Groupon: What a Deal.

Prepared by:

Doug BuchlerJ.M. Downey

Aaron GoldsteinAlana KheyfetsLauren Monitz

Tuong-Minh Truong

Table of Contents

I. Situation..................................................................................................................3-5Timeline..........................................................................................................................3Business & Corporate Level Planning: Company Strategy, Mission, Vision, and Values.............................................................................................................................4Company Situation......................................................................................................4-5

II. Analysis...............................................................................................................5-23Leaders and Leadership...............................................................................................5-6Types of Innovation and Evidence of Entrepreneurship................................................6Globalization Presence and Effects.............................................................................6-7Ethics...........................................................................................................................8-9Responsible Wealth Creation....................................................................................9-10Engagement, Plan Alignment & Corporate Culture................................................10-12Wild Card: Blue Ocean Strategy………………………………………………….12-13Internal Analysis.....................................................................................................14-17External Analysis....................................................................................................18-22SWOT......................................................................................................................22-23

III. Recommendations...........................................................................................24-28

IV. References........................................................................................................29-33

V. Appendices........................................................................................................34-54

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I. Situation

Timeline

Groupon, a website offering deep discounts through mass purchase, evolved from

Founder and CEO Andrew Mason’s first website, “The Point,” which was launched in November

2007. Deploying a similar concept of group persuasion, The Point was about social action and

stressing the idea that “…every problem has a tipping point of public frustration that will force a

solution. If enough people want a problem to be solved, they will solve it.” (47) People were

asked to give money as a group once a ‘tipping point’ had been reached showing that they were

taking a stand. The Point failed to attract enough advertising revenues to stay in business, but it

reinforced for Mason and his investors how powerful group action can be. (47)

Andrew Mason and his team launched Groupon in November 2008 in Chicago to focus

on collective buying power. (18) They saw that by using the framework of The Point, they could

help other city-dwellers obtain affordable access to goods and services without overwhelming

them by the sheer number of choices. Groupon started out offering one deal per day. During

2009 and 2010, Groupon experienced rapid growth and was soon serving over 150 markets

domestically and over 100 additional markets internationally. (47) The seemingly overnight

success of Groupon drew attention from many different industries and those that wanted a piece

of the daily-discount-deal pie. During the same period of 2009-2010, Groupon saw several

competitors and copycat firms appear including LivingSocial, BuyWithMe, and the new “Deals”

section on Facebook. (47)

Groupon began to attract interest from investors and others in the business world. In

April 2010, Groupon together with Digital Sky Technologies, a Russian investment firm, raised

$135 million in new capital to help solidify “that social buying has rapidly matured into a real

business.” (47) Groupon used the new capital to acquire its German clone, CityDeal, which

doubled Groupon’s global reach. (47) By August 2010, Groupon was valued at $1.5 billion and

it had become the fastest company in history to reach $1 billion in sales. (47) In December 2010,

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the growth and rising success of Groupon became even more apparent when they rejected a $6

billion acquisition offer from Google Inc. This led to increased speculation that the company

was preparing to seek an Initial Public Offering (IPO). (30) Speculation turned into reality in

June 2011 when Groupon filed paperwork to issue an IPO. The filing disclosed that the

company intended to raise $750 million in the offering. However, industry experts believe that

Groupon could attain a valuation in the range of $20-30 billion. (51) Please refer to Exhibit 1 for

a summary of the timeline.

Business & Corporate Level Planning

Groupon was the first major daily deal provider, which has given it a great advantage

over emerging competition. It has been able to leverage its first-mover advantage and cost leader

strategic management. Groupon uses its cost advantage in the market to act as the central voice

for people, driving bargains using economies of scale in local markets that would otherwise be

unavailable to the average person. Also, Groupon is well positioned to benefit from the

proliferation of technology and mobile communications, and so far has expanded its technology

presence in a tone and manner that appeals to a younger customer base that is ripe and eager for

Groupon’s offering.

Groupon’s mission is simple: to offer stuff we want to do, see, buy and eat at an amazing

price with “no BS.” The vision is to help alleviate the stress that comes with having too many

choices by offering city-dwellers one really cool new thing a day to try. Keeping with the

youthful and jovial nature of its brand, Groupon maintains a simple philosophy of treating its

customers the way they like to be treated. Three key tenets support this customer centric

philosophy. First, Groupon maintains that it only sells the stuff that its own employees would be

interested to buy. The careful vetting of new merchants means that users should feel comfortable

venturing out and trying something in their city, simply because it was featured on Groupon. (18)

The “No BS” refers to the idea that in order for customers to truly love the company and its

offering, there can be no hidden terms or conditions that might sour the experience. (18) Finally,

the last tenet is unbelievable customer service, which the company defines clearly, “If you

contact us, we’ll do what it takes to make things right – and we’ll do it fast.” (18)

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Company Situation

Groupon has a unique place as the leader of the daily deal market. Repeatedly called “the

fastest growing company ever,” just three years after launch Groupon hosts more than 900 deals

every day, has 70 million subscribers in 46 countries, and employs over 7,000 people. (20)

Although it has established a strong international brand and created an estimated 10 billion dollar

market out of nothing, the low barriers to entry have allowed for the quick creation of numerous

competitors.(8) Groupon is now struggling to identify how it can differentiate its offering beyond

just having a large volume of subscribers and global reach. Mason’s carefree attitude and non-

traditional business style are a major concern as the company has yet to convince potential

investors and skeptics that it takes becoming a profitable business seriously. The industry is so

new that research is still incomplete as to how customers and businesses respond to companies

like Groupon in the long run, and how long geographical markets can provide attractive

discounts without reaching a saturation point. Another hurdle for the company to consider is

how the brand can stay relevant and ‘cool’, while being easy to use for both the merchants and

the end consumer. As Groupon looks to go public in the near future, it needs to prove to

investors that its business model is sustainable and that it still enjoys a unique competitive

advantage in the marketplace.

II. Analysis

Leaders and Leadership

Groupon is guided by founder and CEO Andrew Mason (who was also the creator of The

Point, the original collective action platform). (36) Mason has an unconventional background

with an undergraduate degree from Northwestern in music. After graduation, he became

enthralled with computers and technology and went to work as a software engineer. (36) In 2006,

he developed “Policy Tree”, a policy debate visualization tool that won him a scholarship to the

University of Chicago Harris School of Public Policy. After three short months, he dropped out

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to pursue The Point, and the rest is history. (36) Known for his kitschy, big kid mentality, serious

board meetings are actually held in tent forts, much like the childhood secret clubhouse. (36)

As Groupon began to grow, Mason did a stellar job of attracting an experienced group of

senior management who shared his vision, ambition and jovial corporate culture. Margo

Georgiadls, COO, brings broad and invaluable experience from serving as the Executive Vice

President of Card Services and CMO for Discover Financial Services and more recently as the

Vice President of Global Sales Operations for Google. She holds a bachelors degree and MBA

from Harvard. (36) Jason Child was selected as the CFO, leaving his role as CFO and VP of

Finance of Amazon.com’s international division. (36) The Vice President of Product is David

Jesse, who brings to the team his experience as a County Manager for eBay and Vice President

of Product Management and Business Analytics for Gaia Interactive. (36) It is essential for a

technology company to have the right technical minds to handle the engineering that makes the

website run; Groupon’s lead “technical mind” is Brian Totty. He has a PhD in computer sciences

and he literally wrote the book on HTTP and has extensive senior management experience with

several different technology firms. (36) Groupon also attracted Skip Schipper to be the Head of

Global Human Resources. He has worked for Compaq, Microsoft, Cisco and PepsiCo, and he

serves on the frontline of extending Groupon’s unique corporate culture to offices around the

world. (36) (Please refer to Exhibit 2 for Organization chart)

An equally impressive, yet humble, team of Groupon senior vice presidents supports

these key players. While reading through their biographies you get a sense of the

accomplishments – both academic and professional – that this team collectively has, but you also

get a sense of the dedication, passion, and work-life balance that seems to be important at

Groupon, which is shared by many contemporary web-based startups. One of the common

bonds that seem to unite this relatively young group of professionals is their experience with

start-up companies. That is, they all seem to share the drive and willingness to take risks.

Types of Innovation and Evidence of Entrepreneurship

“Innovation is the initial commercialization of invention by producing and selling a new

product, service, or process.” (40) By definition, Groupon is an innovative company, not

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through development of a “me-too” product, but by forming an entire new market space. The

company won a Chicago innovation award in 2009 when they were less than a year old.

Additionally, Fast Company has called them "a savior for small businesses" and "the most

exciting thing to happen to retail since eBay". (16, 39) Groupon pioneered the online group

purchasing power concept, but they are not content with stopping their innovation pipeline.

They demonstrate entrepreneurship and continuous learning through regular product updates,

most recently in upgrading the delivery method from email subscriptions to Groupon 2.0,

mobile, and real-time technology which offers ultra-localized services based on your GPS.

Instead of merely expanding to new markets and to new customers who may have a one-time

purchase, they focus on improving the personalization and offering more relevant offers to

current subscribers.

Globalization Presence and Effects

While Groupon’s product is hyper-local, they know discounts have mass appeal to a

broad worldwide audience, thus they operate on a global scale, expanding rapidly and

strategically. (41) After launching the website in native Chicago, they followed with offering for

Boston and New York City. By 2009, just one year after launch, they were operating in 30 major

American cities with 120 employees, two million subscribers, and $33 million in revenues.

Today, they have more than 7,000 employees and deliver more than 900 deals daily to 550

markets around the world. (41, 42) Competing in a global market is always challenging as the

degree of complexity in each foreign market is often underestimated. Instead of trying to create

a cookie-cutter formula and deploying it across continents to potential resistance from an outside

force, they chose to expand through acquisitions of already existing local deal sites (in essence,

following an inorganic growth strategy). The existing sites were already familiar with the

cultural preferences and purchasing habits of the local population, so they simply had to be

rebranded under the Groupon umbrella. (27) “This overall strategy allows Groupon to capitalize

on already strong local merchant relationships in these new territories by folding smaller,

existing competitors into their own model, as well as gaining instant access to their preexisting

customer bases.” (24)

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The following represents major acquisitions Groupon has made since inception (24, 34,

54, 59):

In 2010, Groupon purchased CityDeal, a large European clone based in Berlin. The

acquisition immediately added 600 employees to Groupon's payroll (which had been 300 before

the deal.) CityDeal is active in 80 markets in 16 countries, including the United Kingdom,

Germany, and France. (24, 54)

Four months after raising millions of dollars from a Russian investment fund, Groupon

acquired a majority stake in Darberry.ru, a similar site based in Moscow. With the investment,

Darberry was renamed Groupon Russia. The site, which currently serves seven cities with

180,000 subscribers, is flush with Groupon's capital and intends to expand throughout the

country and into neighboring Ukraine. (24)

Also in 2010, Groupon put up $10 million to buy a majority stake in Qpod, a Tokyo-

based start-up that was set up as a joint venture between a direct sales company and a venture

capital firm. The site has since been re-branded Groupon Japan.

Groupon also entered Latin America, buying one of its imitators in Chile, a site called

ClanDescuento. According to founder Andrew Mason, the expansion of Groupon Latin America

is an important step in their evolution as a leading global Internet brand. Most recently, they

bought the Indian deal-of-the-day website SoSasta.com, uBuyiBuy in Hong Kong, Singapore,

the Philippines, and Taiwan, and GroupsMore.com in Malaysia, giving them a stake in

essentially every major market and making them a huge multinational enterprise. (34)

Please refer to Exhibit 4 for a map depicting all the areas where Groupon has a presence (24)

and Exhibit 5 for the percentage of global website visitors by region (57).

Ethics

The Point was founded on the idea of serving the greater good, therefore it is no surprise

that most of the same principles of social responsibility have found their way into Groupon’s

core values, as well. Groupon’s roots in social activism and its desire to support local causes are

initiated through the “G-Team,” a collective group of subscribers and staff who run large-scale

campaigns to support the community that can include anything from a flashmob to fundraiser.

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(58) They raised millions of dollars for national charities like Donors Choose and Kiva through

social action and civic engagement. (58) Fun examples of Groupon-led initiatives include deals

like if the “G-Team raises $1,000, a local bike cooperative will fix up 100 broken bikes to donate

to disadvantaged youth center” or “if 5 people who purchase today’s Groupon join, they’ll come

for 4 Saturdays to help clean up a local river.” (58) Despite the explosion of negative press

following their perceived insensitivity in a recent Super Bowl ad poking fun at the conflict in

Tibet, on the company blog, Andrew Mason points out that Groupon regularly donates money to

all the causes in those commercials and no harm was meant by it. (1) Overall, Groupon does

appear to engage in charitable activities, it cares about making a positive impact on the world,

and tries to use its power for good practices.

Corporate social responsibility (CSR) is the idea that business has a duty to serve society,

as well as the financial interests of stockholders. According to founder and CEO Andrew Mason,

what Groupon is trying to do is to change the way that people buy from local businesses in two

ways. First, they focus on support for local businesses so that they can sell more products.

Second, they have an innovative policy of only allowing a coupon to be used once a certain

number of people have committed to purchase. As such, Groupon represents an interesting

experiment in the idea of the social mobilization of consumers, made possible by the free flow of

information that has emerged from the revolution in communication technology in recent years.

(52) This helps to contribute to the welfare and interests of both society and the organization.

Responsible Wealth Creation

Groupon was founded by Andrew Mason and Executive of the Board Eric Lefkofsky in

November 2008 using venture capital funding. (43) In January 2009, they received $30 million

in cash from Accel Partners, a private equity fund, which valued the business at $280 million.

(43) The company was able to successfully raise $135 million from Digital Sky Technologies

(DST), a Russian private equity fund, in April 2010. (4) Just a month later, Groupon used its

booming valuation to make its first international acquisition of CityDeal in exchange for 10%

ownership of Groupon. (43) Several months later in December 2010, Groupon expanded its

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footprint to the Asian continent when it purchased 3 discount sites in deals for which terms have

not been disclosed to the public. (36)

In examining these trends and events, it is clear that Groupon has relied heavily on the

use of venture capital and private equity to fund acquisitions and growth as a primary strategy to

become a global force. Additionally, management is highly selective in determining whom they

will accept funding from, and has chosen to work with other investors that have had proven

success in the social media space. DST is a major investor in Facebook, which has received the

highest valuation of all time for a website. (4) Although this strategy of working with private

investors has been successful thus far, the freedom the company has had in terms of the manner

it operates will likely change once they go public. Groupon has recently filed a well publicized

and highly anticipated IPO that is projected to value the business between $20 and $30 billion.

(51) One would anticipate that such a valuable business would be highly profitable and

attractive to investors.

As Vivek Wadhwa, a visiting scholar at the UC Berkeley School of Information and

Director of Research at the Center for Entrepreneurship and Research Commercialization at

Duke University, has noted, “this is simply not the case.” According to Wadhwa, “the company

does not have a proven business model that will take them to long-term profitability, insiders are

already reaping millions, and the price is out of proportion with reality.” (32) This statement is

based on events following a $950 million cash influx by Kleiner Perkins, a private equity outfit,

in January 2011. (32, 43) This transaction valued Groupon at an astonishing $4.75 billion. (43)

In these instances, management is typically rewarded for increasing profitability, and a

significant portion of the cash infusion is used for infrastructure to support future growth.

Instead, Groupon paid out $810 million to top executives of the firm, including payments to

“CEO Andrew Mason ($10 million), Lefkofsky ($60 million), early-stage venture backer NEA

($70 million) and Accel Partners ($19 million).” (32)

These individuals and groups have been with Groupon since the beginning, and to see

them pulling out such vast amounts of cash is a huge cause for concern and question. Are they

cashing out now because they anticipate a decrease in the holding value? The other worry is that

they are sharply curtailing Groupon’s ability to grow by limiting the amount of cash the business

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has to make acquisitions. For a company set on rapid expansion, if they do not continue the

momentum, what will happen to their strategy? Whatever the motive, this was not a positive for

the stakeholders of Groupon who were unable to cash out during the transaction, and it was not a

healthy financial decision for the company.

Engagement and Plan Alignment & Corporate Culture

It is often said that words alone do not matter as much as action, which is often the case

in business. Groupon must execute its strategy in such a way that will create value for all

stakeholders involved. Successful strategy execution depends on management of people and

capital, continuous improvement, and delivering results. Management must continually push the

organization towards operating excellence while always concentrating on the core vision,

mission, and goals of the firm. As Darren Schwartz, the SVP of Sales at Groupon, says: “Instead

of just sending a lot of customers to a business, we want to send the right amount of customers,

and the right kind, to our clients.” (10) It is evident by this quote that management at Groupon is

cares more about acquiring the right customers to have an impact on the business than just

increasing the volume of sales.

It is also essential for key leaders to be actively involved change management when any

new strategy is rolled out. Management must build consensus and enthusiasm for any new

initiative with its employees so that a smooth and successful transition occurs. Another crucial

aspect of plan alignment is proper training. At Groupon, there are about 150-200 new hires a

month in Chicago alone (44), which presents challenges to time and resources. Groupon is

extremely caring about its people and believes in the concept of human capital adding value to

their firm and thus puts the necessary time into educating everyone on the corporate culture,

mission and values. As Andrew Mason explicitly states, “We believe that to have truly

ubiquitous coverage with local merchants, human beings are an important part of the

equation.” (49) When Groupon expands, nationally or globally (organically or through M&A),

they strongly consider the local practices, competitive situations, cultures and personalities in

order to sustain strategic success. Groupon seems to comprehend this aspect well: “Further

expansion into international markets requires management attention and resources and requires

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us to localize our services to conform to a wide variety of local cultures, business practices, laws

and policies.” (38) Growth is not an easy strategic choice to manage, but a necessary growth

measure. From the SEC filing document for Groupon’s IPO, it is clearly evident that Groupon

hopes to be able to align their growth plan with their strategic vision: “To effectively manage our

growth, we must continue to implement operational plans and strategies, improve and expand

our infrastructure of people and information systems, and train and manage our employee

base.” (38)

Resources at Groupon must be evaluated through information control that supports

strategy execution. Groupon engages in a contemporary control system in which they

continually monitor the environment and identify trends that may signal any need to revise a

strategic objective. Groupon 2.0 plans to leverage those strengths in a way that improves the

deals subscribers see to make them more relevant to them based on location and preference.

The corporate culture in Groupon is unique as it exemplifies their mission and values.

Dan Jessup, Executive VP of HR, explains it as "everyone here takes their job seriously, but they

don't take themselves too seriously." (29) Many of Mason’s defining characteristics are

embodied in the corporate culture- youth, exuberance, and free spirited. “Employees say the

culture at Groupon prioritizes openness and collaboration, with a refreshing lack of

micromanagement and corporate bureaucracy.” (29) The fun, silly, and easy going atmosphere

can be seen the moment someone walks into the office with whiteboards lining the walls covered

in cartoons and inside jokes. The conference room houses a bed, shag carpeting and chocolate

coins, and is home to Michael, the company ghost, an adventurer who embodies of the Groupon

spirit. Their corporate culture defines their personality and is evident in every deal they produce.

“Groupon's daily emails are noted for their wry humor and occasional weirdness.” (10) These

emails have been seen as a sign of Groupon’s success, as they are fun to read just like the

company is fun in general.

Mason describes as: “If this is all starting to sound like an elaborate prank, that’s only

because it is. That’s what’s special about Groupon. We create these…little events. So much of

what we do is about surprise—‘What’s the daily deal?’ And who would imagine a room like that

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inside an office? As an employee, it shocks your system out of the monotony and says, ‘This

isn’t like any job you’ve had before.’” (51) To remind himself everyday of this vision, Mason has

posters of failed internet start up CEO’s on his wall. As a joke, or reality check, he has his own

picture right next to theirs. (44) His actions truly exhibit how close culture can be aligned with a

company’s basic vision and strategic objectives. In order to facilitate an objective to generate the

best platform to share common collective buying power, Groupon facilities open lines of

communication between the technology, sales, and customer service employees. (29)

The entrepreneurial spirit of the firm is evident at all times, which is seen as an exciting

yet serious place to work. “There's a pronounced tech start-up vibe to Groupon's work

environment, with its young workforce, flexible hours and casual dress code.” (29) Mason often

sits with his employees at different functions to help them, learn from them, or simply show his

employees that he is one of them. (48) “From the top down, Grouponistas are expected to adopt

the ethic of being transparent, collaborative and—thanks in large part to the jokey-yet-well-

researched Deal of the Day write-ups Mason calls ‘the heartbeat of the company—absurd

humor.’” (48) Employees at Groupon say that they feel the culture allows them to be listened to,

inspired by others, and supported by their peers.

Wild Card: Blue Ocean Strategy – A Key to Early Success

“Competing in overcrowded industries is no way to sustain high performance. The real

opportunity is to create blue oceans of uncontested market space.” (5) This is the sentiment on

which Groupon has built its foundation. Instead of developing a product extension or parity

good, Groupon re-invented the coupon industry, creating a new market space from an already

existing one – which is precisely what a blue ocean is defined as. At its inception, Groupon

created demand for its product and the firm’s growth was rapid, ample, and without competitive

threats. (5)

One of the key distinctions of a blue ocean is they allow a firm to pursue both a

differentiated and cost leader strategy at the same time. (5) Differentiation is achieved by the

sheer definition of Blue Ocean: creating a new market space. Groupon changed the coupon

industry, removing many of the unnecessary elements, while substituting value components such

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as collective buying to reach a deeper deal through offering merchants attractive volumes. Blue

ocean companies create value for both the buyers and the company. (5) Groupon has created

value for not only the buyers that are getting a great deal, but also for local merchants that are

able to attract new customers to their business. (35) Groupon has also obviously created value

for itself as: “the business had gone from zero to $500 million in sales in 18 months.” (21).

Another characteristic common with a blue ocean strategy is that technological

innovation is not at the firm’s core. (5) This is true also at Groupon as their underlying

technology (website, email, and social media) were already popular in 2008. A blue ocean firm

will link technology to what a buyer values, which Groupon did through providing a good deal in

the recession. (44) Groupon’s ability to pull in new customers who traditionally would not care

about discounts is also a distinctive Blue Ocean trait. Its customers are described as “hip, active

singles who go out two or more times a week. They are college-educated users of social media

and while the demographics slant slightly toward single females, it's not about saving money but

rather spending it with friends.” (22)

Another ideology of a blue ocean is to realize that ‘company & industry’ are the

traditional units of strategic analysis and are the wrong units to focus on when establishing a

business model. “The most appropriate unit of analysis for explaining the creation of blue

oceans is the strategic move - the set of managerial actions and decisions involved in making a

major market-creating business offering.” (5) Groupon exemplifies this when Andrew Mason

was quoted saying, “It's not competitors that beat them. If you look at Myspace, Facebook was a

better product. It's as simple as that." (21) This showcases that Mason does not use competition

as a metric, but instead places more value on the actions, decisions, and product knowledge of

the firm to determine health. Mason honestly feels that if you lose sight of what makes

customers happy, then the company will fail.

It has been observed that another common aspect of blue ocean companies is that they are

powerful brands that build brand equity lasting for decades. (5) With Groupon being the fastest

growing company of all time, James Slavet, a partner at Greylock Partners, a venture-capital firm

in Silicon Valley, believes that, "Long term, this is a business that will do for retail what Google's

done to search and search advertising." (21)

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Internal Analysis

Value Chain Management Analysis

Groupon’s value chain management (VCM) is an extensive process that begins with the

negotiations with buyers to delivery of purchased vouchers to customers.

Inbound logistics for the firm are quite simplistic. Leads are generated by the marketing

department and passed to the sales representative for the respective city in which the potential

vendor is located. (26) The sales reps often work in teams of two to five people depending on

the size of the market the city is located in. (26) When a deal is made with a vendor, the sales rep

works directly with the business to finalize the terms of the offering and places the deal in the

pipeline. (26) While in the pipeline, the editorial department crafts catchy descriptions that are

witty and enticing. (49) They are also relatively easy to prepare as evidenced by Groupon’s

recent involvement with a group of 6th graders in the Chicagoland area. As part of Groupon’s

commitment to partnering with local not-for-profit organizations, these students were invited to

write the descriptions of a few daily deals to help them understand how important it is to develop

their writing skills.(49) Next, the web development team uploads this content to the page that

will house the deal and puts the finishing touches on the product chat room. Since most of the

sales process is completed over the computer, there is no physical warehouse needed to house

inventory. However, the massive sales force of the firm has resulted in Groupon occupying two

large office spaces in downtown Chicago. (18)

The next step in the VCM process is operations. As noted previously, the company relies

heavily on the use of technology since the core of their operations is run online through

Groupon.com. (26) The primary activities are closely intertwined with the inbound logistics as

the deal moves from the marketing department to production. The company relies heavily on

real-time data and feedback since the deal runs for a set time limit each day.

The sales representatives and customer service departments are the primary touch points

in dealing with businesses or customers, respectively, in the outbound logistics and service

sectors of Groupon’s VCM. Each time a deal is posted, the sales rep regularly updates the

vendor on the status of the deal. A chat room is available for customers to post questions, and

15

the sales rep often passes on these inquiries directly to the vendor in order to respond timely

within the chat. This close communication between the vendor, sales rep and customer creates a

close knit community and creates an added intrinsic value for consumers. (18) The customer

service team is closely involved with the final sale of product and assists customers that have

issues finalizing their purchase. Additionally, if a customer encounters a problem in redemption,

these employees do everything in their power to resolve the issue timely. (18)

Recently, “a nail salon in Northern Vancouver sold more than 6,000 Groupons for half-

price manicure pedicures” and only allocated 16 slots per day for Groupon customers. This

meant that some customers could conceivably have to wait over a year before they are able to

redeem their voucher. (12) With actual demand far exceeding the projected amount, Groupon

worked to provide refunds to dissatisfied customers. This flexibility is crucial to preserve client

and customer relationships, and this high level of service has not come at a cheap pricetag for

Groupon. Selling, general and administrative costs have increased from $4 million in the first

quarter of 2010 to $178.9 million in the first quarter of 2011, which is approximately 28% of

revenues received. (50)

New sales reps are trained in smaller markets like Long Island, New York or Wichita,

Kansas. (26) Although there are fewer opportunities in these markets, reps gain experience

selling the product and are forced to work harder to come up with deals. (26) The best sales reps

are moved to larger markets when opportunities arise, which is beneficial to both the rep and the

company, since the highest performing reps get an opportunity to earn more money in a brighter

spotlight. Part of what motivates the Groupon sales team to be aggressive in their vendor

negotiations is the large commission they receive from each deal. The more popular a business,

the more sales and profits it will generate the company and the sales rep. (26)

An additional incentive program which supports the VCM for all employees is the

issuance of stock options which vest over a period of several years. For employees that have

been there since the beginning, these shares can be numerous once the IPO is finalized and will

provide a great start to a retirement nest egg for many young professionals. (51)

RESOURCE BASED VIEW ANALYSIS

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A resource based examination of Groupon yields several trends identified through the

VCM model; however there are numerous additional points of discussion. (Please refer to

Exhibit 8 for Groupon Resource based View Analysis)

From a financial perspective, Groupon has the highest revenues in the industry. In the

first quarter of 2011, the firm grossed $644.7 million compared with $44.2 million in the same

quarter of 2010, which equates to an astonishing 1,359% increase. (50) Unfortunately, this

growth in revenues has not equated to profitability. The company has expanded at such a rapid

rate through hiring of additional employees, marketing costs and infrastructure that Groupon lost

$146.5 million in the first quarter of 2011. (50) This trend of losses dates back to fiscal year

2009, with only one slightly profitable quarter. (50) Groupon previously posted revenues per

subscriber at $21.69 as of June 30, 2009. (33) This number has decreased approximately 64% to

$7.76 as of March 31, 2011. (33) Part of this decrease is the massive growth of their subscriber

base, however it also shows that fewer people are actually buying the daily deals. (33) These

decreases have not hurt Groupon’s ability to grow yet since their cash flow is so strong and

allows the company to fund current operations.

The physical resources owned by Groupon consist primarily of their sales force, which is

housed in two main locations in Chicago. (18) Their dramatic growth has resulted in large

investments in physical space and technology, since each employee needs their own computer.

The human portion of this analysis is focused on two groups within the firm, the sales

team and the executives. Both of these clusters are filled with top performers in their class. As

noted in the VCM analysis, the best sales reps quickly move through the system and have

opportunities to represent Groupon in the larger markets. Additionally, Andrew Mason, CEO of

Groupon and Eric Lefkowsky, Chairman and Co-Founder, both have experience in growing

technology companies to profitability. See the strengths section of the SWOT analysis for

further discussion of their background.

Finally, the organizational structure of Groupon cannot be understated in terms of how it

has contributed to the success and growth of the company. As noted in the timeline, the

company has grown from 37 employees in 2009 to over 7,000 merely two years later. (18,33)

This rate of increase is literally unprecedented, and thus the organization as a whole has had to

17

remain very flexible in order to adapt. New programs and departments have appeared on the fly

over the past two years as different needs developed. (26) Qualified staff have been hired

without a specific role, just to fill anticipated demand in various areas. (26) Most of the

workforce is under 30, and are therefore more easily able to accept rapid change than a labor

force used to doing things ‘the same as last year’ for the past few decades. An additional benefit

of having a young workforce is their comfort with technology and social media. Much of the

business becomes second nature to the employees, who are encouraged to share their ideas with

management to improve the operations when applicable.

VRIO

The final concept used to analyze Groupon’s internal business practices is the VRIO

framework, which examines the company’s value, rarity, susceptibility to imitation, and how

organized they are to exploit resources. (Please refer to Exhibit 9 for VRIO Analysis)

As has been touched in the aforementioned analysis, Groupon’s first mover status makes

them a highly valuable company within their industry. Their brand and distribution channels are

relatively unique and far exceed the competition.

Since the competition within the industry is so great, it is obvious that the group buying

mechanism is not a rare commodity. As of June 2011, over 345 sites compete in a space that did

not exist merely three years ago. Any tech-savvy individual can launch their own site and work

to build up a subscriber base comparable to Groupon. (3) All it takes is businesses willing to sell

their product for cheaper than face value, and customers that want to save money. According to

Yipit, in May 2011 almost 18,000 unique online deals were offered through Groupon and similar

companies in just North America. (3) This is an astonishing number and shows no signs of

slowing down anytime soon, meaning even more companies will want in on the pie. Groupon’s

largest competitor, LivingSocial has been slowly chipping away at Groupon’s dominance in the

industry. In May 2011, Groupon’s market share of online daily deal sales decreased from 52

percent to 48 percent, while LivingSocial increased their sales to 24 percent of the industry

compared to 20 percent in the prior month. (3) This downward trend for Groupon is similar to

many other negative metrics identified and does not bode well for the long term prospects of

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Groupon. Within the VRIO framework, ownership of value, but lack of rarity in the business

concludes that Groupon has competitive parity within the industry.

Finally, Groupon is an extremely organized business, which closely manages its resources

and exploits opportunities presented to them. This is evidenced by the executive management’s

incredible career experiences within the industry.

External Analysis

Though Groupon may seem like an unstoppable force, the idea behind an external

analysis helps a company to understand their place in their market and map their position in the

larger business realm. It helps identify threats and opportunities, and assess their level of

potential profitability based on the industry health and maturity.

Organizational Environmental Model

Through the Organizational Environment Model depicted in exhibit 12, Groupon, the

organization, is the epicenter of their task environment comprising of competitors, distributors,

customers, and suppliers. Outside of that, the general market environment is made up of

technological, economic, global, political, demographic and socio-cultural forces. At the center

of their organization, Groupon provides a service that solves a fundamental business problem-

awareness and accessibility. “We get them in the door, and the merchants take it from there,

delivering the services to get them back. The Groupon model works in any market, it can easily

be scaled up.” (34) The environment in which they operate is what makes them so successful-

everyone loves a deal and the site came at the right place and right time to take off during the

period of economic recovery- global forces were working in their favor.

They make the endusers - their customers - happy by offering an awesome experience at

a fraction of the cost, and go above and beyond to bring their suppliers (the stores providing the

discounts) new business. However, customer service during redemption has undoubtedly been an

issue for them, with some stores being overwhelmed by the demand leading some customers to

experienced less than stellar service. While Groupon works hard to resolve customer service

issues involving redemption, responsibility mainly falls on the distributor to provide the service

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offered in an exceptional manner so they earn repeat business. The negative experience does

ultimately reflect back on Groupon though and my affect future purchasing decisions.

Nonetheless, Groupon single-handedly changed the stigmata and culture associated with

coupons. While discounts had formerly been a taboo, embarrassing subject (who wants to admit

they like saving money?), the audience was no longer the little old lady scouring the weekend

paper for a deal. Their demographic was now the educated young professional, as Groupon made

the discount socially acceptable and rewarding by requiring a certain number of participants to

reap the rewards of collective buying power. With people wanting to maintain the same level of

lifestyle and disposable income they had before the economic crash of 2008, Groupon allowed

them to still indulge in a spa day or nice meal out without feeling guilty or breaking the bank-

making both the socioeconomic and economic factors work in their favor. Also, technology like

real-time cell phone apps made purchasing easier than ever and they take advantage of all online

marketing channels to deliver content (email, social, web).

The group coupon idea took off like wildfire and spawned numerous copycat sites, most

notably Living Social. While Groupon still has first mover advantage to some degree with their

large subscriber base, the competition is undoubtedly biting at their heels for a piece of the pie.

One of Groupon’s strategic advantages is their massive local sales force of over 3,500 people

who know the markets inside and out, which serves as their distribution team. If they didn’t have

these people to source the deals, they’d be a much more accessible to competition immediately,

but it will understandably take the other big players time to build up these relationships. The

sales force could potentially become an even bigger moat if Groupon Now, their real-time

mobile app takes off, which needs thousands of active deals at a time to be successful. (55) The

mobile technology with a built in subscriber-base is one of their biggest advantages, as that’s

much harder to copy than a website and better for determining ROI data for businesses. “Apps

with a location layer can help close the loop between a deals consumer and a repeat customer by

observing a consumer's interactions with a business and a neighborhood over time.” (11) In

summation, the initial environment factors were ripe for Groupon’s exponential growth, but now

they must regroup and to evaluate and capitalize on their strengths if they intend to maintain an

industry leadership position.

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Porter’s 5 Forces

Porter’s 5 Forces provides a framework for evaluating a sound business strategy. The

following is an analysis of Groupon based on the five economic forces that determine the

attractiveness of a market. (Please refer to Exhibit 11 for a summary of Porter’s Five Forces

analysis)

New Entrants- There are extremely low barriers to entry in the daily deal market and even

lower costs of switching providers. With technology that is easy to develop and a kitschy style

easy to copy, there is almost zero brand loyalty to Groupon since its product is a price-based

service. With the sheer volume of sites now pushing daily deals on consumers, one has to wonder

how long the fad can keep up momentum. Companies that use daily deal promotions have

already learned they come at a price. Typically, promotions are not successful unless the deal

offers 50 percent or more off the normal price of goods and services, which few companies can

regularly sustain a profit with. (25)

Rivalry- There are currently five direct rivals in the daily deal market in the United States

alone with more appearing everyday, taking the space from a blue ocean to a shark tank. Over

400 sites have launched since Groupon, but the worthy competitors have significant reach and

deep pockets- Google Offers, Amazon Local, and Facebook Deals in addition to the largest two-

Groupon and LivingSocial. Right now, Google Deals, Amazon Local and Facebook deals are

only available in limited areas, but with an estimated 600 to 700 million Facebook users and

Google in the process of testing its new social media product, Google+ how long can Groupon

protect their market share which has already been slipping? “Yipit's researchers, according to

Bloomberg, estimate Groupon made $64.7 million in sales in May, a figure that was still more

than double what LivingSocial produced with $31.6 million in sales.” (25) With so many players

in the space though, they need to constantly be forward thinking and innovative in terms of

product development to stay on their “A” game. (Please refer to Exhibit 14, 15 and 17 to

understand more about the competition between Groupon and LivingSocial)

Substitutes- Replacement products always existed in the form of the traditional paper

coupon. Extreme Couponing on TLC has actually revived bargain hunting to make it relevant

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and almost game-like to discover ways to combine manufacturer's discounts with local store

rebates to come away with the biggest savings possible. Other deep discount websites like

Amazon and Overstock are known substitutes, as well as online auctions sites like Ebay, online

promo/QR codes, and of course the option to pay full price or not participate in an activity that

costs money (the beach, biking, etc).

Bargaining Power of Suppliers- As the only player in the space, Groupon had been

commanding massive margins- 50% of all sales generated. Each time Groupon sold a voucher to

a user, it collected cash up front. Merchants' share of the proceeds, which averages about 60%

world-wide, is remitted later—sometimes much later. (46) Collecting payments far in advance is

what had primarily funded their intensive marketing and operational efforts. What had once

seemed like a brilliant way to grow the business faster than the competition could catch up may

now be their Achille’s heel. Much backlash has surfaced that price is too high to justify the cost

and little mom and pop shops are losing money or barely breaking even on their efforts.

Groupon currently pays US merchants in three equal payments over 60 days. This model,

according to Groupon’s S1 filing, allowed it to generate more than $120 million in cash in the

first quarter. As recently reported by Business Insider, Google Offers pays merchants in 4 days,

throwing a huge wretch in their revenue model and cash flow. (17) Top competitor LivingSocial

pays merchants their full share within 15 days. (46) Groupon is inevitably going to have to

renegotiate their terms down to the industry standard and take a good hard look at their cash flow

or businesses will likely go elsewhere. But are they proactive enough to foresee the necessary

changes and move with the times? Or will they remain headstrong and believe that since they

had first mover advantage, they are owed the business?

Bargaining Power of Buyers- Now that there are so many providers, customers are

demanding even better deals and improved customer service. Consumers generally don't get their

money back from unredeemed vouchers and while Groupon gives U.S. merchants their share of

unredeemed vouchers, it keeps all such proceeds abroad. In some countries, LivingSocial also

keeps proceeds for unredeemed vouchers, but it doesn't for most of Europe. (46) As the number

of competitors continues to increase, those with more forgiving terms to cope for buyer’s

remorse could prove victorious in gaining favorable public opinion.

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Industry Lifecycle

The point Groupon is at in the industry lifecycle (exhibit 13) is a crucial time to

redefining their business in order to set them apart from the competition. As they near the end of

the growth period and phase into maturity, their strategy and priorities need to change and

develop to ensure long term success. With the growth rate of the market at its highest and

intensity of competition ramping up, changing the emphasis to sales and marketing, product

design and consistent consumer demand is critical. After the Super Bowl marketing flop,

Groupon pulled it’s distasteful TV ads, focusing its attention in the online space and working to

restore a positive brand image after the negative PR by donating to the charities they spoofed.

(45) Since then, they have shifted efforts to action driven marketing looking to grow their sales

and subscriber-base through broad-scale pop-under retargeting campaigns and search engine

marketing, tactics more ample for conversions. The company spent $263.2 million on advertising

and subscriber e-mails in 2010, compared with just $4.5 million one year earlier. (13) They have

also been looking to improve their product, Groupon Now, which they ambitiously hope will

change the way we eat, shop and play. A radical departure from the once a day email deal,

Groupon Now is time sensitive, finally giving businesses a chance to fill seats during slow times

throughout the day. It’s a simple way for local businesses to manage their perishable inventory,

especially labor and food. “Groupon clearly believes Groupon Now is the future, so much so that

its employees call the current iteration of its daily deals service ‘Groupon 1.0.’” (31) Living

Social also has a similar mobile feature called Instant Deals.

SWOT Analysis

A SWOT analysis of Groupon’s internal business shows that while several strengths exist

in their business model, the threats to their long-term profitability and sustainability are

numerable and must be addressed in order to prove differentiated. (Please refer to Exhibit 10 for

SWOT analysis)

Groupon was the first company to make the group purchasing-power model popular

through use of the internet. This first mover advantage has provided them with the most

recognized brand in the industry. Additionally, this has allowed them more time than their

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competitors to build a subscriber base that now reaches from South Africa to Japan and includes

all 50 states. (9) As of March 31, 2011, this list had 1.5 million contacts in Chicago alone,

equivalent to over 15 percent of the total people in the city. (2,53) Their duration of operations

has further allowed them to drill down within the United States and market their product to over

125 U.S. cities. (9) The plethora of opportunities resulting from this growth in distribution

channels has correlated with an insatiable demand for young professionals looking to gain

experience as sales representatives in a highly competitive marketplace. Boasting over 7,000

employees currently, Groupon still attracts the top talent through profitable salary packages that

include a percentage earned on each daily deal. Also, employees receive stock options in the

company that vest over a period of several years. (26)

Furthermore, the top leadership in the firm has extensive experience helping start-up

websites grow, and ultimately go public, resulting in significant wealth creation for employees.

Eric Lefkofsky, the co-founder and Executive Chairman of the Board has founded two other

websites in his career that are both publicly traded. (18) His contacts in the private equity

industry have helped Groupon raise funding for several acquisitions and the capital expenditures

necessary to facilitate the extreme growth of the company’s operations. (18) Currently, Lefkosky

is leading Groupon through its IPO, which will provide a further influx of capital, and a safety

net for the founding members of the company. (51) It is true that the tone for a company is set at

the top, and Groupon’s greatest strength is its human capital’s ability to react deftly to changes in

the marketplace and its corporate attitude which values and rewards a fun, productive work

environment for employees.

A major weakness of the organization is negative press that seemingly halts the

company’s progress every few weeks. A recent example is the public’s reaction to the Groupon

commercials that were shown during the 2011 Super Bowl. One of the 30 second spots showed

the peaceful mountains of Tibet, which transitioned into a promotion featuring half off at Tibetan

cuisine. (1) Critics condemned the move as insensitive, but Mason was quick to defend the

company as an active donor and supporter of the Free Tibet movement. (1)

In June 2011, SoSasta, the Indian subsidiary of Groupon accidentally posted the personal

information of 300,000 subscribers online. (28) While the data was not available for an

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extraordinary amount of time, it was online long enough for it to be “indexed by Google’s search

database.” (28) Although Groupon was quick to pull the content down, this event showcased the

risks and potential privacy problems of fast internet expansion.

While Groupon has had several instances of bad publicity, one of their opportunities is in

the creativity shown thus far in marketing. At their core, Groupon is a social media company

and has proven adept at reaching a young generation of consumers through popular outlets like

Twitter and Iphone apps. Their commercials are often played during music breaks on Pandora

and the live blog of one fellow living off Groupons for an entire year received quite a bit of viral

buzz. Although the Super Bowl ad didn’t go over well with the intended audience, it still

managed to reach the largest audience in television and got people talking about their company.

(1) With marketing expenses of $208.2 million in the first quarter of 2011, Groupon has shown

that they are able to outspend their competition to maintain their leadership position.(50) Their

willingness to show creativity to attract new customers provides them with a platform for

continued growth.

The key threat that Groupon must address is its reported cash flow issues. (6) Although

the company is currently private and therefore most financial data is confidential, the IPO filing

has made certain documents public that have market analysts concerned about the company’s

spending habits. Groupon’s explosive growth has been fueled by the constant cash flow that is

churned by the daily deals. Groupon’s continued development in new markets has provided the

ability for the firm to increase revenues, however most of the major markets in the U.S. have

been tapped and the competition is now moving in. Additionally, many customers are growing

tired of the influx of options and stopped looking at deals waiting in their inbox each morning.

Repeat customers have shown little loyalty to the company, as they are simply interested in

purchasing a deal they like from whoever is supplying. Conversely, vendors have grown weary

of the group-buying crowd, particularly in the restaurant and service industry as they have not

been proven sustainable to developing repeat customers. (6)

Another major threat facing Groupon is the potential legal hazards that could engulf the

core of their business operations. A recent article in The Register described several different

issues that are at odds with the group purchasing mechanism including; “certain state’s ban on

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discounted alcoholic beverages, the length of time that a voucher remains valid often exceeds the

life of a Groupon, and unused portions of vouchers must be redeemable for cash.” (35) The

article notes that many states have their own set of unique rules, which could further confuse the

legality of the Groupon. Since their inception, Groupon has already changed their policy

pertaining to vouchers that expires, and in ‘the fine print’, it is noted that the purchaser of the

Groupon has the right to apply the expired Groupon for services equal to the cash paid for the

voucher. (19)

III. Recommendation

Source of their Success

With the amount of competition moving in, Andrew Mason is realistic in the fact that the

website won’t last forever and that their core strength and differentiation is not in their physical

technology or the delivery of the email offers, but in the problem they solve for customers-

choice of a fun activity at a discount- and the benefit they provide to retailers and new customers.

They may not know exactly what the next iteration of their site may looks like- Groupon Stores,

a mobile app, or something we can’t even visualize yet, but Mason does understand the core of

his business, aptly describing “Groupon as the emerging Amazon of services, creating an

incredibly efficient way for merchants to reach new customers. But the 2.0 version’s social-

media focus may end up making Groupon the Facebook of shopping as well.”(44) The new

Groupon grew out of a question Mason posed to his team: If the company were able to launch

with the advantages it has now—“a huge merchant community, operational machine and

customer base—would we build the same thing today?” The answer: “Maybe not.” (44) Their

current success lies in the benefit they provide to both their endusers and vendors, not necessarily

in the physical product or delivery of the offer.

Alternate Solutions

To sum up the main problem, Groupon must continue to differentiate its offering, or it

will gradually cede market share to the other daily deal sites as the market matures to become

more standardized in terms of pricing and payment terms. If Groupon has to pay more and faster

26

to keep merchants happy, it will see a reduction in the excess cash flow that has been its fuel for

rapid growth. Alongside this issue is the recent push toward an IPO as public equity investors

will need to see a plan for how the company intends to achieve sustainable profitability. Growth

simply for the sake of it will not appeal to investors for long, especially now that experts are

whispering about a new “bubble” in technology stocks. Andrew Mason and his team can only

hope to evolve the business to meet these challenges. Below are some creative alternatives

Andrew Mason and his team can employ to build a sustainable competitive advantage and

preserve the premium pricing enjoyed by Groupon.

One potential idea could be to expand Groupon into more of an online marketplace,

similar to an EBay or Craigslist, but with a first class interactive element more reminiscent of a

social networking site (e.g. Facebook). Right now, there is very little interaction between users

and merchants on Groupon; as all interaction is facilitated by a middleman- the groupon sales

team funneling end user questions to the merchant while the deal is running. What if that

changed, and Groupon became an interface for retail commerce in local markets?

For example, if a local winery wanted to advertise a promotion to the community, it could

simply log on and followers would receive a status update. As Groupon would likely charge a

fee for this type of posting, the ability to target the most likely buyers would be valuable to the

winery. Likewise, a business or home in need of major roof repairs could put out an RFP

through Groupon’s service, and local contractors could respond with bids. All of this would

operate alongside the daily deal offers, creating a one-stop site for merchants and local customers

to meet, learn more about each other, offer/request services, and conduct targeted marketing and

promotional activities.

A more likely next step is to find ways to capitalize on Groupon’s mobile application,

Groupon Now, as consumers gravitate more and more toward the use of smart phones, tablets

and other data devices. A simple example is the use of geographic positioning technology to

choose deals based on a user’s current proximity to a merchant. However, this is just the start.

As users increasingly share real-time information over mobile devices, applications such as

Groupon Now can become valuable stores of consumer information. Since Groupon already has

the largest database of daily deal users, it is best positioned to profit from a strategy of collecting

27

and analyzing market data. Groupon customers transmit information over mobile devices related

to preferences, location, purchasing behavior, response to advertisements, etc. In addition to

driving increased customer traffic, the data captured by Groupon Now would be very useful to

merchants trying to better understand their ideal consumer demographic. This can help Groupon

maintain merchants’ attention and interest in their product over competitors.

Recommendation

Groupon’s future success will lie in the ability to prove to businesses that their model is

profitable through the ROI capabilities offered in the mobile app. With so many businesses

questioning the value of running a Groupon at such a high acquisition, if Groupon can prove that

in fact customers are returning to experiences they like outside of the one-off deals, they will

have proven their marketing value. In addition, they will need to prove to their subscribers they

can offer deals even more relevant to them (customized and personal) to avoid burnout.

What Should Be Done

With data being king and so much being available in real-time via mobile technology, the

more the vendors know about their customer preferences- what they like, why they become

repeat users and where they’re located, the more likely they are to run Groupons continuously for

more than a quick boost in sales, but for the more valuable information of market research.

“Groupon 2.0 plans to leverage those strengths in a way that gets more merchants through the

queue and extends the service,” Mason says. “We’re not dramatically increasing the number of

deals a customer sees, but we are giving them something more relevant.” (44) If Groupon can

pass some of this usability data onto it’s vendors, they stand to gain invaluable customer

information.

How Should it Be Done

“As a Groupon user, you will have a personal opt-in “deal feed” that includes the daily

feature offer selected for you by an algorithm using your location, age, past buying habits and

other data to understand what bargains will make you itchy to spend. In addition to that Deal of

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the Day, which was the core of Groupon 1.0, the upgraded feed will include recommended self-

serve deals and messages from merchants you’ve bought from, as well as from others you’ve

chosen to follow.” (44) You’ll be able to share this info via facebook and twitter. “By having

people get different offers, they will have a bigger incentive to share,” Mason says. (44)

Who’s Going to Do It and Why

As discussed earlier, Groupon is already pursuing its Version 2.0 which includes

increased utilization of mobile technology. Groupon has a very good chance of continuing to

lead the daily deal market into the next phase, as it’s pool of subscribers and active merchants

(including a wait-list) is larger than anyone else in the industry. However, Groupon is not without

a worthy challenger; aside from other daily deal sites like LivingSocial, Google stands out as a

potential threat and is likely better positioned as the daily deal market expands to include a

component of market research as Google’s search algorithms are unmatched. If Google can

capitalize on their technical expertise to create a best-in-class algorithm for targeting daily deal

shoppers, it could steal merchants and present a major challenge to Groupon’s supremacy.

Google may also benefit from knowledge gained through its significant involvement with and

development of Android technology for smart phones. These are tools that Groupon does not

possess, yet they can be competitive advantages when trying to capitalize on the mobile market.

Andrew Mason and his team will be charged with writing the next chapter at Groupon.

In order to maintain their “first-mover” advantage, they must introduce a new component to

blind offers. As successful change is directed from the top down, Mason must lead his team to

move with the times. He states openly that Groupon only has to focus on itself to be successful.

As other players in the market grow and evolve, the leaders of Groupon have to anticipate those

moves or they could potentially be blind-sided. Product development and sales teams have to be

aligned, pushed and encouraged to think outside the box to predict competitors’ actions so that

Groupon can beat them at their own game, or make their move obsolete. This will be crucial to

establishing a truly differentiated and profitable business for the long-run.

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IV. References

1. ABC News. (2011). Groupon's Controversial TV Commercials. Retrieved July 5, 2011, from http://abcnews.go.com/Business/groupon-super-bowl-commercial-ignites-controversy/story?id=12856998

2. All Things. (2011). Groupon and Zynga: Cat vs. Dog for Wall Street’s Affections. Retrieved July 6, 2011, from http://allthingsd.com/20110705/groupon-and-zynga-cat-vs-dog-for-wall-streets-affections/?mod=googlenews_editors_picks

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3. Bloomberg. (2011). Groupon cedes share of Deals to LivingSocial, Yipit Says. Retrieved July 6, 2011, from http://www.bloomberg.com/news/2011-06-29/groupon-cedes-a-share-of-online-daily-deals-to-livingsocial-yipit-says.html

4. Bloomberg Business Week. (2010). Facebook’s Russian Investor Gets $135 Million Stake in Groupon. Retrieved July 6, 2011, from http://www.businessweek.com/news/2010-04-20/facebook-s-russian-investor-gets-135-million-stake-in-groupon.html

5. W. Chan Kim & Renee Mauborgne (October 2004). Blue Ocean Strategy. Harvard Business Review. P 76-84

6. Business Insider. (2011). Google Offers Revealed. Retrieved July 5, 2011, from http://www.businessinsider.com/google-offers-kill-groupon-2011-6

7. Business Insider. (2011). CHART OF THE DAY: The 10 Billion Reasons Wall Street Is Lining Up To Do Groupon's IPO. Retrieved July 8, 2011 from http://www.businessinsider.com/chart-of-the-day-local-daily-deals-market-2011-1#ixzz1RlJxkp1j

8. Business Insider. (2011). CHART OF THE DAY: Groupon's Massive Revenue And Massive Losses. Retrieved July 8, 2011 from http://www.businessinsider.com/chart-of-the-day-groupon-revenue-loss-ipo-2011-6#ixzz1RlrheMkD

9. Business Insider. (2011). Groupon's Business Model Is Deteriorating In Its Oldest Markets. Retrieved July 6, 2011, from http://www.businessinsider.com/groupon-s-1-reveals-business-model-deteriorating-in-oldest-markets-2011-6

10. ChiefMarketer.com. (2011). Can Groupon Grow Up? By: Brian Quinton. P10-17

11. ClickZ. (2011). What Mobile Deal Apps Mean to Merchants – Tracking. Retrieved July 9, 2011, from http://www.clickz.com/clickz/news/2082797/mobile-deal-apps-mean-merchants-tracking

12. CTV News. (2011). Groupon swamps business, annoys customers. Retrieved July 5, 2011, from http://www.ctvbc.ctv.ca/servlet/an/local/CTVNews/20110628/bc_story_groupon_business110628/20110628/?hub=BritishColumbiaHome

13. DealBook. (2011). Is Groupon’s Business Model Sustainable? Retrieved July 8, 2011, fromhttp://dealbook.nytimes.com/2011/06/08/is-groupons-business-model-sustainable/

14. Deconstructing the Groupon Phenomenon. (July/Aug 2011). Harvard Business Review, 89 (7/8), 32-33. Retrieved from Business Source Complete.

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15. Fast Company (2011) ComScore: Groupon-Living Social Battle Brewing In The New Wild West. Retrieved July 8, 2011 from http://www.fastcompany.com/1758875/groupon-living-social-comscore

16. Fast Company. (2011). The World’s Fifty Most Innovative Companies. Retrieved July 8, 2011 from http://www.fastcompany.com/most-innovative-companies/2011/

17. Forbes. (2011). Google Offers a Two-Pronged Attack at Groupon’s Business Model. Retrieved July 8, 2011, from http://blogs.forbes.com/chunkamui/2011/06/29/google-offers-is-a-two-prong-attack-at-the-groupons-business-model/

18. Groupon. (2011). About us. Retrieved June 29, 2011, from http://www.groupon.com/about

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Appendix

Exhibit 1: TimelineExhibit 2: Organizational ChartExhibit 3: Daily Deals Market Size Exhibit 4: Groupon Global Presence (Source 24)Exhibit 5: Global Groupon website visitors by region (Source 57)Exhibit 6: Plant Alignment & Strategy ExecutionExhibit 7: Contemporary Approach to Strategic ControlExhibit 8: Resource Based ViewExhibit 9: VRIO FrameworkExhibit 10: SWOTExhibit 11: Porter’s Five ForcesExhibit 12: Organizational Environment ModelExhibit 13: Industry Lifecycle Exhibit 14: Regional Footprint by Region: Groupon vs. Living Social (Source 55)Exhibit 15: Share of Display Advertising: Groupon vs. Living Social (Source 55)Exhibit 16: Revenue vs. Net Loss (Source 56)Exhibit 17: Market Share of Visits, Groupon vs. Living Social Exhibit 18: Groupon Market Valuation Exhibit 19: Groupon Infographic Exhibit 20: Groupon Subscriber Base & Groupon’s Sold

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Exhibit 1: Timeline

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Exhibit 2: Organizational Chart

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Exhibit 3: Daily Deals Market Size (Source 54)

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Exhibit 4: Groupon Global Presence (Source 24)

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Exhibit 5: Global Groupon website visitors by region (Oct 2010) (Source 57)

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Exhibit 6: Plant Alignment & Strategy Execution

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Exhibit 7: Contemporary Approach to Strategic Control

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Exhibit 8: Resource Based View

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Exhibit 9: VRIO Framework

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Exhibit 10: SWOT

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Exhibit 11: Porter’s Five Forces

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Exhibit 12: Organizational Environment Model

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Exhibit 13: Industry Lifecycle

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Exhibit 14: Regional Footprint by Region: Groupon vs. Living Social (Source 55)

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Exhibit 15: Share of Display Advertising: Groupon vs. Living Social (Source 55)

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Exhibit 16: Revenue vs. Net Loss (Source 56)

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Exhibit 17: Market Share of Visits, Groupon vs. Living Social (Source: http://www.webpronews.com/hitwise-livingsocial-gaining-ground-on-groupon-2011-01)

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Exhibit 18: Groupon Market Valuation (Source: http://www.businessinsider.com/chart-of-the-day-groupon-valuation-2011-3)

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Exhibit 19: Groupon Infographic (Source http://www.axleration.com/the-amazing-rise-of-groupon-infographic/)

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Exhibit 20: Groupon Subscriber Base & Groupon’s Sold

Source: http://www.npr.org/blogs/money/2011/06/03/136896797/groupons-astonishing-growth-in-1-chart#more

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