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Groupon
Introduction
Entrepreneurship has become quite popular with many people in the recent times. It revolves around getting a tidy sum of money as return on investment. Of course, this calls for a lot of patience in the growth and development of the business or enterprise. It goes without saying that there exists numerous categories of businesses, all of which require different entrepreneurial skills. One of the businesses that have adopted the most controversial business models in the recent times is Groupon.
Groupon refers to a deal-of-the-day website featuring discounted gift certificates that are usable at national and local companies. The website was launched in late 2008 with Chicago forming its first market. This was followed by other towns such as Toronto, Boston and New York City. This enterprise underwent a tremendous growth as to serve over 150 markets in North America, as well as 100 other markets in Asia, South America and Europe by late 2010. Its growth is evidenced by the fact that the business was valued at $1.35 billion in April 2010, which was a far cry from the $1 million that was provided at its beginning as “seed money”. The business was projected to make $1 billion in terms of sales, faster than any business. The attainment of this dream was, however, dependent on its business model, which underlined its entrepreneurial capability.
The company gives out one Groupon every day in every market under its service. It acts as an assurance contract via The Point’s platform. In this case, if a predetermined number of people sign up for the company’s offer, then the deal will be availed to all people. However, kin cases where the number of people does not meet the predetermined minimum number, all people who had signed up for the offer would lose the deal of that day. In essence, the retailers have their risk reduced, as they treat the Groupons as sales promotion tools, as well as quantity discounts. The entrepreneurial bit of the entire idea rests in the fact that Groupon keeps have the amount of money that the customer has paid for the coupons. Groupon, unlike classified advertising, does not require its participants to pay any upfront costs so as to take part in the deal, rather, it collects personal information pertaining to willing customers before contracting consumers by email. These are customers who may have an interest in a certain service or product.
However, questions have been raised as pertaining to the viability of the business model. As much as Groupon has been recording an incredible growth of revenue, it has not been making any profits. This may be attributed to the high hiring and marketing-related costs, which underlines the reason why the company declared that it would cut back or reduce its marketing expenses. Since June 2009, the company has incurred net losses amounting to more than $650 million. In addition, the rate at which its gross billings have been growing has tremendously reduced as a result of unsustainable and faulty business model. It is worth noting that the workability of the plan to lower its marketing expenses is still in question. This is because the business considerably relies on marketing so as to have new customers, as well as retain existing ones. In essence, recurring marketing expenditure cannot be done away with without affecting the growth of the company. The financial situation at Groupon today comes as a surprise as it is a far cry from the picture painted by Frank Sennett in his book “Groupon’s Biggest Deal Ever”. This is especially considering that the company had Google, the largest search engines in the world, craving to acquire it at $6 billion in early 2010. In addition, Forbes magazine had christened the upstart daily-deals site had been christened the second quickest to hit the billion-dollar valuation. It was also the quickest firm to make $1 billion in sales (Sennett, 17). It is, therefore, surprising that the company would be making losses in millions of dollars. However, it is worth noting that the deals offered by Groupon are not profitable to the merchants. More often than not, it deducts half of the sales proceeds as the commission for marketing the deals of the vendors, over and above the discounts that customers are offered. In addition, it is imperative that the sustainability of the business is determined in line with customers who still find the model viable. It is worth noting that most of the businesses that still find its model viable are yoga clubs or studios, as they can profitably exploit its business model. This is because such service providers can offer their customers long-term subscriptions that are not bound by the terms of Groupon. This could explain the contracting customer base as other customers have had their ideas rebuffed as inappropriate.
In addition, the company’s undoing lies in the process by which it creates value. It is worth noting that the company only derives its revenues from commissions that earned from the money customers pay. This is in contrast with other companies like Facebook, Microsoft and Apple. Facebook makes money through online marketing in which case once other companies advertise their wares they remunerate Facebook. Apple and Microsoft, on the other hand, are involved in the design and sale of computer hardware and software, not to mention their operation of online stores. Their models of business are undoubtedly different from Groupon’s. It is noteworthy that, in cases where a vendor becomes bankrupt, the customers would go to Groupon for their money. This underlines the risk that it posses to the company especially since Groupon does not carry out credit assessments on the vendors.
The performance of Groupon is a clear indication of the personal, entrepreneurial skills of its founder Andrew Mason. It is worth noting that ThePoint was Mason’s first entrepreneurial venture. Andrew Mason was an inexperienced CEO who was hiding a brilliant and analytical mind behind his golf demeanor. He turned 30 years old in October around the same time when Yahoo! was expressing its interest in buying Groupon (Sennett 55). This was followed a few weeks later by Google’s offer through Allen & Company for $6 billion. On the other hand, Bill Gates had worked painstakingly for a number of years before making a breakthrough in the 80’s, which was more than five years after launching Microsoft. This is the same case for Steve Jobs who worked for a number of years before his company Apple Inc became successful. He is known for his charisma and entrepreneurial spirit. The emphasis of Jobs and Gates, on hardware and software that would be used even by small businesses, has been the key thing in the long-term success of their respective companies. However, Groupon’s model only works for a select few and mainly alienates small businesses.
Nevertheless, Mason can ensure the long term growth of Groupon by allowing its acquisition by larger companies such as Facebook, Amazon.com and Google. This would be a leverage for its brand value and subscriber base. Google, being the world’s biggest technology firm, could offer Groupon key advantages. The integration of daily deals in the dominant online search product would rapidly increase the company’s reach as far as its offers are concerned. It is worth noting that Groupon would still be capable of operating as a truly autonomous unit, as suggested by Google’s acquisition of YouTube (Sennett, 67). Alternatively, it could tie up with Internet giants such as Facebook and Google to enhance its reach by publicizing its deals. In addition, it could go beyond its fundamental business of presenting daily deals and evolve into an e-commerce site such as eBay and Amazon. It had already hooked local merchants to an enormous e-commerce machine and then provided the resulting bargains directly to numerous consumers in the world. This strategy may make become an incredible breakthrough of the decade perhaps equal to Amazon’s establishment of an online only retail superstore that occurred in the 90’s (Sennett, 97).
