Commentary

Why I Love Groupon

  • by , Featured Contributor, February 17, 2011

I love Groupon, and I've never even used the service. I love Groupon, and I've never even been to its Web site. Why do I love Groupon? I love it because, for the first time since Netflix, we have a "digital company of the moment" that's not just about some new whiz-bang technology.

To me, Groupon represents the beginning of a new trend in digital marketing companies. Here's  what I mean:

Business model innovation. The technologies that power the Web, email, ecommerce, couponing, social sharing and status update have already been invented. It's about time someone created a great company focused on how to turn those platforms into a great marketing service. In Groupon's case, it's a $2 billion a year revenue company in two years. We haven't seen anyone as successful at that since.

Not about the Valley (or New York or L.A., for that matter). Technology start-ups depend on access to critical masses of risk-taking engineers and lots of tech-savvy venture capital. Not so with business model innovators. They can start everywhere you have smart people who want to change the world. I am sure that Groupon's success with Chicago roots will be an inspiration to everyone out there. Innovation is no longer limited to Silicon Valley.

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All about sales & marketing. Many argue that Groupon isn't defensible since it's a sales & marketing company at its core, suggesting that only technology companies can build competitive barriers to entry. Clearly, Groupon is building a "network effect" that could be as powerful as the "friend effect" of Facebook or the "auction effect" that Google created with AdWords. Time will tell.

The girl (or boy) next door. Groupon is run and staffed by people like those who most of the rest of us grew up with, went to school with, or have drinks with after work. That has not always been the case with many technology-driven start-ups. It makes the notion of start-ups feel more accessible to all. It helps democratize them. I think that this is good for all.

Given the apparent lack of technology defensibility, do I think that the founders shouldn't have taken the reported $6 billion offer for the company? No more than I think that Google or Facebook should have sold at those levels. I believe that Groupon is on to something big. I believe that it will revolutionize local marketing services. What do you think?

13 comments about "Why I Love Groupon".
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  1. Jill Kennedy from Manka Bros., February 17, 2011 at 5:48 p.m.

    I must, respectively, disagree. I am bombarded with offers similar to Groupon (lots of spa deals) by many companies who replicate the Groupon model perfectly. I equate Groupon to Valpak - those blue envelopes of coupons to new shutters and rug cleaning that no one ever uses. I think Groupon has big trouble down the line and should have sold to Google.

    http://mankabros.com/onmedea/2011/01/the_trouble_with_groupon.html

  2. Ted Rubin from The Rubin Organization / Return on Relationship, February 17, 2011 at 5:50 p.m.

    I agree with all of your points with regard to innovation, building a business and opportunity.

    My issue is that the heart of Groupon’s business model for their clients is not direct profitable commerce (it is only profitable upfront for Groupon). As many understand Groupon is not an ecommerce business. The business proposition that Groupon offers its clients is lead generation.

    A very, very small percentage of Groupon clients make money when they generate all those sales. The business model here is aggressive acquisition through an engine that generates a huge amount of “hot” leads with credit cards ready. The challenge is to convert a workable percentage of those ‘lost leader” buyers into profitable customers and have a metric that covers the upfront investment.

    There is a reason that the majority of their customers are small, local businesses. They do not have the upfront capital necessary to use more traditional acquisition models, and more importantly they are less sophisticated in the modeling abilities used to determine life-time value of a customer…. especially a customer acquired through aggressive discounting. So for now the growth is miraculous since so many are jumping on the bandwagon with Groupon recommended discounts that cannot possible end up profitable for those making the offers.

    If Groupon’s strategy is to grab the real estate now, and worry about how to evolve the model so that the businesses making the offers can truly benefit, then let’s wait and see how that is accomplished before final judgement is passed.

    I am not saying that Groupon will not survive, I am sure they will in one form or another, and they certainly have a business model, although their sales for the year seem to be grossly overstated in many circles. I simply believe passing up what was offered by Google showed tremendous hubris and I believe they will come to regret the decision… even if they never voice that regret or remain successful. But of course now that they have cashed out to such a large degree, in their last round of financing, does it really matter if they only realize 100's of millions of cash in their pockets vs billions. Nice insurance policy to have in place in case the indefensible, and possibly not truly scaleable part (at least at 10's of billions scale) never materializes.

  3. Ted Rubin from The Rubin Organization / Return on Relationship, February 17, 2011 at 5:53 p.m.

    P.S. And something I left out, with reference in some respects to Jill's comment, but taking it even further... many are now realizing how worthless many of the "great deals" are when they try desperately, time after time, to redeem and are told how few slots are available at those rates, etc.

  4. Pamela Tournier from Focus: Productivity, Inc., February 17, 2011 at 8 p.m.

    Agree with Ted and Jill completely. These are hot money leads. Small businesses are hoping to build a customer base, using GroupOn's deep discount lure (50% off, with the 50% sacrificed by the merchant split with Groupon). Very little of the new traffic translates to repeat customers who will pay anything close to full price. But I have to hand it to Groupon: local merchants are so desperate to build traffic these days, and traditional direct response media so ineffective as traffic-builders (we've seen huge falloff in conversion from Google AdWords, for example; email, local coupon response is way down) that they'll try Groupon.
    Groupon should have taken the deal.

  5. Brad Stewart from Molecule Inc., February 17, 2011 at 8:47 p.m.

    The most compelling pro-Groupon article I've read. I think the point about network effect is a good one. However, network effect itself usually is only successful if there is some barrier to entry (even if it's not a technological or IP one). In this case, there is a complete lack of barrier. So, they are not protected from the 10's or 100's of thousands of competitors. They need to innovate fast to convince me that they are going to remain as profitable.

  6. Marc Ziner from Marketing Highway, February 17, 2011 at 9:23 p.m.

    Wow... I can't believe you have overlooked the big Groupon controversy of the past couple of weeks. As a stalwart creative, I have appreciated the glib (and sometimes insane copy) these folks routinely go with. Very entertaining... fun to read. However, their Superbowl ads demonstrate that the people who work there, especially the people who approve ads, really need to take a step back and examine their collective smart ass persona. They have been completely, unapologetically insensitive to the issues, even though they say they contribute to the causes they ridicule.

    Groupon needs some mature leadership and they have to find a way for merchants and service providers to actually profit from these offers. Shop owners I know are reluctant to make 25¢ on the dollar. I

    'm glad they are worth billions, right here in Chicago, but their sarcasm and overall meanness have to go. I hate to be the one to take them down a notch.

  7. Mike Mcgrath from RealXstream PTY LTD, February 17, 2011 at 10:13 p.m.

    Given the lack of barriers to entry, I would have taken the 6 billion. Australia's Spreets (Groupon clone) Just took 40 mil from yahoo 7. Not bad for a years work.

  8. Anne Hunter from comScore, February 18, 2011 at 7 a.m.

    I do agree innovation and smart people can come from outside Silicon Valley. In fact people who understand the general consumer might be found outside the Valley more often. This is probably why CPG and retail are most often headquartered in the MidWest.

  9. David Honig from Dynamic Signal, February 18, 2011 at 7:12 a.m.

    its no so much how we may love Groupon, but love the possibilities with this model. I must say, I scratched my head a few times when the folks at Groupon turned down 6 billion from Google. I actually thought that Google was doing them a favor and ridding them of any future headaches. Why? This model can be duplicated and we all know can me improved drastically. how? Technology, something i believe most of these models lack currently. Can they improve? Absolutely, I am sure they never imagine this type of growth so quickly. If there is one business Google can duplicate and potentially own, its the " groupon " model. Why? They have users, They have distribution, they have technology, and they have a self service model which these customers can buy media to promote locally.

  10. Ted Rubin from The Rubin Organization / Return on Relationship, February 18, 2011 at 8:38 a.m.

    Right on point David!

  11. Tim Patterson, February 18, 2011 at 6:29 p.m.

    Marc,

    I disagree with your assessment of the Superbowl ad and the controversy (so-called) it created. Groupon knew exactly what they were doing; they thought about it very carefully and went ahead anyway. When the controversy erupted, they immediately jumped on it and explained their thinking on the blog (offering immediate transparency), reacted and responded in a timely manner and to my mind dealt responsibly with the negativity that they did get from the perceived insensitiveness of the ads.

    From their blog post about the Super Bowl ad: "Groupon’s roots are in social activism – we actually began as cause-based website called The Point, and we continue to use Groupon to support local causes with our G-Team initiative. In our two short years as a business, we’ve already raised millions of dollars for national charities like Donors Choose and Kiva."

    Also: "We would never have run these ads if we thought they trivialized the causes – even if we didn’t take them as seriously as we do, what type of company would go out of their way to be so antagonistic?"

    To me, the ads barely raised an eyebrow; I thought they were clever but not offensive. And I felt that Groupon's immediate response and thorough explanation was more than adequate. Besides, the whole issue raised Groupon's profile in my mind and I'm more apt to use their services than before...

  12. Kevin Horne from Lairig Marketing, February 21, 2011 at 1:52 p.m.

    I'm all for great business models, but business models with zero barrier to entry?

    How is that sustainable? (see commenter #1 as an illustartion)...

  13. Molly Griffin from Dydacomp, March 7, 2011 at 5:20 p.m.

    Do you groupon is an effective tool for small businesses to invest in. Many of our clients here at Dydacomp are small to medium businesses and i keep reading different articles arguing over the value of groupon. i understand the number of benefits, but is is a realistic marketing investment?

    Thanks
    Molly Griffin
    Dydacomp
    http://www.dydacomp.com

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