 | | August 20, 2010
The May Report: 8/20/2010: Christopher Steiner of Forbes wrote August's cover story on Groupon and Andrew Mason -- in case you missed it -- which I did; the projection is that they are on track to be the fastest growing internet -- or just any -- firm ever
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TABLE OF CONTENTS
The Scoop section:
-- Meet The Fastest Growing Company Ever
-- The 12 comments so far to the article, including one from a name I know, Jeff Molander who invokes the memory of restaurant.com
-- Groupon's greatest hits, and that would be before The Gap deal that shut down the servers
-- September 15: MIT-EF: Entrepreneurship -- State of the Union, Sept. 15
Current Panel includes:
Moderator, Nancy Munro
Linda Darragh, Director of Entrepreneurship Programs at Univ. of Chicago Booth School of Business
John Roberson, Executive Director of Chicago Entrepreneurship Center
Dennis Barsema, faculty NIU and successful entrepreneur
[Editor's note: May here. I am pleased that Melanie Adcock has accepted her position as assistant editor with energy and enthusiasm. She will wear me out with all of her spark and excitement. She is already on the job.]
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The Scoop section:
______________________
Meet The Fastest Growing Company Ever
]Editor's note May here. The author of the article, Christopher Steiner of Forbes, whom I have known for a few years, and who evidently reads TMR, just sent me a note this evening saying that Groupon is the cover story in the current issue of Forbes.
http://www.forbes.com/forbes/2010/0830/entrepreneurs-groupon-facebook-twitter-next-web-phenom.html
The article documents that Groupon is on track to being the fastest growing internet firm ever. I could not copy the bar chart that shows Groupon in relation to firms like Dell, Apple, Amazon, Google, Office Depot, Priceline, JetBlue, and eBay. It shows how many years it took those firms to reach $1B in evenue. I hope they did a price index adjustment since the 1984 billion dollar firm is not the same as the 2010 firm.
That bar chart is on the bottom of page three of the article.
http://www.forbes.com/forbes/2010/0830/entrepreneurs-groupon-facebook-twitter-next-web-phenom_3.html ]
The Forbes article:
Entrepreneurs
Meet The Fastest Growing Company Ever
Christopher Steiner, 08.12.10, 03:40 PM EDT
Forbes Magazine dated August 30, 2010
Andrew Mason figured out how to inject hysteria into the process of bargain hunting on the Web. The result is an overnight success story called Groupon.
image
At least Mark Zuckerberg wrote a few lines of computer code at Harvard before he left to launch Facebook. Now Andrew Mason, a relaxed and lanky 29-year-old music major from Northwestern, has managed to build the fastest-growing company in Web history. Groupon represents what the dot-com boom was supposed to be all about: huge sales, easy profits and solid connection between bricks-and-mortar retailers and online consumers.
Groupon, a name that blends "group" and "coupon," presents an online audience with deep discounts on a product or service. Act now, says the pitch: You have only so many hours before this offer expires. That's a familiar come-on, but it's coupled with a novel element: You get the deal only if a certain number of fellow citizens buy the same thing on the same day. It's a cents-off coupon married to a Friday-after-Thanksgiving shopping frenzy.
What's in it for the vendor--which might be a museum, a yoga studio or an ice cream shop? Exposure. Since the resulting revenue is not only discounted but shared (typically, 50/50) with Groupon, the vendor may scarcely break even on the incremental sales. But it now has customers who might never have thought of patronizing the business. Groupon gets its offers in front of eyeballs by buying ad space through Google ( GOOG - news - people ) and Facebook and via the word of mouth of its 13 million subscribers.
Video: Growing Groupon
Unlike so many dot-com rockets, Groupon is a real business. Occupying 85,000 square feet inside a rehabbed eight-story former Montgomery Ward warehouse in Chicago's River North neighborhood, the company is on track to pass $500 million in revenue this year, according to a report Morgan Stanley ( MS - news - people ) put together to win some underwriting business. No technology stalwart--including Ebay, Amazon.com ( AMZN - news - people ), Yahoo ( YHOO - news - people ), AOL and Google--grew that big that fast. At just 17 months old this April Groupon boasted a $1.35 billion valuation when it raised $135 million, the biggest chunk of it from Digital Sky Technologies, the curious Moscow investment fund behind Facebook and Zynga. (Mason will not disclose his stake, which he says is less than 50%.) The only company to reach a $1 billion valuation faster was YouTube (now part of Google), founded in 2005 and still waiting to turn its first profit. Groupon broke into the black just seven months after inception.
Mason's model is transforming the way companies--especially smaller ones with limited marketing budgets--snag sales. In May Groupon sold 6,561 tickets to a King Tut exhibit in New York's Times Square for $18 apiece, little more than half the list price. The campaign brought in $120,000 at virtually no marginal cost to the exhibit; Groupon pocketed about 50% for a day's effort. The most popular item so far: a $25 ticket for a Chicago architectural boat tour sold for $12. In May Groupon moved 19,822 tickets in eight hours and split the $238,000 with the tour operator.
Groupon has charged into 88 U.S. cities and 22 countries, including Turkey and Chile. Hundreds of rivals, some with deep pockets, are springing up. With turf wars brewing from New York to Brazil, Mason has armed himself with 250 salespeople and 70 writers, many plucked from the Chicago improv scene, to concoct witty pitches for deals. "We want to do for local e-commerce what Amazon did for normal consumer goods," he boasts.
Mason's no Silicon Valley geek. He grew up in suburban Pittsburgh, where his father hawked diamonds and his mom worked as a photographer. Music, not computers, was his passion, starting with piano lessons at age 6. At Northwestern Mason helmed a rock band that he describes as equal parts punk, the Beatles and Cat Stevens. "I thought I was going to be a rock musician until I was 25 or so," he says. "But it wasn't about being a rock star; it was about being part of a counterculture."
Mason's entrepreneurial instincts were already stirring. At age 15 he delivered fresh bagels purchased from a bakery to his neighbors' front porches on Saturday mornings. (Candy bars, bought at Costco ( COST - news - people ), proved a better seller.) After college Mason, a self-taught computer programmer, landed a coding gig at InnerWorkings ( INWK - news - people ), a Chicago firm that farms out companies' printing jobs to the lowest bidder. There he hatched an idea for a website that would examine thorny topics, such as the Iraq war and health care, by unveiling the hidden agendas of the authors behind popular articles. Mason found support in 2006 at the University of Chicago, which granted him a scholarship toward a master's degree in public policy. A few months later Eric Lefkofsky, InnerWorkings' founder, caught whiff of Mason's plans and offered him $1 million of angel capital to crank up the hidden-agenda site.
The idea soon morphed into ThePoint.com, an online platform for petitioners to muster support for all sorts of causes. ThePoint launched in November 2007 and drew national press attention for its users' zany campaigns. One amassed 1,000 people committed to donating millions of dollars toward solving Africa's aids epidemic--on the condition that u2 front man Bono would retire from public life. Another corralled several thousand supporters of building a dome over Chicago to keep the city warm all year. The publicity helped lure $4.8 million in venture capital from the likes of Sand Hill Road's NEA. "I figured it was just a matter of time before I had my $400 million company and got my big payout," quips Mason.
Page 2 of 3
But ThePoint didn't attract enough eyeballs to live on advertising revenue. One of Mason's lieutenants, Aaron With, proposed paying for popular Google search terms related to societal issues--such as "make weed legal." Mason got traffic, just the wrong kind. Obnoxious fans of the band Insane Clown Posse, known as Juggalos, made ThePoint their online playground. As losses mounted in 2008, Mason trudged to With's house to lay off his friend. "If I was a rational person, I probably would have quit right there," says Mason.
One promising trend: Some of ThePoint's most effective campaigns banded consumers together to gain buying power. Mason began featuring a blog that offered readers a different deal from various vendors every day. Having little to lose, his investors encouraged him to pursue the strategy. Groupon--then called Getyourgroupon.com--was born.
Mason's crew of seven people each made 100 calls a day hunting for campaigns. Some days the deals would "tip"--meaning they'd meet the minimum number of takers demanded by the vendor--and some days they wouldn't, meaning Groupon got zilch. (Today 98% of the deals tip.) Using a 5,000-name mailing list, Groupon sold 100 $25 passes to an experience involving one hour inside a pitch-dark, soundproof tank containing skin-temperature salt water. At that point Mason knew he was on to something: "Who would think this many people would be interested in a sensory deprivation chamber?" In the next six months Groupon opened in Boston, New York and Washington, D.C., giving each city a Web page featuring its deal of the day. More than half of visitors drop in on the page because they've heard about it from friends.
Groupon's salespeople, most working in Chicago, earn salary plus commission, based on revenue and the ratio of refunds (usually negligible). Writers earn entry-level salaries commensurate with salaries of journalists, around $35,000 a year. Aaron With, now Groupon's editor in chief, oversees enough copy to fill a 190-page novel every day.
Landing a Groupon deal, even at a loss, can put a small business on the map. In March East Coast Aero Club, a flight school in Bedford, Mass., offered introductory helicopter flying lessons, normally priced at $225, for $69. The deal had to be shut down at 11 a.m. after subscribers signed up for 2,500 lessons; the club had expected perhaps 200. "I knew we had a problem when I checked in right after receiving the e-mail and 30 lessons had already been sold," recalls Philip Greenspun, the head helicopter instructor. "We look at this as incredibly effective advertising."
So effective that Mason claims Groupon now has 35,000 companies clamoring to be on its roster. Only one in eight applicants makes the cut. The winners must already be getting kudos at online review sites like Yelp, CitySearch and TripAdvisor, and the deals must offer a substantial discount from normal prices and not be similar to other promotions regularly offered by the vendor.
One problem with the Groupon model: Anyone can replicate it. More than 200 copycat sites have sprung up in the U.S., with another 500 overseas, including 100 in China. The competition isn't bashful. Many sites closely mimic Groupon's copy and graphics. One Russian site, called BigLion, ripped off Groupon right down to the fonts and colors. (While he probably has grounds for a suit, Mason says going after a startup in Russia isn't worth the effort.) In China a copycat has begun operating at www.groupon.cn, using the same graphical interface. "Groupon is looking at this as a winner-take-all situation, but they may find it tough to sustain their position in every market," says Andrew Razeghi, a marketing professor at Northwestern's Kellogg ( K - news - people ) School of Management.
LivingSocial, Groupon's closest rival in the U.S., raised $40 million since launching its service in July 2009. Chief Executive Timothy O'Shaughnessy thinks his Washington, D.C. outfit has a long-term edge because it puts a full-time salesperson in each of the 50 cities it's in. Groupon has people in about half its markets. "You're dealing with a lot of small merchants whose business is their life," says O'Shaughnessy, "For them being able to work with a real person is a big deal."
Big players lurk, too, including Twitter, now with over 80 million users and 70 million tweets a day. In June Amazon.com bought Woot, a site that offers one piece of discounted merchandise a day. "This space is bound to attract somebody big; there's just too much money involved," says Lefkofsky, Groupon's largest shareholder. "We think we have a big lead."
Page 3 of 3
Being the first mover has its advantages. "Groupon" is now part of the lexicon of online shopping. But Mason is protecting his flanks. To take on more small business clients, he just announced plans to feature more than one deal per day in most markets. An algorithm will mete out the offers by weighing customers' past purchases and geographic locations. A hockey fanatic from Chicago's far North Side wouldn't receive a deal for half-price yoga lessons in the city's South Side Hyde Park neighborhood.
Mason's other strategy: consolidation. In May he bought Berlin's Citydeal, a group-buying site with 600 employees serving 80 European cities (the price wasn't disclosed). Mason says he may strike again overseas but that "it's tough coming in from outside and figuring out local consumer habits."
Mason has the capital to expand--profitably. He estimates that a metro area like Chicago should yield 20 deals a day; that implies nearly 5,000 retailers per city per year, up from the 250 in most cities now. Groupon now posts 100 deals per day in the U.S. Mason figures he can increase that number by 50 every month to reach 400 come January. Against that quadrupling of deals he plans to boost his sales staff by 80% (200 people) and his writing bullpen by 100% (70 people).
As for spending himself to perdition, as did many dot-commers before him, Mason's not sweating it: "There's never been anything--radio, TV, newspaper, whatever--that could generate small business sales so quickly."
The Great Race
Groupon is on pace to pull in $1 billion in sales faster than any company in history. This list excludes investment holding companies (which tend to be preassembled before formally launching) and those built mainly through mergers or acquisitions. --Scott DeCarlo
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The 12 comments so far to the article, including one from a name I know, Jeff Molander who invokes the memory of restaurant.com
[Editor's note May here. This is a good example of how things have changed with the net. Forbes is not an internet publication per se. If this had been a Tech Crunch article, the comments would have been in the hundreds. Jason Fried would have had a much bigger response to any one of his blog posts. Techies just don't read Forbes. That is unfortunate because internet pubs do not have a monopoly on doing good reporting on the tech scene.]
Not one mention of the $10 referral? That is a HUGE incentive for people to spread word of Groupon. I've collected close to $200 with just one email.
Tags: referral $10 groupon
Posted by dooleymr | 08/19/10 02:05 PM EDT
Again, it is only valuable if the customer converts. The platform is solid because t allows for solid planning and allows for additional control by the business owner because they can set the "trigg [Read More]
Posted by SIXSTRINGcpa | 08/18/10 11:21 PM EDT
Again, it is only valuable if the customer converts. The platform is solid because t allows for solid planning and allows for additional control by the business owner because they can set the "trigger" limit. But the owner still has to plan the promotion effectively. See my blog post on the topic at http://sixstringcpa.blog​spot.com/2010/08/coupon-​ your-business-to-success​.html
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Posted by haastrup | 08/15/10 10:59 PM EDT
I actually believe Groupon have opened up a whole new industry format, both in terms of discount offers and advertising for the vendor. Look out for GroupRestaurants.com and GroupDining.com to launch anytime soon. The fact is, as long as the model is done correctly, it works like a charm! Even the most elite are looking for bargains and watch their spending budgets from time to time. As for vendors, the group buying
model can help you achieve several goals such as instant publicity at a reasonable cost by comparison to in-tangible advertising, sell inventory at a discount to introduce your product and gain customer acquisition
instantly! A clever restaurant for instance should know it will have repeat business and can also up-sell other items or wines on its menu, not to mention the viral component and so on. I'm not surprised Wall Street is loving it, makes perfect sense if utilized strategically.
Tags: group buying, group restaurants, group restaurant, group dining
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Posted by etetro | 08/13/10 03:02 PM EDT
Groupon is a tremendous value prop to local business. If you want to look at a company with locall business clearly in mind go to northwestsaysyes.com. They partner with local media to push sales through "deal of the day" propositions. An incredible spin on a new idea.
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Posted by kkail | 08/13/10 03:01 PM EDT
In this article you reference a group buying website that offers deals from different businesses. There are platform providers like eWinWin that enable businesses to launch their OWN deals anywhere in the country and promote their deals online. Instead of waiting for the next time their business is featured, they can create deals as often as they want.
Tags: group buying, group deal, eWinWin
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Posted by SIXSTRINGcpa | 08/13/10 09:12 AM EDT
Exactly, spot-on Bimmia.
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Posted by TraceyRC | 08/13/10 08:20 AM EDT
The beauty of Groupon is the time limit. Because each offer only lasts for a day, it generates a compelling sense of urgency but doesn't undermine the merchant's regular pricing. It encourages sampling by consumers that might not have considered a purchase otherwise - and if it accidentally rewards a loyal customer, then that's good for the brand, too. I really think this concept has legs.
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Posted by Bimmia | 08/12/10 09:59 PM EDT
The value propostion that Groupon offers is different business by business. For some business like those selling balloon rides or skydiving, Groupon can bring months of business that they otherwise would never get and they most likely still make money on it. Spas are largely the same way - in their case, their costs are relatively fixed so a few thousand customers at deep discounts still increase profits. Restaurants are a different story as are other types of businesses. I think sites like these: http://www.dailydibs.com that aggregate all these deals will end up being very popular as more and more Groupon clones enter the market. Groupon's huge lead will be hard to compete with.
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Posted by jeff_molander | 08/12/10 10:03 AM EDT
There's a sucker born every minute. And this time it's retail. But why am I not surprised? Because retail is in shambles and the most it's been able to come up with to change that is... that's right... discounting!
Groupon is today's Restaurant.com. Who?
Pay attention. Because we've seen this before and the market will soon reject Groupon's main value proposition: Valuable new customers.
But not before VC's make their money and founders exit. As Restaurant.com learned years ago in its early stages, local merchants had limited appetite for what amounts to a new spin on the "loss leader" approach to customer acquisition. And here's why: Customers become conditioned to expect deals that retailers cannot actually afford to give.
Bottom line: New customers (that the retailer can actually make a profit from) don't actually appear.
I'm surprised that we're not talking more about what we already know about these kinds of businesses.
The ultimate success of the retailers and how this is in disharmony with the venture capital game that Groupon is playing.
Ultimately I see this as a money-loser for retailers? retailers/owners who are looking beyond getting people with heartbeats in the door (traffic) and toward profit. The hope you refer to isn't enough.
How long tan they afford to break even - all along the way creating an expectation of customers that, if they get them, they cannot afford to keep (because of the discounting expectation that prohibits profit).
Tags: Venture Capital, social media, groupon
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Posted by SteinerWriter | 08/12/10 12:40 PM EDT
Jeff,
You raise some valid points. Groupon will have to prove it can continually bring value to its vendors without jading them, or its subscriber base. That said, I think Groupon has a lot going for it that Restaurant.com didn't.
Groupon, obviously, isn't limited to restaurants. Nor are its deals repetitive. I think Andrew and Co. are buoyed by the fact that they have 35,000 small companies wanting in on their model. The sheer breadth of small businesses out there is one reason for optimism here. But, as you said, Groupon doesn't want to end up discounting the whole consumer experience--as that will only erode the enthusiasm of the businesses that use them.
As always, we'll know more in six months.
Chris
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Posted by quantumsignature | 08/11/10 08:35 PM EDT
Google rewards websites for having unique content.
Groupon is to be rewarded for the same thing. Unique , money making advertising that everybody loves.
The right formula, at the right time, in the right place. Sort of like a hit rockband.
Way to go Groupon , you offer a win-win situation for all involved.
Niceee.
Tags: Google, unique, Win-Win
Posted by ndrick | 08/12/10 12:25 PM EDT
The HUGE flaw in the previous comment of how the the retailer loses out is that they don't pay for this service. Groupon pays them, and retailers have seen less than 80% of the vouchers even come in. So they get customers, drive internet traffic to the retailers site, and less than 80% of the gift cards are used, also many customers spend far more than the value of the gift voucher.
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Groupon's greatest hits, and that would be before The Gap deal that shut down the servers
Entrepreneurs
Groupon's Greatest Hits
Christopher Steiner, 08.12.10, 03:40 PM EDT
Forbes Magazine dated August 30, 2010
The best marketing pitches start with a breezy message. Here are some of the catchiest ...
Item: Five Yoga classes at Cityoga in Indianapolis
Retail value: $71.25
Groupon price: $25
Units sold: 544
Wisecrack: "Yoga is unique in that it is the only medieval physical-fitness art that does not involve firing crossbows at a Grendel."
Item: Custom T-shirts at Little Shop of Crafts in Manhattan
Retail value: $30
Groupon price: $15
Units sold: 572
Wisecrack: "Drive mere mortals mad with the world's most obscure joke, which science has proven to be Mr. Belvedere's head superimposed on the Mona Lisa with a word balloon proclaiming, 'Everybody say, "YATTA!"'"
Item: One-hour photo session, including full-resolution photos on CD from Robert Goold Photography in San Diego
Retail value: $250
Groupon price: $59
Units sold: 898
Wisecrack: "Before photography, the only way people could preserve their most treasured memories was by forcing everyone around them to stand completely still for days at a time."
Item: Two 60-Minute Jump Passes at Sky Zone (a trampoline-filled entertainment center) in St. Louis
Retail value: $25
Groupon price: $12
Units sold: 2,228
Wisecrack: "Though it prohibits us from bench-pressing cars, gravity is the best thing for getting water out of the sky and the only thing keeping football stadiums from floating away. Escape its omnipresence with today's Groupon."
... and the most lucrative.
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September 15: MIT-EF: Entrepreneurship -- State of the Union, Sept. 15
Current Panel includes:
Moderator, Nancy Munro
Linda Darragh, Director of Entrepreneurship Programs at Univ. of Chicago Booth School of Business
John Roberson, Executive Director of Chicago Entrepreneurship Center
Dennis Barsema, faculty NIU and successful entrepreneur
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