First let us look how their business works. The industry is online marketing, more notedly digital coupon marketing. The value chain is as follows: Groupon provides a platform through which companies market their goods via coupons. Initially we have companies who want to increase their user base, Groupon captures them and sorts them through their geographical zone and via the Internet offers them to users based on the city where they live. This is a very simple model where Groupon really aggregates businesses who want to partake in this service and offers them to their unique user base. Distribution is simple as it is digital and consists mostly of emails; the real trick is getting offers that people want and being local based, since there has to be physical presence to redeem these offers. Hardware and software play very small roles since the company is not dependent on it; they do have apps and are supported on Android, PC, iOS, etc..., this is not they key to their business, it is as described before.
Having analyzed the way Groupon does business, why have they been so successful? They brought forth a relatively new business model and made it very local. They continually expanded from country to country and didn't focus on having headquarters but much more so in offering relevant deals for local users that were beneficial to them. Their pace of growth is vertiginous (from 37 to 8,000 employees in less than two years, better than the Federal Government...) and has contributed to them being so publicized and have generated so much fuss.
Fast forward to the future, in an age when the second digital bubble is being speculated, Groupon is out hunting for an IPO. Most would hurry to chomp up the Groupon stock, and why not they have lost 527 million dollars in less than two years. Yea, you've heard right, they still haven't made money, something eerily similar to what happened in 2000, albeit they have a steady revenue stream which not all bubble companies had before. I'm not claiming that Groupon is a bubble company, but it does take a little pause to see what is really happening.
Competitors have come in droves, mostly small companies, until the beginning of this month, the first giant awoke, Google. The company that offered to purchase it out has decided to just go around them and offer their own similar service, Google Offers. They have set their first office in Portland, Oregon, as being second has its advantage, go local first. Lets have a look at Groupon's main cost driver, marketing. They spent 180 million dollars in the first period of 2011 to attract new customers, and guess their main avenue of doing this, well Google of course. What does this all mean? Seemingly (and my opinion) the strengths of this business are twofold, getting good local deals and user base. In both it may seem that Google has the experience and working knowledge, catering to local business for advertising and gathering so much users to its webpage that internet is often known as "Google". I also wanted to mention Facebook Deals; user base, just 600 million active people over the world.
Definitely nobody can fault Groupon executives as cowards, but they have engaged in a Game of Thrones. By rejecting a 6 billion dollar offer they effectively declared an all out war where they were first comers but not necessarily the be all of the industry. They are playing for everything or nothing now. The novelty of the business model and first comer advantage maybe coming to and end and the nitty gritty starts. Competing against giants who have deeper pockets, and more importantly have a stronger position in terms of distribution and can effectively replace them on the value chain. Of course execution is king, but Google and Facebook have a nice record at that. Was it folly to reject 6 billion and get out when the getting is good? I would think so, but we'll have to see this real life game of thrones evolve in front of us.
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