Started as a means for which a local pizza restaurant could offer deals to customers, Groupon quickly outgrew its Chicago roots. Founded by Andrew Mason, a Pittsburgh boy who has since been moved on from his position as CEO, the company was at one time predicted to be the quickest business ever to reach $1 billion in sales – something which quickly proved to be premature. However, their group sales and discounts have been popular across the global, with their deal of the day becoming a fixture of many people’s email inbox.
Group Coupon: The concept
The name comes from a portmanteau of the words Group and Coupon, which offer as a simple glimpse at the business model of the company. Offering heavy discounts for services through their localised websites, each discount requires that a certain number of people take up the offer – if they don’t, then the deal isn’t valid.
Groupon make money through keeping a percentage of the money from such a deal – generally believed to be around half. So, for every £10 spent on Groupon, the vendor offering the service gets £5, and Groupon themselves keep £5. Companies are still willing to ensure such heavy hits on their usual margins due to the amount of publicity that Groupon can provide – with only one deal offered a day through their website, it gives a relatively cheap opportunity for small businesses to bring in new custom.
Naturally, the success of Groupon has lead to a raft of competitors offering similar deal of the day services. Though many are localised – such as KGBDeals, Jasmere and Eversave, the one many point of competition has been through LivingSocial.
Both Google and Facebook have worked towards launching their own discount deal websites. Though Facebook quickly brought the experiment to a close, Google Offers has been online since 2011 and utilises Google Maps data and Google Wallet for transactions. However, despite their resources at their disposal, Google have been unable to become a major player in the market – and their move into social buying was apparently fuelled by the rejection of their $6 billion offer to buy Groupon towards the back end of 2010.
LivingSocial, on the other hand, has thrived to the point where other big players in the online retail sphere are trying to get in on their discounting action – Amazon reportedly invested $175 million in LivingSocial a number of years ago, and it seems that these two will be the biggest names in Deal of the Day websites for the foreseeable future.
Ponzi scheme accusations
The filing of their initial public offering (IPO) led to complaints that the company operates in the same way as a Ponzi scheme – it was apparently losing $100 million per quarter, and was using the money of new investors to pay off the debts of the company. This, teamed with decisions to pay out large sums to early investors meant that many were upset with Groupon, with it being likened by some analysts to a scam.
However, this did not affect investor confidence, with Groupon reaching a record high net worth of $13 billion, with stockholders believing that the company’s ability to deliver local, cut price and unique deals being an sound business model. However, this valuation has dipped to around the $6 billion mark, as public interest in the company has waned slightly – often linked to complaints that the deals offered on the website aren’t quite as much as a discount as first advertised.
Other Groupon Ventures
As well as their main business of selling coupons to customers at a low price, Groupon have branched out in various different ways in order to try and maximise business in various ways.
Groupon VIP offers those who pay a $30 membership the chance to see Groupon deals early, and buy expired Groupon deals through a ‘Deal Vault’
Groupon Now app
Groupon Now offers users the chance to press one of two buttons – either “I’m Hungry” or “I’m Bored” – depending on the choice, the app will give an offer relating to either food and drink or entertainment in the local area, using the geographical data sent by your phone or tablet.
Groupon’s own official holiday, it is used to push extra-special deals and gifts. It is especially popular with Groupon VIP members.
Live off Groupon
A promotion in which one customer was encouraged to live only on Groupon deals for an entire year. Travelling throughout the UK and US, he was given a $100,000 cheque when he completed his year.
A CBS comedy originally slated to be based around GroupOn, Friend Me filmed a pilot, but was canned after the suicide of the creator of the project.