Groupon: What a Deal.
Prepared by:
Doug Buchler
J.M. Downey
Aaron Goldstein
Alana Kheyfets
Lauren Monitz
Tuong-Minh Truong
Table of Contents
I. Situation..................................................................................................................3-5
Timeline..........................................................................................................................3
Business & Corporate Level Planning: Company Strategy, Mission, Vision, and
Values.............................................................................................................................
4Company Situation......................................................................................................
4-5
II. Analysis...............................................................................................................5-23
Leaders and Leadership...............................................................................................5-6
Types of Innovation and Evidence of Entrepreneurship................................................6
Globalization Presence and Effects.............................................................................6-7
Ethics...........................................................................................................................8-9
Responsible Wealth Creation....................................................................................9-10
Engagement, Plan Alignment & Corporate Culture................................................10-12
Wild Card: Blue Ocean Strategy………………………………………………….12-13
Internal Analysis.....................................................................................................14-17
External Analysis....................................................................................................18-22
SWOT......................................................................................................................22-23
III. Recommendations...........................................................................................24-28
IV. References........................................................................................................29-33
V. Appendices........................................................................................................34-54
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I. Situation
Timeline
Groupon, a website offering deep discounts through mass purchase, evolved from
Founder and CEO Andrew Mason’s first website, “The Point,” which was launched in November
2007. Deploying a similar concept of group persuasion, The Point was about social action and
stressing the idea that “…every problem has a tipping point of public frustration that will force a
solution. If enough people want a problem to be solved, they will solve it.” (47) People were
asked to give money as a group once a ‘tipping point’ had been reached showing that they were
taking a stand. The Point failed to attract enough advertising revenues to stay in business, but it
reinforced for Mason and his investors how powerful group action can be. (47)
Andrew Mason and his team launched Groupon in November 2008 in Chicago to focus
on collective buying power. (18) They saw that by using the framework of The Point, they could
help other city-dwellers obtain affordable access to goods and services without overwhelming
them by the sheer number of choices. Groupon started out offering one deal per day. During
2009 and 2010, Groupon experienced rapid growth and was soon serving over 150 markets
domestically and over 100 additional markets internationally. (47) The seemingly overnight
success of Groupon drew attention from many different industries and those that wanted a piece
of the daily-discount-deal pie.
During the same period of 2009-2010, Groupon saw several
competitors and copycat firms appear including LivingSocial, BuyWithMe, and the new “Deals”
section on Facebook. (47)
Groupon began to attract interest from investors and others in the business world. In
April 2010, Groupon together with Digital Sky Technologies, a Russian investment firm, raised
$135 million in new capital to help solidify “that social buying has rapidly matured into a real
business.” (47) Groupon used the new capital to acquire its German clone, CityDeal, which
doubled Groupon’s global reach. (47) By August 2010, Groupon was valued at $1.5 billion and
it had become the fastest company in history to reach $1 billion in sales. (47) In December 2010,
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the growth and rising success of Groupon became even more apparent when they rejected a $6
billion acquisition offer from Google Inc. This led to increased speculation that the company
was preparing to seek an Initial Public Offering (IPO). (30) Speculation turned into reality in
June 2011 when Groupon filed paperwork to issue an IPO.
The filing disclosed that the
company intended to raise $750 million in the offering. However, industry experts believe that
Groupon could attain a valuation in the range of $20-30 billion. (51) Please refer to Exhibit 1 for
a summary of the timeline.
Business & Corporate Level Planning
Groupon was the first major daily deal provider, which has given it a great advantage
over emerging competition. It has been able to leverage its first-mover advantage and cost leader
strategic management. Groupon uses its cost advantage in the market to act as the central voice
for people, driving bargains using economies of scale in local markets that would otherwise be
unavailable to the average person.
Also, Groupon is well positioned to benefit from the
proliferation of technology and mobile communications, and so far has expanded its technology
presence in a tone and manner that appeals to a younger customer base that is ripe and eager for
Groupon’s offering.
Groupon’s mission is simple: to offer stuff we want to do, see, buy and eat at an amazing
price with “no BS.” The vision is to help alleviate the stress that comes with having too many
choices by offering city-dwellers one really cool new thing a day to try.
Keeping with the
youthful and jovial nature of its brand, Groupon maintains a simple philosophy of treating its
customers the way they like to be treated.
Three key tenets support this customer centric
philosophy. First, Groupon maintains that it only sells the stuff that its own employees would be
interested to buy. The careful vetting of new merchants means that users should feel comfortable
venturing out and trying something in their city, simply because it was featured on Groupon. (18)
The “No BS” refers to the idea that in order for customers to truly love the company and its
offering, there can be no hidden terms or conditions that might sour the experience. (18) Finally,
the last tenet is unbelievable customer service, which the company defines clearly, “If you
contact us, we’ll do what it takes to make things right – and we’ll do it fast.” (18)
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Company Situation
Groupon has a unique place as the leader of the daily deal market. Repeatedly called “the
fastest growing company ever,” just three years after launch Groupon hosts more than 900 deals
every day, has 70 million subscribers in 46 countries, and employs over 7,000 people. (20)
Although it has established a strong international brand and created an estimated 10 billion dollar
market out of nothing, the low barriers to entry have allowed for the quick creation of numerous
competitors.(8) Groupon is now struggling to identify how it can differentiate its offering beyond
just having a large volume of subscribers and global reach. Mason’s carefree attitude and nontraditional business style are a major concern as the company has yet to convince potential
investors and skeptics that it takes becoming a profitable business seriously. The industry is so
new that research is still incomplete as to how customers and businesses respond to companies
like Groupon in the long run, and how long geographical markets can provide attractive
discounts without reaching a saturation point. Another hurdle for the company to consider is
how the brand can stay relevant and ‘cool’, while being easy to use for both the merchants and
the end consumer.
As Groupon looks to go public in the near future, it needs to prove to
investors that its business model is sustainable and that it still enjoys a unique competitive
advantage in the marketplace.
II. Analysis
Leaders and Leadership
Groupon is guided by founder and CEO Andrew Mason (who was also the creator of The
Point, the original collective action platform). (36) Mason has an unconventional background
with an undergraduate degree from Northwestern in music. After graduation, he became
enthralled with computers and technology and went to work as a software engineer. (36) In 2006,
he developed “Policy Tree”, a policy debate visualization tool that won him a scholarship to the
University of Chicago Harris School of Public Policy. After three short months, he dropped out
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to pursue The Point, and the rest is history. (36) Known for his kitschy, big kid mentality, serious
board meetings are actually held in tent forts, much like the childhood secret clubhouse. (36)
As Groupon began to grow, Mason did a stellar job of attracting an experienced group of
senior management who shared his vision, ambition and jovial corporate culture.
Margo
Georgiadls, COO, brings broad and invaluable experience from serving as the Executive Vice
President of Card Services and CMO for Discover Financial Services and more recently as the
Vice President of Global Sales Operations for Google. She holds a bachelors degree and MBA
from Harvard. (36) Jason Child was selected as the CFO, leaving his role as CFO and VP of
Finance of Amazon.com’s international division. (36) The Vice President of Product is David
Jesse, who brings to the team his experience as a County Manager for eBay and Vice President
of Product Management and Business Analytics for Gaia Interactive. (36) It is essential for a
technology company to have the right technical minds to handle the engineering that makes the
website run; Groupon’s lead “technical mind” is Brian Totty. He has a PhD in computer sciences
and he literally wrote the book on HTTP and has extensive senior management experience with
several different technology firms. (36) Groupon also attracted Skip Schipper to be the Head of
Global Human Resources. He has worked for Compaq, Microsoft, Cisco and PepsiCo, and he
serves on the frontline of extending Groupon’s unique corporate culture to offices around the
world. (36) (Please refer to Exhibit 2 for Organization chart)
An equally impressive, yet humble, team of Groupon senior vice presidents supports
these key players. While reading through their biographies you get a sense of the
accomplishments – both academic and professional – that this team collectively has, but you also
get a sense of the dedication, passion, and work-life balance that seems to be important at
Groupon, which is shared by many contemporary web-based startups.
One of the common
bonds that seem to unite this relatively young group of professionals is their experience with
start-up companies. That is, they all seem to share the drive and willingness to take risks.
Types of Innovation and Evidence of Entrepreneurship
“Innovation is the initial commercialization of invention by producing and selling a new
product, service, or process.” (40)
By definition, Groupon is an innovative company, not
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through development of a “me-too” product, but by forming an entire new market space. The
company won a Chicago innovation award in 2009 when they were less than a year old.
Additionally, Fast Company has called them "a savior for small businesses" and "the most
exciting thing to happen to retail since eBay". (16, 39) Groupon pioneered the online group
purchasing power concept, but they are not content with stopping their innovation pipeline.
They demonstrate entrepreneurship and continuous learning through regular product updates,
most recently in upgrading the delivery method from email subscriptions to Groupon 2.0,
mobile, and real-time technology which offers ultra-localized services based on your GPS.
Instead of merely expanding to new markets and to new customers who may have a one-time
purchase, they focus on improving the personalization and offering more relevant offers to
current subscribers.
Globalization Presence and Effects
While Groupon’s product is hyper-local, they know discounts have mass appeal to a
broad worldwide audience, thus they operate on a global scale, expanding rapidly and
strategically. (41) After launching the website in native Chicago, they followed with offering for
Boston and New York City. By 2009, just one year after launch, they were operating in 30 major
American cities with 120 employees, two million subscribers, and $33 million in revenues.
Today, they have more than 7,000 employees and deliver more than 900 deals daily to 550
markets around the world. (41, 42) Competing in a global market is always challenging as the
degree of complexity in each foreign market is often underestimated. Instead of trying to create
a cookie-cutter formula and deploying it across continents to potential resistance from an outside
force, they chose to expand through acquisitions of already existing local deal sites (in essence,
following an inorganic growth strategy). The existing sites were already familiar with the
cultural preferences and purchasing habits of the local population, so they simply had to be
rebranded under the Groupon umbrella. (27) “This overall strategy allows Groupon to capitalize
on already strong local merchant relationships in these new territories by folding smaller,
existing competitors into their own model, as well as gaining instant access to their preexisting
customer bases.” (24)
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The following represents major acquisitions Groupon has made since inception (24, 34,
54, 59):
In 2010, Groupon purchased CityDeal, a large European clone based in Berlin. The
acquisition immediately added 600 employees to Groupon's payroll (which had been 300 before
the deal.) CityDeal is active in 80 markets in 16 countries, including the United Kingdom,
Germany, and France. (24, 54)
Four months after raising millions of dollars from a Russian investment fund, Groupon
acquired a majority stake in Darberry.ru, a similar site based in Moscow. With the investment,
Darberry was renamed Groupon Russia. The site, which currently serves seven cities with
180,000 subscribers, is flush with Groupon's capital and intends to expand throughout the
country and into neighboring Ukraine. (24)
Also in 2010, Groupon put up $10 million to buy a majority stake in Qpod, a Tokyobased start-up that was set up as a joint venture between a direct sales company and a venture
capital firm. The site has since been re-branded Groupon Japan.
Groupon also entered Latin America, buying one of its imitators in Chile, a site called
ClanDescuento. According to founder Andrew Mason, the expansion of Groupon Latin America
is an important step in their evolution as a leading global Internet brand. Most recently, they
bought the Indian deal-of-the-day website SoSasta.com, uBuyiBuy in Hong Kong, Singapore,
the Philippines, and Taiwan, and GroupsMore.com in Malaysia, giving them a stake in
essentially every major market and making them a huge multinational enterprise. (34)
Please refer to Exhibit 4 for a map depicting all the areas where Groupon has a presence (24)
and Exhibit 5 for the percentage of global website visitors by region (57).
Ethics
The Point was founded on the idea of serving the greater good, therefore it is no surprise
that most of the same principles of social responsibility have found their way into Groupon’s
core values, as well. Groupon’s roots in social activism and its desire to support local causes are
initiated through the “G-Team,” a collective group of subscribers and staff who run large-scale
campaigns to support the community that can include anything from a flashmob to fundraiser.
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(58) They raised millions of dollars for national charities like Donors Choose and Kiva through
social action and civic engagement. (58) Fun examples of Groupon-led initiatives include deals
like if the “G-Team raises $1,000, a local bike cooperative will fix up 100 broken bikes to donate
to disadvantaged youth center” or “if 5 people who purchase today’s Groupon join, they’ll come
for 4 Saturdays to help clean up a local river.” (58) Despite the explosion of negative press
following their perceived insensitivity in a recent Super Bowl ad poking fun at the conflict in
Tibet, on the company blog, Andrew Mason points out that Groupon regularly donates money to
all the causes in those commercials and no harm was meant by it. (1) Overall, Groupon does
appear to engage in charitable activities, it cares about making a positive impact on the world,
and tries to use its power for good practices.
Corporate social responsibility (CSR) is the idea that business has a duty to serve society,
as well as the financial interests of stockholders. According to founder and CEO Andrew Mason,
what Groupon is trying to do is to change the way that people buy from local businesses in two
ways. First, they focus on support for local businesses so that they can sell more products.
Second, they have an innovative policy of only allowing a coupon to be used once a certain
number of people have committed to purchase. As such, Groupon represents an interesting
experiment in the idea of the social mobilization of consumers, made possible by the free flow of
information that has emerged from the revolution in communication technology in recent years.
(52) This helps to contribute to the welfare and interests of both society and the organization.
Responsible Wealth Creation
Groupon was founded by Andrew Mason and Executive of the Board Eric Lefkofsky in
November 2008 using venture capital funding. (43) In January 2009, they received $30 million
in cash from Accel Partners, a private equity fund, which valued the business at $280 million.
(43) The company was able to successfully raise $135 million from Digital Sky Technologies
(DST), a Russian private equity fund, in April 2010. (4) Just a month later, Groupon used its
booming valuation to make its first international acquisition of CityDeal in exchange for 10%
ownership of Groupon. (43) Several months later in December 2010, Groupon expanded its
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footprint to the Asian continent when it purchased 3 discount sites in deals for which terms have
not been disclosed to the public. (36)
In examining these trends and events, it is clear that Groupon has relied heavily on the
use of venture capital and private equity to fund acquisitions and growth as a primary strategy to
become a global force. Additionally, management is highly selective in determining whom they
will accept funding from, and has chosen to work with other investors that have had proven
success in the social media space. DST is a major investor in Facebook, which has received the
highest valuation of all time for a website. (4) Although this strategy of working with private
investors has been successful thus far, the freedom the company has had in terms of the manner
it operates will likely change once they go public. Groupon has recently filed a well publicized
and highly anticipated IPO that is projected to value the business between $20 and $30 billion.
(51)
One would anticipate that such a valuable business would be highly profitable and
attractive to investors.
As Vivek Wadhwa, a visiting scholar at the UC Berkeley School of Information and
Director of Research at the Center for Entrepreneurship and Research Commercialization at
Duke University, has noted, “this is simply not the case.” According to Wadhwa, “the company
does not have a proven business model that will take them to long-term profitability, insiders are
already reaping millions, and the price is out of proportion with reality.” (32) This statement is
based on events following a $950 million cash influx by Kleiner Perkins, a private equity outfit,
in January 2011. (32, 43) This transaction valued Groupon at an astonishing $4.75 billion. (43)
In these instances, management is typically rewarded for increasing profitability, and a
significant portion of the cash infusion is used for infrastructure to support future growth.
Instead, Groupon paid out $810 million to top executives of the firm, including payments to
“CEO Andrew Mason ($10 million), Lefkofsky ($60 million), early-stage venture backer NEA
($70 million) and Accel Partners ($19 million).” (32)
These individuals and groups have been with Groupon since the beginning, and to see
them pulling out such vast amounts of cash is a huge cause for concern and question. Are they
cashing out now because they anticipate a decrease in the holding value? The other worry is that
they are sharply curtailing Groupon’s ability to grow by limiting the amount of cash the business
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has to make acquisitions. For a company set on rapid expansion, if they do not continue the
momentum, what will happen to their strategy? Whatever the motive, this was not a positive for
the stakeholders of Groupon who were unable to cash out during the transaction, and it was not a
healthy financial decision for the company.
Engagement and Plan Alignment & Corporate Culture
It is often said that words alone do not matter as much as action, which is often the case
in business. Groupon must execute its strategy in such a way that will create value for all
stakeholders involved. Successful strategy execution depends on management of people and
capital, continuous improvement, and delivering results. Management must continually push the
organization towards operating excellence while always concentrating on the core vision,
mission, and goals of the firm. As Darren Schwartz, the SVP of Sales at Groupon, says: “Instead
of just sending a lot of customers to a business, we want to send the right amount of customers,
and the right kind, to our clients.” (10) It is evident by this quote that management at Groupon is
cares more about acquiring the right customers to have an impact on the business than just
increasing the volume of sales.
It is also essential for key leaders to be actively involved change management when any
new strategy is rolled out.
Management must build consensus and enthusiasm for any new
initiative with its employees so that a smooth and successful transition occurs. Another crucial
aspect of plan alignment is proper training. At Groupon, there are about 150-200 new hires a
month in Chicago alone (44), which presents challenges to time and resources. Groupon is
extremely caring about its people and believes in the concept of human capital adding value to
their firm and thus puts the necessary time into educating everyone on the corporate culture,
mission and values.
As Andrew Mason explicitly states, “We believe that to have truly
ubiquitous coverage with local merchants, human beings are an important part of the
equation.” (49) When Groupon expands, nationally or globally (organically or through M&A),
they strongly consider the local practices, competitive situations, cultures and personalities in
order to sustain strategic success.
Groupon seems to comprehend this aspect well: “Further
expansion into international markets requires management attention and resources and requires
11
us to localize our services to conform to a wide variety of local cultures, business practices, laws
and policies.” (38) Growth is not an easy strategic choice to manage, but a necessary growth
measure. From the SEC filing document for Groupon’s IPO, it is clearly evident that Groupon
hopes to be able to align their growth plan with their strategic vision: “To effectively manage our
growth, we must continue to implement operational plans and strategies, improve and expand
our infrastructure of people and information systems, and train and manage our employee
base.” (38)
Resources at Groupon must be evaluated through information control that supports
strategy execution.
Groupon engages in a contemporary control system in which they
continually monitor the environment and identify trends that may signal any need to revise a
strategic objective. Groupon 2.0 plans to leverage those strengths in a way that improves the
deals subscribers see to make them more relevant to them based on location and preference.
The corporate culture in Groupon is unique as it exemplifies their mission and values.
Dan Jessup, Executive VP of HR, explains it as "everyone here takes their job seriously, but they
don't take themselves too seriously." (29)
Many of Mason’s defining characteristics are
embodied in the corporate culture- youth, exuberance, and free spirited. “Employees say the
culture at Groupon prioritizes openness and collaboration, with a refreshing lack of
micromanagement and corporate bureaucracy.” (29) The fun, silly, and easy going atmosphere
can be seen the moment someone walks into the office with whiteboards lining the walls covered
in cartoons and inside jokes. The conference room houses a bed, shag carpeting and chocolate
coins, and is home to Michael, the company ghost, an adventurer who embodies of the Groupon
spirit. Their corporate culture defines their personality and is evident in every deal they produce.
“Groupon's daily emails are noted for their wry humor and occasional weirdness.” (10) These
emails have been seen as a sign of Groupon’s success, as they are fun to read just like the
company is fun in general.
Mason describes as: “If this is all starting to sound like an elaborate prank, that’s only
because it is. That’s what’s special about Groupon. We create these…little events. So much of
what we do is about surprise—‘What’s the daily deal?’ And who would imagine a room like that
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inside an office? As an employee, it shocks your system out of the monotony and says, ‘This
isn’t like any job you’ve had before.’” (51) To remind himself everyday of this vision, Mason has
posters of failed internet start up CEO’s on his wall. As a joke, or reality check, he has his own
picture right next to theirs. (44) His actions truly exhibit how close culture can be aligned with a
company’s basic vision and strategic objectives. In order to facilitate an objective to generate the
best platform to share common collective buying power, Groupon facilities open lines of
communication between the technology, sales, and customer service employees. (29)
The entrepreneurial spirit of the firm is evident at all times, which is seen as an exciting
yet serious place to work. “There's a pronounced tech start-up vibe to Groupon's work
environment, with its young workforce, flexible hours and casual dress code.” (29) Mason often
sits with his employees at different functions to help them, learn from them, or simply show his
employees that he is one of them. (48) “From the top down, Grouponistas are expected to adopt
the ethic of being transparent, collaborative and—thanks in large part to the jokey-yet-wellresearched Deal of the Day write-ups Mason calls ‘the heartbeat of the company—absurd
humor.’” (48) Employees at Groupon say that they feel the culture allows them to be listened to,
inspired by others, and supported by their peers.
Wild Card: Blue Ocean Strategy – A Key to Early Success
“Competing in overcrowded industries is no way to sustain high performance. The real
opportunity is to create blue oceans of uncontested market space.” (5) This is the sentiment on
which Groupon has built its foundation. Instead of developing a product extension or parity
good, Groupon re-invented the coupon industry, creating a new market space from an already
existing one – which is precisely what a blue ocean is defined as. At its inception, Groupon
created demand for its product and the firm’s growth was rapid, ample, and without competitive
threats. (5)
One of the key distinctions of a blue ocean is they allow a firm to pursue both a
differentiated and cost leader strategy at the same time. (5) Differentiation is achieved by the
sheer definition of Blue Ocean: creating a new market space. Groupon changed the coupon
industry, removing many of the unnecessary elements, while substituting value components such
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as collective buying to reach a deeper deal through offering merchants attractive volumes. Blue
ocean companies create value for both the buyers and the company. (5) Groupon has created
value for not only the buyers that are getting a great deal, but also for local merchants that are
able to attract new customers to their business. (35) Groupon has also obviously created value
for itself as: “the business had gone from zero to $500 million in sales in 18 months.” (21).
Another characteristic common with a blue ocean strategy is that technological
innovation is not at the firm’s core. (5)
This is true also at Groupon as their underlying
technology (website, email, and social media) were already popular in 2008. A blue ocean firm
will link technology to what a buyer values, which Groupon did through providing a good deal in
the recession. (44) Groupon’s ability to pull in new customers who traditionally would not care
about discounts is also a distinctive Blue Ocean trait. Its customers are described as “hip, active
singles who go out two or more times a week. They are college-educated users of social media
and while the demographics slant slightly toward single females, it's not about saving money but
rather spending it with friends.” (22)
Another ideology of a blue ocean is to realize that ‘company & industry’ are the
traditional units of strategic analysis and are the wrong units to focus on when establishing a
business model.
“The most appropriate unit of analysis for explaining the creation of blue
oceans is the strategic move - the set of managerial actions and decisions involved in making a
major market-creating business offering.” (5) Groupon exemplifies this when Andrew Mason
was quoted saying, “It's not competitors that beat them. If you look at Myspace, Facebook was a
better product. It's as simple as that." (21) This showcases that Mason does not use competition
as a metric, but instead places more value on the actions, decisions, and product knowledge of
the firm to determine health.
Mason honestly feels that if you lose sight of what makes
customers happy, then the company will fail.
It has been observed that another common aspect of blue ocean companies is that they are
powerful brands that build brand equity lasting for decades. (5) With Groupon being the fastest
growing company of all time, James Slavet, a partner at Greylock Partners, a venture-capital firm
in Silicon Valley, believes that, "Long term, this is a business that will do for retail what Google's
done to search and search advertising." (21)
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Internal Analysis
Value Chain Management Analysis
Groupon’s value chain management (VCM) is an extensive process that begins with the
negotiations with buyers to delivery of purchased vouchers to customers.
Inbound logistics for the firm are quite simplistic. Leads are generated by the marketing
department and passed to the sales representative for the respective city in which the potential
vendor is located. (26) The sales reps often work in teams of two to five people depending on
the size of the market the city is located in. (26) When a deal is made with a vendor, the sales rep
works directly with the business to finalize the terms of the offering and places the deal in the
pipeline. (26) While in the pipeline, the editorial department crafts catchy descriptions that are
witty and enticing. (49) They are also relatively easy to prepare as evidenced by Groupon’s
recent involvement with a group of 6th graders in the Chicagoland area. As part of Groupon’s
commitment to partnering with local not-for-profit organizations, these students were invited to
write the descriptions of a few daily deals to help them understand how important it is to develop
their writing skills.(49) Next, the web development team uploads this content to the page that
will house the deal and puts the finishing touches on the product chat room. Since most of the
sales process is completed over the computer, there is no physical warehouse needed to house
inventory. However, the massive sales force of the firm has resulted in Groupon occupying two
large office spaces in downtown Chicago. (18)
The next step in the VCM process is operations. As noted previously, the company relies
heavily on the use of technology since the core of their operations is run online through
Groupon.com. (26) The primary activities are closely intertwined with the inbound logistics as
the deal moves from the marketing department to production. The company relies heavily on
real-time data and feedback since the deal runs for a set time limit each day.
The sales representatives and customer service departments are the primary touch points
in dealing with businesses or customers, respectively, in the outbound logistics and service
sectors of Groupon’s VCM.
Each time a deal is posted, the sales rep regularly updates the
vendor on the status of the deal. A chat room is available for customers to post questions, and
15
the sales rep often passes on these inquiries directly to the vendor in order to respond timely
within the chat. This close communication between the vendor, sales rep and customer creates a
close knit community and creates an added intrinsic value for consumers. (18) The customer
service team is closely involved with the final sale of product and assists customers that have
issues finalizing their purchase. Additionally, if a customer encounters a problem in redemption,
these employees do everything in their power to resolve the issue timely. (18)
Recently, “a nail salon in Northern Vancouver sold more than 6,000 Groupons for halfprice manicure pedicures” and only allocated 16 slots per day for Groupon customers. This
meant that some customers could conceivably have to wait over a year before they are able to
redeem their voucher. (12) With actual demand far exceeding the projected amount, Groupon
worked to provide refunds to dissatisfied customers. This flexibility is crucial to preserve client
and customer relationships, and this high level of service has not come at a cheap pricetag for
Groupon. Selling, general and administrative costs have increased from $4 million in the first
quarter of 2010 to $178.9 million in the first quarter of 2011, which is approximately 28% of
revenues received. (50)
New sales reps are trained in smaller markets like Long Island, New York or Wichita,
Kansas. (26) Although there are fewer opportunities in these markets, reps gain experience
selling the product and are forced to work harder to come up with deals. (26) The best sales reps
are moved to larger markets when opportunities arise, which is beneficial to both the rep and the
company, since the highest performing reps get an opportunity to earn more money in a brighter
spotlight.
Part of what motivates the Groupon sales team to be aggressive in their vendor
negotiations is the large commission they receive from each deal. The more popular a business,
the more sales and profits it will generate the company and the sales rep. (26)
An additional incentive program which supports the VCM for all employees is the
issuance of stock options which vest over a period of several years. For employees that have
been there since the beginning, these shares can be numerous once the IPO is finalized and will
provide a great start to a retirement nest egg for many young professionals. (51)
RESOURCE BASED VIEW ANALYSIS
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A resource based examination of Groupon yields several trends identified through the
VCM model; however there are numerous additional points of discussion. (Please refer to
Exhibit 8 for Groupon Resource based View Analysis)
From a financial perspective, Groupon has the highest revenues in the industry. In the
first quarter of 2011, the firm grossed $644.7 million compared with $44.2 million in the same
quarter of 2010, which equates to an astonishing 1,359% increase. (50) Unfortunately, this
growth in revenues has not equated to profitability. The company has expanded at such a rapid
rate through hiring of additional employees, marketing costs and infrastructure that Groupon lost
$146.5 million in the first quarter of 2011. (50) This trend of losses dates back to fiscal year
2009, with only one slightly profitable quarter. (50) Groupon previously posted revenues per
subscriber at $21.69 as of June 30, 2009. (33) This number has decreased approximately 64% to
$7.76 as of March 31, 2011. (33) Part of this decrease is the massive growth of their subscriber
base, however it also shows that fewer people are actually buying the daily deals. (33) These
decreases have not hurt Groupon’s ability to grow yet since their cash flow is so strong and
allows the company to fund current operations.
The physical resources owned by Groupon consist primarily of their sales force, which is
housed in two main locations in Chicago. (18)
Their dramatic growth has resulted in large
investments in physical space and technology, since each employee needs their own computer.
The human portion of this analysis is focused on two groups within the firm, the sales
team and the executives. Both of these clusters are filled with top performers in their class. As
noted in the VCM analysis, the best sales reps quickly move through the system and have
opportunities to represent Groupon in the larger markets. Additionally, Andrew Mason, CEO of
Groupon and Eric Lefkowsky, Chairman and Co-Founder, both have experience in growing
technology companies to profitability.
See the strengths section of the SWOT analysis for
further discussion of their background.
Finally, the organizational structure of Groupon cannot be understated in terms of how it
has contributed to the success and growth of the company.
As noted in the timeline, the
company has grown from 37 employees in 2009 to over 7,000 merely two years later. (18,33)
This rate of increase is literally unprecedented, and thus the organization as a whole has had to
17
remain very flexible in order to adapt. New programs and departments have appeared on the fly
over the past two years as different needs developed. (26)
Qualified staff have been hired
without a specific role, just to fill anticipated demand in various areas. (26)
Most of the
workforce is under 30, and are therefore more easily able to accept rapid change than a labor
force used to doing things ‘the same as last year’ for the past few decades. An additional benefit
of having a young workforce is their comfort with technology and social media. Much of the
business becomes second nature to the employees, who are encouraged to share their ideas with
management to improve the operations when applicable.
VRIO
The final concept used to analyze Groupon’s internal business practices is the VRIO
framework, which examines the company’s value, rarity, susceptibility to imitation, and how
organized they are to exploit resources. (Please refer to Exhibit 9 for VRIO Analysis)
As has been touched in the aforementioned analysis, Groupon’s first mover status makes
them a highly valuable company within their industry. Their brand and distribution channels are
relatively unique and far exceed the competition.
Since the competition within the industry is so great, it is obvious that the group buying
mechanism is not a rare commodity. As of June 2011, over 345 sites compete in a space that did
not exist merely three years ago. Any tech-savvy individual can launch their own site and work
to build up a subscriber base comparable to Groupon. (3) All it takes is businesses willing to sell
their product for cheaper than face value, and customers that want to save money. According to
Yipit, in May 2011 almost 18,000 unique online deals were offered through Groupon and similar
companies in just North America. (3) This is an astonishing number and shows no signs of
slowing down anytime soon, meaning even more companies will want in on the pie. Groupon’s
largest competitor, LivingSocial has been slowly chipping away at Groupon’s dominance in the
industry. In May 2011, Groupon’s market share of online daily deal sales decreased from 52
percent to 48 percent, while LivingSocial increased their sales to 24 percent of the industry
compared to 20 percent in the prior month. (3) This downward trend for Groupon is similar to
many other negative metrics identified and does not bode well for the long term prospects of
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Groupon. Within the VRIO framework, ownership of value, but lack of rarity in the business
concludes that Groupon has competitive parity within the industry.
Finally, Groupon is an extremely organized business, which closely manages its resources
and exploits opportunities presented to them. This is evidenced by the executive management’s
incredible career experiences within the industry.
External Analysis
Though Groupon may seem like an unstoppable force, the idea behind an external
analysis helps a company to understand their place in their market and map their position in the
larger business realm. It helps identify threats and opportunities, and assess their level of
potential profitability based on the industry health and maturity.
Organizational Environmental Model
Through the Organizational Environment Model depicted in exhibit 12, Groupon, the
organization, is the epicenter of their task environment comprising of competitors, distributors,
customers, and suppliers. Outside of that, the general market environment is made up of
technological, economic, global, political, demographic and socio-cultural forces. At the center
of their organization, Groupon provides a service that solves a fundamental business problemawareness and accessibility. “We get them in the door, and the merchants take it from there,
delivering the services to get them back. The Groupon model works in any market, it can easily
be scaled up.” (34) The environment in which they operate is what makes them so successfuleveryone loves a deal and the site came at the right place and right time to take off during the
period of economic recovery- global forces were working in their favor.
They make the endusers - their customers - happy by offering an awesome experience at
a fraction of the cost, and go above and beyond to bring their suppliers (the stores providing the
discounts) new business. However, customer service during redemption has undoubtedly been an
issue for them, with some stores being overwhelmed by the demand leading some customers to
experienced less than stellar service. While Groupon works hard to resolve customer service
issues involving redemption, responsibility mainly falls on the distributor to provide the service
19
offered in an exceptional manner so they earn repeat business. The negative experience does
ultimately reflect back on Groupon though and my affect future purchasing decisions.
Nonetheless, Groupon single-handedly changed the stigmata and culture associated with
coupons. While discounts had formerly been a taboo, embarrassing subject (who wants to admit
they like saving money?), the audience was no longer the little old lady scouring the weekend
paper for a deal. Their demographic was now the educated young professional, as Groupon made
the discount socially acceptable and rewarding by requiring a certain number of participants to
reap the rewards of collective buying power. With people wanting to maintain the same level of
lifestyle and disposable income they had before the economic crash of 2008, Groupon allowed
them to still indulge in a spa day or nice meal out without feeling guilty or breaking the bankmaking both the socioeconomic and economic factors work in their favor. Also, technology like
real-time cell phone apps made purchasing easier than ever and they take advantage of all online
marketing channels to deliver content (email, social, web).
The group coupon idea took off like wildfire and spawned numerous copycat sites, most
notably Living Social. While Groupon still has first mover advantage to some degree with their
large subscriber base, the competition is undoubtedly biting at their heels for a piece of the pie.
One of Groupon’s strategic advantages is their massive local sales force of over 3,500 people
who know the markets inside and out, which serves as their distribution team. If they didn’t have
these people to source the deals, they’d be a much more accessible to competition immediately,
but it will understandably take the other big players time to build up these relationships. The
sales force could potentially become an even bigger moat if Groupon Now, their real-time
mobile app takes off, which needs thousands of active deals at a time to be successful. (55) The
mobile technology with a built in subscriber-base is one of their biggest advantages, as that’s
much harder to copy than a website and better for determining ROI data for businesses. “Apps
with a location layer can help close the loop between a deals consumer and a repeat customer by
observing a consumer's interactions with a business and a neighborhood over time.” (11) In
summation, the initial environment factors were ripe for Groupon’s exponential growth, but now
they must regroup and to evaluate and capitalize on their strengths if they intend to maintain an
industry leadership position.
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Porter’s 5 Forces
Porter’s 5 Forces provides a framework for evaluating a sound business strategy. The
following is an analysis of Groupon based on the five economic forces that determine the
attractiveness of a market. (Please refer to Exhibit 11 for a summary of Porter’s Five Forces
analysis)
New Entrants- There are extremely low barriers to entry in the daily deal market and even
lower costs of switching providers. With technology that is easy to develop and a kitschy style
easy to copy, there is almost zero brand loyalty to Groupon since its product is a price-based
service. With the sheer volume of sites now pushing daily deals on consumers, one has to wonder
how long the fad can keep up momentum. Companies that use daily deal promotions have
already learned they come at a price. Typically, promotions are not successful unless the deal
offers 50 percent or more off the normal price of goods and services, which few companies can
regularly sustain a profit with. (25)
Rivalry- There are currently five direct rivals in the daily deal market in the United States
alone with more appearing everyday, taking the space from a blue ocean to a shark tank. Over
400 sites have launched since Groupon, but the worthy competitors have significant reach and
deep pockets- Google Offers, Amazon Local, and Facebook Deals in addition to the largest twoGroupon and LivingSocial. Right now, Google Deals, Amazon Local and Facebook deals are
only available in limited areas, but with an estimated 600 to 700 million Facebook users and
Google in the process of testing its new social media product, Google+ how long can Groupon
protect their market share which has already been slipping? “Yipit's researchers, according to
Bloomberg, estimate Groupon made $64.7 million in sales in May, a figure that was still more
than double what LivingSocial produced with $31.6 million in sales.” (25) With so many players
in the space though, they need to constantly be forward thinking and innovative in terms of
product development to stay on their “A” game. (Please refer to Exhibit 14, 15 and 17 to
understand more about the competition between Groupon and LivingSocial)
Substitutes- Replacement products always existed in the form of the traditional paper
coupon. Extreme Couponing on TLC has actually revived bargain hunting to make it relevant
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and almost game-like to discover ways to combine manufacturer's discounts with local store
rebates to come away with the biggest savings possible. Other deep discount websites like
Amazon and Overstock are known substitutes, as well as online auctions sites like Ebay, online
promo/QR codes, and of course the option to pay full price or not participate in an activity that
costs money (the beach, biking, etc).
Bargaining Power of Suppliers- As the only player in the space, Groupon had been
commanding massive margins- 50% of all sales generated. Each time Groupon sold a voucher to
a user, it collected cash up front. Merchants' share of the proceeds, which averages about 60%
world-wide, is remitted later—sometimes much later. (46) Collecting payments far in advance is
what had primarily funded their intensive marketing and operational efforts. What had once
seemed like a brilliant way to grow the business faster than the competition could catch up may
now be their Achille’s heel. Much backlash has surfaced that price is too high to justify the cost
and little mom and pop shops are losing money or barely breaking even on their efforts.
Groupon currently pays US merchants in three equal payments over 60 days. This model,
according to Groupon’s S1 filing, allowed it to generate more than $120 million in cash in the
first quarter. As recently reported by Business Insider, Google Offers pays merchants in 4 days,
throwing a huge wretch in their revenue model and cash flow. (17) Top competitor LivingSocial
pays merchants their full share within 15 days. (46) Groupon is inevitably going to have to
renegotiate their terms down to the industry standard and take a good hard look at their cash flow
or businesses will likely go elsewhere. But are they proactive enough to foresee the necessary
changes and move with the times? Or will they remain headstrong and believe that since they
had first mover advantage, they are owed the business?
Bargaining Power of Buyers- Now that there are so many providers, customers are
demanding even better deals and improved customer service. Consumers generally don't get their
money back from unredeemed vouchers and while Groupon gives U.S. merchants their share of
unredeemed vouchers, it keeps all such proceeds abroad. In some countries, LivingSocial also
keeps proceeds for unredeemed vouchers, but it doesn't for most of Europe. (46) As the number
of competitors continues to increase, those with more forgiving terms to cope for buyer’s
remorse could prove victorious in gaining favorable public opinion.
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Industry Lifecycle
The point Groupon is at in the industry lifecycle (exhibit 13) is a crucial time to
redefining their business in order to set them apart from the competition. As they near the end of
the growth period and phase into maturity, their strategy and priorities need to change and
develop to ensure long term success. With the growth rate of the market at its highest and
intensity of competition ramping up, changing the emphasis to sales and marketing, product
design and consistent consumer demand is critical. After the Super Bowl marketing flop,
Groupon pulled it’s distasteful TV ads, focusing its attention in the online space and working to
restore a positive brand image after the negative PR by donating to the charities they spoofed.
(45) Since then, they have shifted efforts to action driven marketing looking to grow their sales
and subscriber-base through broad-scale pop-under retargeting campaigns and search engine
marketing, tactics more ample for conversions. The company spent $263.2 million on advertising
and subscriber e-mails in 2010, compared with just $4.5 million one year earlier. (13) They have
also been looking to improve their product, Groupon Now, which they ambitiously hope will
change the way we eat, shop and play. A radical departure from the once a day email deal,
Groupon Now is time sensitive, finally giving businesses a chance to fill seats during slow times
throughout the day. It’s a simple way for local businesses to manage their perishable inventory,
especially labor and food. “Groupon clearly believes Groupon Now is the future, so much so that
its employees call the current iteration of its daily deals service ‘Groupon 1.0.’” (31) Living
Social also has a similar mobile feature called Instant Deals.
SWOT Analysis
A SWOT analysis of Groupon’s internal business shows that while several strengths exist
in their business model, the threats to their long-term profitability and sustainability are
numerable and must be addressed in order to prove differentiated. (Please refer to Exhibit 10 for
SWOT analysis)
Groupon was the first company to make the group purchasing-power model popular
through use of the internet.
This first mover advantage has provided them with the most
recognized brand in the industry.
Additionally, this has allowed them more time than their
23
competitors to build a subscriber base that now reaches from South Africa to Japan and includes
all 50 states. (9) As of March 31, 2011, this list had 1.5 million contacts in Chicago alone,
equivalent to over 15 percent of the total people in the city. (2,53) Their duration of operations
has further allowed them to drill down within the United States and market their product to over
125 U.S. cities. (9)
The plethora of opportunities resulting from this growth in distribution
channels has correlated with an insatiable demand for young professionals looking to gain
experience as sales representatives in a highly competitive marketplace. Boasting over 7,000
employees currently, Groupon still attracts the top talent through profitable salary packages that
include a percentage earned on each daily deal. Also, employees receive stock options in the
company that vest over a period of several years. (26)
Furthermore, the top leadership in the firm has extensive experience helping start-up
websites grow, and ultimately go public, resulting in significant wealth creation for employees.
Eric Lefkofsky, the co-founder and Executive Chairman of the Board has founded two other
websites in his career that are both publicly traded. (18)
His contacts in the private equity
industry have helped Groupon raise funding for several acquisitions and the capital expenditures
necessary to facilitate the extreme growth of the company’s operations. (18) Currently, Lefkosky
is leading Groupon through its IPO, which will provide a further influx of capital, and a safety
net for the founding members of the company. (51) It is true that the tone for a company is set at
the top, and Groupon’s greatest strength is its human capital’s ability to react deftly to changes in
the marketplace and its corporate attitude which values and rewards a fun, productive work
environment for employees.
A major weakness of the organization is negative press that seemingly halts the
company’s progress every few weeks. A recent example is the public’s reaction to the Groupon
commercials that were shown during the 2011 Super Bowl. One of the 30 second spots showed
the peaceful mountains of Tibet, which transitioned into a promotion featuring half off at Tibetan
cuisine. (1) Critics condemned the move as insensitive, but Mason was quick to defend the
company as an active donor and supporter of the Free Tibet movement. (1)
In June 2011, SoSasta, the Indian subsidiary of Groupon accidentally posted the personal
information of 300,000 subscribers online. (28)
24
While the data was not available for an
extraordinary amount of time, it was online long enough for it to be “indexed by Google’s search
database.” (28) Although Groupon was quick to pull the content down, this event showcased the
risks and potential privacy problems of fast internet expansion.
While Groupon has had several instances of bad publicity, one of their opportunities is in
the creativity shown thus far in marketing. At their core, Groupon is a social media company
and has proven adept at reaching a young generation of consumers through popular outlets like
Twitter and Iphone apps. Their commercials are often played during music breaks on Pandora
and the live blog of one fellow living off Groupons for an entire year received quite a bit of viral
buzz.
Although the Super Bowl ad didn’t go over well with the intended audience, it still
managed to reach the largest audience in television and got people talking about their company.
(1) With marketing expenses of $208.2 million in the first quarter of 2011, Groupon has shown
that they are able to outspend their competition to maintain their leadership position.(50) Their
willingness to show creativity to attract new customers provides them with a platform for
continued growth.
The key threat that Groupon must address is its reported cash flow issues. (6) Although
the company is currently private and therefore most financial data is confidential, the IPO filing
has made certain documents public that have market analysts concerned about the company’s
spending habits. Groupon’s explosive growth has been fueled by the constant cash flow that is
churned by the daily deals. Groupon’s continued development in new markets has provided the
ability for the firm to increase revenues, however most of the major markets in the U.S. have
been tapped and the competition is now moving in. Additionally, many customers are growing
tired of the influx of options and stopped looking at deals waiting in their inbox each morning.
Repeat customers have shown little loyalty to the company, as they are simply interested in
purchasing a deal they like from whoever is supplying. Conversely, vendors have grown weary
of the group-buying crowd, particularly in the restaurant and service industry as they have not
been proven sustainable to developing repeat customers. (6)
Another major threat facing Groupon is the potential legal hazards that could engulf the
core of their business operations. A recent article in The Register described several different
issues that are at odds with the group purchasing mechanism including; “certain state’s ban on
25
discounted alcoholic beverages, the length of time that a voucher remains valid often exceeds the
life of a Groupon, and unused portions of vouchers must be redeemable for cash.” (35) The
article notes that many states have their own set of unique rules, which could further confuse the
legality of the Groupon.
Since their inception, Groupon has already changed their policy
pertaining to vouchers that expires, and in ‘the fine print’, it is noted that the purchaser of the
Groupon has the right to apply the expired Groupon for services equal to the cash paid for the
voucher. (19)
III. Recommendation
Source of their Success
With the amount of competition moving in, Andrew Mason is realistic in the fact that the
website won’t last forever and that their core strength and differentiation is not in their physical
technology or the delivery of the email offers, but in the problem they solve for customerschoice of a fun activity at a discount- and the benefit they provide to retailers and new customers.
They may not know exactly what the next iteration of their site may looks like- Groupon Stores,
a mobile app, or something we can’t even visualize yet, but Mason does understand the core of
his business, aptly describing “Groupon as the emerging Amazon of services, creating an
incredibly efficient way for merchants to reach new customers. But the 2.0 version’s socialmedia focus may end up making Groupon the Facebook of shopping as well.”(44) The new
Groupon grew out of a question Mason posed to his team: If the company were able to launch
with the advantages it has now—“a huge merchant community, operational machine and
customer base—would we build the same thing today?” The answer: “Maybe not.” (44) Their
current success lies in the benefit they provide to both their endusers and vendors, not necessarily
in the physical product or delivery of the offer.
Alternate Solutions
To sum up the main problem, Groupon must continue to differentiate its offering, or it
will gradually cede market share to the other daily deal sites as the market matures to become
more standardized in terms of pricing and payment terms. If Groupon has to pay more and faster
26
to keep merchants happy, it will see a reduction in the excess cash flow that has been its fuel for
rapid growth. Alongside this issue is the recent push toward an IPO as public equity investors
will need to see a plan for how the company intends to achieve sustainable profitability. Growth
simply for the sake of it will not appeal to investors for long, especially now that experts are
whispering about a new “bubble” in technology stocks. Andrew Mason and his team can only
hope to evolve the business to meet these challenges. Below are some creative alternatives
Andrew Mason and his team can employ to build a sustainable competitive advantage and
preserve the premium pricing enjoyed by Groupon.
One potential idea could be to expand Groupon into more of an online marketplace,
similar to an EBay or Craigslist, but with a first class interactive element more reminiscent of a
social networking site (e.g. Facebook). Right now, there is very little interaction between users
and merchants on Groupon; as all interaction is facilitated by a middleman- the groupon sales
team funneling end user questions to the merchant while the deal is running. What if that
changed, and Groupon became an interface for retail commerce in local markets?
For example, if a local winery wanted to advertise a promotion to the community, it could
simply log on and followers would receive a status update. As Groupon would likely charge a
fee for this type of posting, the ability to target the most likely buyers would be valuable to the
winery.
Likewise, a business or home in need of major roof repairs could put out an RFP
through Groupon’s service, and local contractors could respond with bids. All of this would
operate alongside the daily deal offers, creating a one-stop site for merchants and local customers
to meet, learn more about each other, offer/request services, and conduct targeted marketing and
promotional activities.
A more likely next step is to find ways to capitalize on Groupon’s mobile application,
Groupon Now, as consumers gravitate more and more toward the use of smart phones, tablets
and other data devices. A simple example is the use of geographic positioning technology to
choose deals based on a user’s current proximity to a merchant. However, this is just the start.
As users increasingly share real-time information over mobile devices, applications such as
Groupon Now can become valuable stores of consumer information. Since Groupon already has
the largest database of daily deal users, it is best positioned to profit from a strategy of collecting
27
and analyzing market data. Groupon customers transmit information over mobile devices related
to preferences, location, purchasing behavior, response to advertisements, etc. In addition to
driving increased customer traffic, the data captured by Groupon Now would be very useful to
merchants trying to better understand their ideal consumer demographic. This can help Groupon
maintain merchants’ attention and interest in their product over competitors.
Recommendation
Groupon’s future success will lie in the ability to prove to businesses that their model is
profitable through the ROI capabilities offered in the mobile app. With so many businesses
questioning the value of running a Groupon at such a high acquisition, if Groupon can prove that
in fact customers are returning to experiences they like outside of the one-off deals, they will
have proven their marketing value. In addition, they will need to prove to their subscribers they
can offer deals even more relevant to them (customized and personal) to avoid burnout.
What Should Be Done
With data being king and so much being available in real-time via mobile technology, the
more the vendors know about their customer preferences- what they like, why they become
repeat users and where they’re located, the more likely they are to run Groupons continuously for
more than a quick boost in sales, but for the more valuable information of market research.
“Groupon 2.0 plans to leverage those strengths in a way that gets more merchants through the
queue and extends the service,” Mason says. “We’re not dramatically increasing the number of
deals a customer sees, but we are giving them something more relevant.” (44) If Groupon can
pass some of this usability data onto it’s vendors, they stand to gain invaluable customer
information.
How Should it Be Done
“As a Groupon user, you will have a personal opt-in “deal feed” that includes the daily
feature offer selected for you by an algorithm using your location, age, past buying habits and
other data to understand what bargains will make you itchy to spend. In addition to that Deal of
28
the Day, which was the core of Groupon 1.0, the upgraded feed will include recommended selfserve deals and messages from merchants you’ve bought from, as well as from others you’ve
chosen to follow.” (44) You’ll be able to share this info via facebook and twitter. “By having
people get different offers, they will have a bigger incentive to share,” Mason says. (44)
Who’s Going to Do It and Why
As discussed earlier, Groupon is already pursuing its Version 2.0 which includes
increased utilization of mobile technology. Groupon has a very good chance of continuing to
lead the daily deal market into the next phase, as it’s pool of subscribers and active merchants
(including a wait-list) is larger than anyone else in the industry. However, Groupon is not without
a worthy challenger; aside from other daily deal sites like LivingSocial, Google stands out as a
potential threat and is likely better positioned as the daily deal market expands to include a
component of market research as Google’s search algorithms are unmatched. If Google can
capitalize on their technical expertise to create a best-in-class algorithm for targeting daily deal
shoppers, it could steal merchants and present a major challenge to Groupon’s supremacy.
Google may also benefit from knowledge gained through its significant involvement with and
development of Android technology for smart phones. These are tools that Groupon does not
possess, yet they can be competitive advantages when trying to capitalize on the mobile market.
Andrew Mason and his team will be charged with writing the next chapter at Groupon.
In order to maintain their “first-mover” advantage, they must introduce a new component to
blind offers. As successful change is directed from the top down, Mason must lead his team to
move with the times. He states openly that Groupon only has to focus on itself to be successful.
As other players in the market grow and evolve, the leaders of Groupon have to anticipate those
moves or they could potentially be blind-sided. Product development and sales teams have to be
aligned, pushed and encouraged to think outside the box to predict competitors’ actions so that
Groupon can beat them at their own game, or make their move obsolete. This will be crucial to
establishing a truly differentiated and profitable business for the long-run.
29
IV. References
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http://abcnews.go.com/Business/groupon-super-bowl-commercial-ignites-controversy/story?
id=12856998
2. All Things. (2011). Groupon and Zynga: Cat vs. Dog for Wall Street’s Affections. Retrieved
July 6, 2011, from http://allthingsd.com/20110705/groupon-and-zynga-cat-vs-dog-for-wallstreets-affections/?mod=googlenews_editors_picks
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3. Bloomberg. (2011). Groupon cedes share of Deals to LivingSocial, Yipit Says. Retrieved July
6, 2011, from http://www.bloomberg.com/news/2011-06-29/groupon-cedes-a-share-of-onlinedaily-deals-to-livingsocial-yipit-says.html
4. Bloomberg Business Week. (2010). Facebook’s Russian Investor Gets $135 Million Stake in
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facebook-s-russian-investor-gets-135-million-stake-in-groupon.html
5. W. Chan Kim & Renee Mauborgne (October 2004). Blue Ocean Strategy. Harvard Business
Review. P 76-84
6. Business Insider. (2011). Google Offers Revealed. Retrieved July 5, 2011, from http://
www.businessinsider.com/google-offers-kill-groupon-2011-6
7. Business Insider. (2011). CHART OF THE DAY: The 10 Billion Reasons Wall Street Is Lining
Up To Do Groupon's IPO. Retrieved July 8, 2011 from http://www.businessinsider.com/chart-ofthe-day-local-daily-deals-market-2011-1#ixzz1RlJxkp1j
8. Business Insider. (2011). CHART OF THE DAY: Groupon's Massive Revenue And Massive
Losses. Retrieved July 8, 2011 from http://www.businessinsider.com/chart-of-the-day-grouponrevenue-loss-ipo-2011-6#ixzz1RlrheMkD
9. Business Insider. (2011). Groupon's Business Model Is Deteriorating In Its Oldest Markets.
Retrieved July 6, 2011, from http://www.businessinsider.com/groupon-s-1-reveals-businessmodel-deteriorating-in-oldest-markets-2011-6
10. ChiefMarketer.com. (2011). Can Groupon Grow Up? By: Brian Quinton. P10-17
11. ClickZ. (2011). What Mobile Deal Apps Mean to Merchants – Tracking. Retrieved July 9,
2011, from http://www.clickz.com/clickz/news/2082797/mobile-deal-apps-mean-merchantstracking
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from http://www.ctvbc.ctv.ca/servlet/an/local/CTVNews/20110628/
bc_story_groupon_business110628/20110628/?hub=BritishColumbiaHome
13. DealBook. (2011). Is Groupon’s Business Model Sustainable? Retrieved July 8, 2011, from
http://dealbook.nytimes.com/2011/06/08/is-groupons-business-model-sustainable/
14. Deconstructing the Groupon Phenomenon. (July/Aug 2011). Harvard Business Review, 89
(7/8), 32-33. Retrieved from Business Source Complete.
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15. Fast Company (2011) ComScore: Groupon-Living Social Battle Brewing In The New Wild
West. Retrieved July 8, 2011 from http://www.fastcompany.com/1758875/groupon-living-socialcomscore
16. Fast Company. (2011). The World’s Fifty Most Innovative Companies. Retrieved July 8, 2011
from http://www.fastcompany.com/most-innovative-companies/2011/
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35
Appendix
Exhibit 1: Timeline
Exhibit 2: Organizational Chart
Exhibit 3: Daily Deals Market Size
Exhibit 4: Groupon Global Presence (Source 24)
Exhibit 5: Global Groupon website visitors by region (Source 57)
Exhibit 6: Plant Alignment & Strategy Execution
Exhibit 7: Contemporary Approach to Strategic Control
Exhibit 8: Resource Based View
Exhibit 9: VRIO Framework
Exhibit 10: SWOT
Exhibit 11: Porter’s Five Forces
Exhibit 12: Organizational Environment Model
Exhibit 13: Industry Lifecycle
Exhibit 14: Regional Footprint by Region: Groupon vs. Living Social (Source 55)
Exhibit 15: Share of Display Advertising: Groupon vs. Living Social (Source 55)
Exhibit 16: Revenue vs. Net Loss (Source 56)
Exhibit 17: Market Share of Visits, Groupon vs. Living Social
Exhibit 18: Groupon Market Valuation
Exhibit 19: Groupon Infographic
Exhibit 20: Groupon Subscriber Base & Groupon’s Sold
36
Exhibit 1: Timeline
37
Exhibit 2: Organizational Chart
38
Exhibit 3: Daily Deals Market Size (Source 54)
39
Exhibit 4: Groupon Global Presence (Source 24)
40
Exhibit 5: Global Groupon website visitors by region (Oct 2010) (Source 57)
41
Exhibit 6: Plant Alignment & Strategy Execution
42
Exhibit 7: Contemporary Approach to Strategic Control
43
Exhibit 8: Resource Based View
44
Exhibit 9: VRIO Framework
45
Exhibit 10: SWOT
46
Exhibit 11: Porter’s Five Forces
47
Exhibit 12: Organizational Environment Model
48
Exhibit 13: Industry Lifecycle
49
Exhibit 14: Regional Footprint by Region: Groupon vs. Living Social (Source 55)
50
Exhibit 15: Share of Display Advertising: Groupon vs. Living Social (Source 55)
51
Exhibit 16: Revenue vs. Net Loss (Source 56)
52
Exhibit 17: Market Share of Visits, Groupon vs. Living Social
(Source: http://www.webpronews.com/hitwise-livingsocial-gaining-ground-on-groupon-2011-01)
53
Exhibit 18: Groupon Market Valuation
(Source: http://www.businessinsider.com/chart-of-the-day-groupon-valuation-2011-3)
54
Exhibit 19: Groupon Infographic (Source http://www.axleration.com/the-amazing-rise-of-groupon-infographic/)
55
56
Exhibit 20: Groupon Subscriber Base & Groupon’s Sold
Source: http://www.npr.org/blogs/money/2011/06/03/136896797/groupons-astonishing-growth-in-1-chart#more
57