Six Pixels of Separation - The Blog
December 11, 201010:43 PM

The Groupon Story - One Billion The Hard Way

It's one of the biggest and most interesting business stories of this year... and in the history of business.

Groupon will forever be known as the first company in the history of business to reach one billion dollars in sales the quickest (making it the fastest growing business ever). If that wasn't interesting enough, the company recently turned down a six billion dollar acquisition offer from Google. It's the kind of story we thought we would never hear again after the dot com implosion.

It's a great business model.

Groupon works at the hyper-local level. They find local businesses (mostly service-based) who can offer up an incredible one-time deal. They help the business set-up the price and the reserve (a certain amount of people have to commit to purchasing the deal for the reserve to be met). This happens daily. As the company evolves, they are opening their services up to more and more cities. As their popularity continues to grow, they are faced with many copy-cat companies as well as more traditional companies (like newspapers and yellow pages) running their own Groupon-esque like deals.

Watch this...

Two days ago, Groupon founder, Andrew Mason, was on Charlie Rose. Unfortunately, the Charlie Rose show does not allow their videos to be embedded, so you have to go here to watch this fascinating interview: Charlie Rose and Andrew Mason.

By Mitch Joel


Comments Comments Feed
  • Posted by Mehrtash
    Mehrtash

    I watched that, I almost laughed at the title, N-Synch... but there was a good twist as in how humble he was knowing there are more advanced bands coming ;)

    Reply
  • Posted by Paul Dyer
    Mitch Joel

    Hi Mitch
    I have a business and have used Groupon recently to promote us, aside from the fact that the revenue model for Groupon is awesome, I dont know how many of the coupons dont get redeemed but it is I believe quite high.

    With web based services like Groupon and social media making marketing more and more effective, isnt the focus then for the businesses to develop an absolutely fantastic customer service experience as their first priority?

    Reply
  • Maybe I'm reading too much into this....

    The self-driving car statement went right over Charlies head. It seems to be a slam on Google. Google, once a focused company, did one thing really well - search. Today.....

    I think Andrew doesn't want groupon to become lost in the Google empire. His statement about the employees is also a clue. He feels responsible to them and wants to grow his baby to its full potential.

    Lots of good nuggets in the video.

    Rosh

    Reply
  • Posted by Alexis
    Mitch Joel

    Thanks for that fantastic story. This shows Google they can't just buy any young successful company as they wish.

    Reply
  • Posted by William Xifaras
    Mitch Joel

    Original idea with incredible utility. This is the first I've heard of Groupon. This is why I have to follow your blog; to stay informed with the relevant.

    Besides having a business model that is both novel and profitable, Groupon solves issues from both the merchants standpoint as well as the customers. The "One Deal a Day" strategy really puts the target business in the spotlight. This exclusivity selling point ties in perfectly with overall strategy of model.

    Thank you Mitch for enlightening me to otherwise neglected content. By the way, I'm re-reading "Six Pixels" for my self-imposed homework.

    Reply
  • Posted by Ron Chan
    Mitch Joel

    Thanks Mitch for the story!

    Assuming that Groupon has approximately 20 million subscribers and that Google was willing to offer $6 billion for them...that works out to $300 per subscriber. Not a bad deal considering that in most businesses the life-time value of a customer is likely to be significantly more than this. Groupon made the right decision.

    In my article at www.quiktipz.com I caution on the Groupon strategy for small to medium size business. It can be an addictive marketing and advertising tactic with dire consequences. As a business owner how does this fit within your value proposition? If it doesn't don't do it!

    Reply
    • Posted by virtualmo
      Mitch Joel

      The Groupon business model has low barriers to entry. I don't see how it's worth 6 billion or even 1 billion. Furthermore the businesses who use Groupon to market will get little traction as most of the consumers who buy into their promotions will likely expect to make a repeat purchase only if it is deeply discounted. As a result it waters down your brand, but hey Groupon can profit from it...

      Reply
      • Posted by Nathan
        Mitch Joel

        I tend to agree with you. All of this Groupon talk reminds me of the Foursquare talk from a year ago. In a year, it'll be a non-story.

        Reply
  • Posted by Tyrell Mara
    Mitch Joel

    Thanks for the great post Mitch-

    Also a very good interview with Andrew Mason... I am curious to see what happens in the next (I would normally think 5 years, but with the rate of change/growth!) year or so. With relatively low barriers to entry in a new market that Mason even states they are just "scratching the surface". It will be interesting to see how Groupon does...

    Mason seems like a very humble and down to earth entrepreneur and leader - this is always great to see in organizations that have success. There will no doubt be some exciting stories from Groupon and the evolution of this industry as time goes on!

    Cheers,
    Tyrell Mara

    Reply
  • Posted by Dan Brian
    Mitch Joel

    Mitch,

    Please qualify or define "it's a great business model".

    You're without doubt one of the sharpest minds in marketing but I feel like you're drinking more of the social media revolution koolaid here (as you only do very rarely).

    Be keen to hear a rebuttal of the following if you dare:

    a) By focusing the revenue sourcing around "deal shoppers" you attract the wrong "who" to small businesses likely already struggling to find their niche doing a disservice to the consumer and the seller.

    b) Groupon solves no real problem for the consumer and builds no core brand - it's impulse shopping at best which undermines it's ability to build and sustain real community. If it's rapid growth can be attributed to a "group buyer fad" where is the sustainable market for repeat buyers?

    c) It's affiliate marketing on crack - and we all know the dodgy sellers and marketers it brought to pollute the web/world. Another antivirus app or Acai berry anyone?

    d) My theory is that Groupon, Facebook, Google, Yahoo, are all trying to crack the code of local advertising and advertising in general. Groupon has only uncovered one key "context" angle that consumers are responding to right now and it will change as technology and audiences elevate in sophistication. If no one doubts that no matter the eventual "context" or mix of "contexts" that delivers anything close to the results of TV in the last 50 years - Facebook, Google, Network, and Cable TV will implement and dominate that market quickly and ruthlessly.

    Look at those last four giants I mentioned - they all have one thing in common that Groupon does not - their core offering to grow and sustain community/audience is something that adds value to people's lives other than "deal shopper" advertising.

    Groupon is simply a timely fad along the road to the next generation of advertising. It may turn into Pitchmen.com or Shoppingchannel.com but that's a far cry from the solution to local advertising some on the web are calling it - and I think its also a bridge too far to call it a great or sustainable business model.

    Nice work on the blog and podcast. Cheers, Dan

    Reply
  • Posted by Eddi Dillinger
    Mitch Joel

    Groupon insists that you give a 50% discount and then take in thousands of dollars off your sales. They are preying on desperate business owners that are looking for a magic bullet during harsh economic times. Especially high volume restaurants, where the profit margins can be a mere 8%, this is nothing more than a wholesale rip off. Marketing should be about ROI, not creating a bargain basement economy where nomads of deal hunters can exploit a different business every day.

    Reply
  • Posted by Leandro
    Mitch Joel

    The post is awsome, but Dan's comments is even better!

    Reply
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