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Groupon CEO Rich Williams in the GeekWire offices in Seattle.

Rich Williams, the new CEO of Groupon, is touring the company’s West Coast operations this week to meet with its core teams and rally the troops — taking the first steps in what he hopes will be a turnaround for the pioneering deals company.

grouponAn Amazon veteran who started Groupon’s Seattle engineering offices after joining the company in 2011, Williams stopped by GeekWire this week after meeting with the company’s employees in the city, who now number nearly 300 people across marketing, engineering and related areas.

Williams was the company’s chief operating officer before replacing co-founder Eric Lefkofsky as CEO last week. With Groupon’s stock down nearly 65 percent over the past year, Williams acknowledges the challenges facing the company but says he believes Groupon is better-positioned than anyone else to bring the power of the Internet to local commerce.

After taking the job as Groupon CEO, Williams acknowledges, he has been asked by a lot of people, “What were you thinking?”

“It’s a big task but it’s an exciting one,” he says. “We’re the clear leader in our space. It’s been a bumpy road, but smooth roads are pretty rare for pioneers and we’re clearly in that space. We’re pioneering on local, we’ve learned some tough lessons and have had our fair share of lumps along the way but I’ve also said, especially to our team internally, ‘We should not apologize for things that we’ve tried and that haven’t perfectly worked.’ ”

Listen to our conversation below, and continue reading for an edited transcript.

Todd Bishop: Welcome to the GeekWire newsroom. I’m joined this week by the brand new CEO of Groupon, Rich Williams. It’s great to have you here.

Rich Williams: Thanks for having me, Todd.

Todd Bishop: You’ve barely been in the job a couple weeks.

Rich Williams: Not even a week yet.

Q: This is in some ways a homecoming for you. You were with Amazon for many years. What brings you back to Seattle this week?

Rich Williams: I’m back here, I’m on a bit of a tour just spending time in our offices in various spots. My first destination was really the West Coast so I spent some time down in Palo Alto, we have an engineering facility there in San Francisco and now I’m up in Seattle where we have a big office here, a growing office here, and some people that were really directly impacted by some of the announcements that we made and in a great way. One of our core teams in Seattle is our marketing team. Our computational marketing team in particular is really hubbed here, so when we start telling the world that we’re going to make a much bigger investment in customer acquisition, we’re going to start spending more in marketing, they’re right in the belly of the beast on that.

We’re spending some time with that team, and making sure that not just that team but the whole office understands what it is we’re setting out to do, and then also I’m here to kind of check out the new office space. We’re expanding the Seattle facility for us, so it gave me a good excuse to do a little bit of both, spend some time with the team and the folks here and also check out the new space and think a little bit about how we’re going to grow into it.

Q: How big is the operation here now and how big do you expect to become?

Rich Williams: It’s funny, we talked about that a little bit earlier today with the team. I started the office in 2012 with five people, and maybe we thought it would be a twenty or 25 person operation here, and it’s now close to 300 people.

It’s grown fast, and part of that it’s just, it’s an amazing place. The talent here is incredible, and it’s varied. Seattle has this interesting mix of real scale players, you have everyone from Amazon and Microsoft, and then mid scale players, you have the Zillows and Redfins and even REIs, etc. Then you have an increasingly rich startup environment. There’s an amazing tapestry of skill and scale, and folks that I think are also passionate about some of the spaces that we’re in, in particular in travel, and in local. It’s been a great combo that’s allowed us to build fast, and to have an amazing team.

Q: Let’s talk about Groupon. Many people know Groupon for the phenomenon that it launched, the daily deals phenomenon. The company has become much broader than that. When some people take on jobs, they say, “Hey this is a challenge.” I would say you are doing that in an exponential way, if you look at this company. Just to talk about some of the numbers, the company posted a $73 million net loss in 2014, the stock is down 65% this year, the daily deals market is not what it once was, Amazon just announced that it’s getting out of it. Tell me about your vision for this company and how you plan to bring it back.

Rich Williams: I’ve been asked this a lot over the last couple of days, “What were you thinking? This is a huge task.” I say, “Yeah it is, it’s a big task but it’s an exciting one.” We’re the clear leader in our space, it’s been a bumpy road, but smooth roads are pretty rare for pioneers and we’re clearly in that space. We’re pioneering on local, we’ve learned some tough lessons and have had our fair share of lumps along the way but I’ve also said, especially to our team internally, “We should not apologize for things that we’ve tried and that haven’t perfectly worked.”

Again, it’s very rare for a pioneer to be batting a thousand. The really key pieces are which ones are you hitting, and how big are they, and how much do they matter. If you do try and fail, were you doing it intelligently? I think historically we’ve done that very intelligently. One of our biggest challenges has probably more been our willingness to get excited about things, and be very public about them, and have them not be as big as we thought they could be. I think in many cases that’s clouded what’s happening really with the core business, and if I look at the core business, say North America, we just crossed I think our seventh straight quarter of double-digit growth. You have a business that’s almost $4 billion in total billings in North America and that dwarfs its nearest competitor in this space. That business is also producing really solid, adjusted, EBITDA performance and it’s doing it while we’re fundamentally changing the business model.

You mentioned Amazon is exiting daily deals, and a lot of people have asked me how I think about that. I say, “Well look, we exited the daily deal part of our business, the email part of our business 2-and-a-half years ago.” The last 2-and-a-half years that have helped get us on this path where we can grow double digits even with relatively lean marketing investments has been our transition to marketplace. To where it’s not just about what’s that one amazing thing I can send to you in your inbox, it’s really when you’re hungry where do you go? Where do you go that you can transact and save money? Right now the answer for that, especially in this country, is Groupon. That’s really the vision for us — to continue to build on that. When someone is out and about and they’re looking to pretty much eat, see, do, or buy just about anything in their neighborhood, we should be that place they go. That kind of daily habit is what we’re trying to build in local, and no one has yet done that, and we’re further along than anyone else.

Q: It seemed like one of the big stumbling blocks that the daily deals market ran into, and Groupon, was the value for the merchant — delivering value to them in a lasting way beyond just the initial push that they got when there was a deal that went out, or the discount. How do you ensure that value long term? It seems like that’s a key part of the equation.

groupon boxRich Williams: It is a key part of the equation and it’s something that we’ve spent a huge amount of time and energy on. We’ve also built a lot of technology behind the scenes on it, as well. It’s one of those things that a lot of people don’t think about, the advantage of having run millions and millions of deals. It’s what you learn throughout that process. Working with merchants hand-in-hand, and tracking the ROI performance for those merchants, you start to build a really strong understanding by geography, by category, sub-category of merchants, what really makes their businesses tick, the economic profiles of their businesses, and that’s given us a lot of data to be able to help craft offers in ways that work for merchants.

You can see that reflected in how we work with merchants. Now, the vast majority of our merchants are in perpetual relationships with us. They may phase in and out seasonally just with their trends in their business but they’re on the platform basically all the time. They may raise or lower discount rates and offerings, but they’re there because we helped crack a model with them that works for them. I think the last time that we talked about it, it’s something well north of 80% of our offers are break even or better on the transaction. Not with things like overspend, and all of that other sort of stuff. They really started making money on the transaction itself. They’re breaking even or making money. Very few marketing channels for small businesses have that kind of economic profile, where they can acquire a new customer with marketing tactics, and advertising tactics, and promotions, and break even or make money.

We think we’re in a much better place than we’ve ever been there, but we’re also the first to say our work isn’t done. That’s part of where you’re starting to see more and more different kinds offers go on the Groupon platform, different forms of transactions, everything from takeout and delivery, which is now becoming a bigger push for us, especially in markets like Chicago where we’ve recently launched. Even things like market rate that are more geared towards helping people save time, as well as money. The example there is you know we have a health-and-beauty booking product where you can basically just book and prepay for your service and kind of walk in and walk out, just make it really seamless to operate on our platform. That’s a different kind of working model with a merchant that’s of course economically really friendly for them.

We’re continuing to push that out and that will be a bigger piece of the Groupon platform over time where it’s not just deep discount daily, daily deal style offerings, you’re going to see a lot more everything from market rate, to low discount products hitting the platform.

Q: You mentioned also that a key part on the other side is customer acquisition and that’s what you’ve been talking with in part with your team here. How do you reach people if not through email?

Rich Williams: Yeah, so this is one of the biggest changes in the business that I think has been the least well understood. I think that’s the surprising thing for me being in this job, for just even the last week or so, is how misunderstood this business is. As one of the largest e-commerce companies in this country, and frankly one of the largest ones in the world, there’s a lot of this businesses that’s not really full grokked. One of those pieces is email. Email used to be 90-plus percent of our business, and now it’s well below 30 percent. We actually have a bigger piece of our business comes from search on the site, then it comes from email. Almost 60 percent of our transactions occur on a mobile device, so it’s a very different business.

We have an email part of our business and it’s a great communication channel with 10s of millions of people, but we also have a really rich direct set of traffic where people just use the app, they come to the site directly, and we have an increasingly big search piece of our business, both on the site and off the site. We’re much more active in search both organically and in the paid space than we were in the past, and that’s been able to come online as we started to scale the marketplace. The more businesses we have on our platform, the more we show up in search listings and on and on.

It’s a pretty broad spectrum now of traffic and how people get to us, and we only expect to continue to move down that path.

Q: Is Amazon one of your biggest competitors? What is the competitive landscape like at this point?

Rich Williams: Yeah, Amazon with them pulling back on Amazon Local, they’re not really in the competitive space at this point. Even in our goods business, we have a pretty good sized goods business these days and a product eCommerce business, even there they’re not really our competitor. We’re filling a different space, we’re much more in a surprise and delight space. Even for things like televisions, sure we have televisions on our platform, but you come to Groupon when you’re looking for a TV, not the TV. If you’re looking for the whatever version of a very specific TV …

Q: Your Samsung LED …

Rich Williams: Exactly.

Q: Not there.

Rich Williams: We’re not that spearfishing environment, we’re much more that place where people trust they’re going to get an amazing, amazing price that oftentimes is the best you can find online, and we’re going to have a really credible selection, but it’s not going to be this super crazy deep catalog. So even in that space we’re not really competing with them. In local, we actually spend a lot more time thinking about the vertical competitors in local than we do about any kind of broad-based competitor. As a company we focus heavily on food and drink, the health and beauty vertical, and what we basically think of as the “things to do” and activity space.

Q: Getaways.

groupon33Rich Williams: Getaways as well, and travel. Getaways is a piece of that things to do in activity space, but there’s also ticketed events and some other things. When we look at that space I care a lot more, “OK, what’s happening with people like Grubhub and Caviar, and DoorDash, and Postmates, and the food delivery space. Who’s inventing in the restaurant and beverage environment?” We know we need to win in that space in local to be a daily habit. I care more about that, and the same thing in health and beauty. I say, “What’s going on in international? What’s Wahanda doing in that space?” We go down the line the same way, we know that you can’t have a midlands product in any of those and have an amazing daily habit.

We have our teams, and they’re structured that way. We have a team that wakes up in the morning and says, “How do I win in food and drink?” A team who wakes up in the morning and says, “How do I win in health and beauty?” They care a lot about those individual competitors, we care a lot about them because ultimately we want to have an amazing platform no matter what, and that’s ultimately going to be built category-by-category.

Q: What would you say to the investor who’s skeptical about Groupon?

Rich Williams: I’d say, “It’s been a bumpy ride, I get that.” It’s not missed on us that we’ve set some expectations and … the vast majority of the time we’ve been in our ranges, but we haven’t met or exceeded the expectations out in the marketplace. We take ownership of that, we get that 100%. I’d say in one thing, look at the multiples of this business, they don’t make any sense. There’s not a world you would look in and say, “Yeah, our cash flow and enterprise value multiplies make any sense” — they’re trading at a fraction of what the environment would trade.I’d say, “Look at the fundamentals of the business, look at the multiple space, it doesn’t make a ton of sense.”

Q: You feel like you’re undervalued.

Rich Williams: Undervalued. Of course clearly we think we’re undervalued, we’re buying a lot of stock. We have about … we announced earlier in the year that we had about a half a billion dollar buy back authorization, we still have about two hundred and seventy million dollars of that authorization remaining, so we’ve been actively buying our own stock because we think it’s undervalued. In the market we generally, if you look at our peer set, which is pretty much every e-commerce company at scale, you’d say the multiples don’t make sense.

I’d say, “Look at the fundamentals of the business, and look at the progress of the business that we’ve been able to grow it, we’ve been able to grow especially the North American business where we invest most in R&D, and where we have a reasonable marketing investment but not an aggressive one relative to our peers. We’re still able to grow that business really healthily, and on every major level.” I’d say, “Look at those pieces and separate a lot of the noise from that, and then just look at the potential in the space.” Local is a multi-trillion dollar addressable market, we’re the clear leader in that market that’s clearly making progress. I’d say, look at those things combined and I think you’d see the same thing, you see that it’s an undervalued asset at this point that’s making progress, and that’s willing to make the hard choices to put itself in a position, to continue to grow, and so I think all of that broils into either put on your seat belt because it’s going to be interesting, or give this team a shot and they’re going to show you some pretty good stuff over the next year.

Q: Then lastly, employees and prospective employees, especially when you look at the engineering market and you’re going very strongly here in Seattle. It’s tough, it is tough to recruit people, it’s tough to retain people, Groupon had job cuts, it’s been a bumpy ride on that front as well. What do you say to employees?

Rich Williams: I was just out talking to employees and I think the one thing that you see is that being in a great wide space like local, one of the advantages in being in those kinds of spaces is that it’s pretty clear that the problem space, the challenges that we have, are really meaty and interesting. They haven’t been demonstrated or proven elsewhere. There’s a lot that we learn from others but there’s a lot that we have to learn for ourselves, and a lot of pavement we just have to lay. That problem space is really compelling for engineers in particular, you have algorithmic pieces to it, you have large scale pieces to it, so there’s just a lot here that’s meaty and interesting, and engineers see that. They’re also very savvy financially, they watch what’s going on in the market, they’re analytically driven for the most part, so I think many of them see us as undervalued and see upside in that.

Given that problem space is really interesting and compelling, a lot of people feel that we’re undervalued. We haven’t had the kind of difficulties I think you would expect us to have given a rocky road on the stock when it comes to employees. I think the last piece that I’d add to that is that, this is a space that I care a lot about, and a lot of people care a lot about in local. When you look at local, and small businesses and neighborhoods, it’s a space that has largely been unserved by the transition to connected commerce. The power of the Internet hasn’t hit that hard in small businesses, not like in a lot of other spaces.

I think fixing that matters in a big way. We’re in an amazing place right now in Seattle and Fremont. One of the things that makes Seattle and Fremont awesome is the neighborhoods, and what makes those neighborhoods awesome is the restaurants, the bars, the spas — it’s the businesses that make up these environments. I think a lot of people are like me in that way and giving them tools to win matters, and it matters a lot. That’s why we want to live in these places, that’s why we want to be in these places.

There’s that overarching powerful sentiment that I think permeates our business and the people that both want to come here are thinking about it, and definitely the people that are here.

Q: You’ve got a very interesting line in your bio. Prior to Amazon you worked at Experian, and it said before that you mostly walked the earth “like Cain from Kung Fu, earning room and board in exchange for working odd jobs and marketing.” Seriously?

Rich Williams: No I didn’t actually walk the Earth, but I suppose I did, I walked a lot. I mostly ride my bike around the Earth, I’m a big cyclist these days. No, that’s part of the Groupon culture. We are a company and a culture, we take our work dead seriously, but we don’t take ourselves that seriously. I don’t care what job you’re in, where you fit in “the org chart,” we bust our butts, we work super hard, but we put a premium on having a good time doing it. I think you can see that across the board with our executive team, we’re just … it’s a fun group of people, whip-smart, work hard, but it doesn’t mean we have to be boring.

Todd Bishop:  Rich Williams, the CEO of Groupon, thank you very much for being here.

Rich Williams: Awesome, thanks Todd.

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