Groupon’s Strategy to Become the Leader in the Online Coupon Industry
In 2010, Google offered to buy Groupon, the online “daily deal” coupon startup company for $6 billion an astonishingly high offer many analysts said but Groupon rejected Google’s offer, leaving analysts surprised. Why? Groupon’s founders decided that they could make much more money from their new company if they could develop strategies to allow the company to stay ahead of potential competitors (such as Google), and establish it as the dominant company in this segment of the online advertising market. Facebook had refused early takeover offers from companies such as Microsoft and Google, and Facebook’s initial public offering was expected to exceed $120 billion! If Facebookcould do this, so could Groupon.
Groupon was originally a website called “The Point” founded by Andrew Mason in 2007, which was designed to allow a sufficient number of people to connect online and participate as members in a joint endeavor. When enough people joined, a “tipping point” was reachedthat allowed them to act as a group, and to take advantages of opportunities that could not be obtained by any single person acting alone. As Mason stated in a letter to prospective investors in 2011: “I started The Point to empower the little guy and solve theworld’s unsolvable problems.”1 A big idea. It quickly became clear to Mason that Internet users really liked the opportunity to act together and get great deals on location specific goods and services; online coupons that changed day by day brought people together
Mason transformed The Point into “Groupon,” and quickly began hiring software engineers and salespeople who shared his vision: people acting together to increase their buying power. As Mason wrote: “. . . as an antidote to a common ailment for U.S. city-dwellers there’s so much cool stuff to do, but the choice can be overwhelming. With so many options, sometimes the easiest thing is to go to a familiar restaurant, or just stay at home and watch a movie. As a result, we miss out on trying all the cool things our cities have to offer.”2 In 2009, Groupon’s online coupon service was launched in major cities around the United States, and the strategy was focused upon providing one specific coupon that offered big discounts on a particular good or service each day, in a specific geographic location. Groupon’s strategy was now based on leveraging its member’s collective buying power to obtain great deals from companies that online customers found hard to resist. Its strategy was clear it needed to expand its user base. To do this, Groupon had to attract companies that were anxious to captivate new customers by offering good deals and samples of their goods and services, such as restaurants or recreational experiences. To increase Groupon’s user base and encourage users to buy its coupons it had to offer them protection; so Groupon promises that if users feel disappointed they can call it to obtain a refund. Groupon’s website states that nothing is more important than treating customers well; the companies offering coupons know they must also work to attract and keep Groupon users their customers.
Groupon’s
revenues increased 15 times between 2009 and 2011 as its user base grew to 50
million spearheaded by Mason’s vision and business level strategy. While global
sales were nonexistent in March 2010 they were 53% of Groupon’s revenues by
March 2011, just 1 year later. Its explosive growth led Google to realize the
potential of Groupon to leverage its own competences in Internet advertising in
new ways, and build its online advertising market share.
