On June 2, 2011, Groupon filed with the SEC to raise up to $750 million in an initial public offering. The IPO will be handled by Morgan Stanley, Goldman Sachs Group, and Credit Suisse Group and will trade under the ticker symbol GRPN.
Groupon is a deal-of-the-day website that features discounted gift certificates usable at local or national companies. The idea for Groupon was created by now-CEO and Pittsburgh native Andrew Mason. The idea subsequently gained the attention of his former employer, Eric Lefkofsky, who provided $1 million in “seed money” to develop the idea.
Groupon was launched on November 2008. Groupon made its first deal with a half-price offer for pizzas at the restaurant on the first floor of its building in Chicago, followed by Boston, New York City, and Toronto. Today Groupon serves more than 150 markets in North America, 100 markets in Europe, Asia and South America, and has amassed 35 million registered users.
In April 2010, the company was valued at $1.35 billion. According to a report conducted by Groupon’s marketing association and reported in Forbes Magazine, Groupon is “projecting that the company is on pace to make $1 billion in sales faster than any other business, ever”.
HOW GROUPON WORKS
The company offers one “Groupon” (“group coupon”) per day in each of the markets it serves. The Groupon works as an assurance: if a certain number of people sign up for the offer, then the deal becomes available to all. If the predetermined minimum is not met, no one gets the deal that day. This reduces risk for retailers, who can treat the coupons as quantity discounts, as well as sales promotion tools.
Groupon makes money by keeping approximately half the money the customer pays for the coupon. So, for example, an $80 massage could be purchased by the consumer for $40 and then Groupon and the retailer would split the $40. That is, the retailer gives a massage valued at $80 and gets approximately $20 from Groupon for it. And the consumer gets the massage, in this example, from the retailer for which they have paid $40 to Groupon.
There are certain businesses to which Groupon will not offer its services, including shooting ranges, abortion clinics and strip clubs.
Groupon breaks into new markets by identifying successful local businesses, first by sending in an advance group of employees to research the local market. Salespeople approach selected businesses, explain the model, and use social marketing sites such as Facebook to further promote the idea.
GROWTH THROUGH ACQUISITION
Groupon owns numerous international operations, all of which were originally deal-of-the-day services similar to it. Most were subsequently re-branded under the Groupon name after acquisition. Acquisitions have included the European-based MyCityDeal, the South American ClanDescuento, the Singaporean Beeconomic.com, the Japanese service Qpod.jp, and the Russian Darberry.ru, the Indian deal-of-the-day website SoSasta, and the Malaysian GroupsMore.
THE FLY IN THE OINTMENT
There are potential problems with the business model. For example, a successful deal could temporarily swamp a small business with too many customers, risking unsatisfied customers, or insufficient product to meet the demand. A coffee shop in Portland, for example, struggled with an increase in customers for three months, when it sold close to 1,000 Groupons on the one day it was offered. In response to similar problems, Groupon officials state that ‘deal’ subscriptions should be capped in advance to a reasonable number.
Groupon’s website has launched a mobile application available on Wap, Android, Blackberry, iPhone and Windows Phone 7. It allows users to buy deals on their phones and retrieve them using the screen as a coupon.
From January 2010 through January 2011, Groupon’s U.S. monthly revenues grew from $11 million to $89 million. Total 2011 U.S. revenues were an estimated $460 million. Groupon’s 2011 estimated worldwide revenues are in the $3 billion to $4 billion range.
On November 30, 2010, it was reported that Google offered $5.3 billion to acquire Groupon, but was rejected on December 3. After the rejection of the Google/Groupon buy-out, Groupon was identified as a candidate for an initial public offering by 2013.
Editor Phil Robertson is an award-wining journalist and graphic designer. With a degree from the University of Florida’s School of Journalism, his career in journalism and publishing spans over 30 years, and includes positions as editor and publisher for several newspapers and magazines. During his career he has received a first-place award for investigative journalism from the Society of Newspaper Editors, and five ADDY awards for advertising design.