) can be problematic, merchandising options are few, Facebook becomes a gatekeeper between you and your customer).
Groupon may be the fastest growing company ever, from WordPress blog to $1bn revenue faster than Google, eBay, Amazon, Apple or anyone else, and its 3,100 staff may service 50 million users, but there are uncertainties – such as whether Facebook (or indeed Amazon) will muscle in and eat Groupon’s lunch. But the rumoured Groupon IPO at $15bn would give a company with $1bn revenue a nominal P/E ratio (Price to Earnings) in the region of just 15; the average P/E for S&P 500 companies is 20.2 (2000-2010). So fair value we would say.