Monday, December 20, 2010

Groupon: The future of business

Groupon is one of the hottest start up of the moment. Groupon proposes flash sales of
products in limited quantities. The obvious interest of the solution is that they have no stocks
to deal with, but it also allows them to provide strong discounts on products thanks to their
purchase power, but also to generate frequent traffic, as customers come back to check the
latest deals.

Groupon has made a lot of buzz lately as it is growing very fast:
- Google made a bid to buy the company, which has turned it off
- The company which is already in the European market, expands in Asia

What is Groupon’s Magic?

When you analyze Groupon, you wonder what magic they have that their competitors don’t have. But, upon a closer look, you realize that the magic is really a first mover advantage. They clearly have an amazing team and are innovative, but the barrier to entry is low and their competitors do regularly have deals that are just as good or better than Groupon’s. Here’s the real reason Groupon has scaled and others haven’t:

• Get all the PR. Try getting a journalist to write about you when you’re the 47th daily deal site

to launch. Groupon deserves the PR, clearly; but, it does prevent the other sites from getting

those free users

• Bought users cheaply. Being first, allowed Groupon to be the first company to buy Facebook

and display ads with the message “50% to 90% Off Your City’s Best Stuff”. No one had seen that message before and people clicked and signed up. Groupon started advertising everywhere, buying users cheaply. By the time their competitors showed up, people had already seen the message, didn’t want to sign-up for another service, conversion rates dropped, per user acquisition costs went up. Now, competitors can’t buy users the way Groupon did, preventing them from scaling.

• Word of mouth impact is based on scale. Lastly, word of mouth is unfortunately based on

how many mouths there are to talk about your company. Groupon and its competitors may

have the same percentage of their userbase recommending them, but that means a lot more

new users for Groupon than their competitors.

Read more:

Groupon has recently launched a new “Deal Feed” Feature which seems to lure on web 2.0. Hence, you may request to some vendors specific deals, which match your needs.

Somehow, Groupon is using Vendor Relationship Management (VRM) to have a better conversion rate for their offer, by letting users pick which offers they are interested in.