Marketplaces 2010: Why Groupon Is Cool

Marketplaces2010

Groupon is one of those “cool” companies that come along every now and again with a good idea, and a certain intangible vibe that captures the industry’s imagination. This morning, the company’s founder told the Groupon’s story and answered questions about how it all works.

The session started with a video by Bobbi Loy-Luster featuring Kim, an effervescent young salon owner in North Carolina. Kim says she has never found a local media that worked for her business. She started using Groupon as a consumer, then tried it for her business. The experience of buying the Groupon package was a “walk in the park.” She sold 350 “mani-pedi” combos via Groupon, and estimates that about 60 percent of the buyers were likely to be repeat customers. “I’ve made money” on Groupon, Kim said.

It was a flattering setup for Groupon founder and CEO Andrew Mason, who titled his presentation, “Groupon Why I Think It’s Cool.”

The company started in Chicago as Point.com, a site for organizing group action that had no real revenue model. The concept is about getting to a tipping point, or a critical mass of preference before taking action. Some examples of Point projects included “make election day a national holiday. Enclose Chicago in a dome during the winter.” Those who want to donate to these causes would only get charged if the tipping point is reached. Mason calls these “conditional commitments.”

Groupon was launched in November 2008 with a clear focus on local products and services, where there is not a lot of competition for deals, and where it is possible to have relationships with merchants. The business focused on one deal a day. It started with 400 subscribers in Chicago. Now it is in 46 markets with 3.5 million subscribers.

“We sell everything that is local.” Mason said Groupon will try to do as much crazy stuff as people will sell. Helicopter lessons, Lasik eye surgery. Zero gravity flights.

Why has it been successful? Mason gave a few reasons.

Merchants get huge exposure for free. Groupon will send out hundreds of thousands of e-mails to consumers on their behalf. They take 30 percent to 50 percent of each offer. They collect and send the balance to the merchant.

There is no risk. When Groupon calls and asks a business to be featured, there is basically no risk. There is no out-of-pocket cost. We send them money. Every dollar spent is attached to a customer.

It is super easy. Groupon guides them through the process. Groupon prepares all content for the deal. it is completely hands off for the merchant, he says.

Consumers don’t think it’s a coupon site. Mason said it is more the weekly newspaper that says what is cool in the city, where the hidden gems are.

Only great businesses qualify. Any featured business has to be well reviewed, etc. Groupon has to be able to point to some external resource that validates the quality of the business.

Mason acknowledged one of the biggest knocks on Groupon, the low barrier to entry for competitors. Mason said he has seen 150 or so Groupon knockoffs around the world. He said it doesn’t worry him. The businesses that go with competitors are the ones Groupon turns away, he said.

“I don’t lose a lot of sleep over clones,” he said.

He was asked in Q&A about channel partners. He said the company originally looked at franchising the concept to media partners, but quickly realized that media companies could never “move as fast as us.”

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