Groupon - The deal maker

When Andrew Mason entered the University of Chicago in order to pursue a master’s degree in public policy he has no idea what his imagination is capable of. Prior to that Mason got his bachelor’s in Music from the Northwestern University of Chicago and was also the lead keyboardist of the rock band. Soon Mason leave the master’s program in order to test his entreprenuer kicks and found ‘The Point’. Mason’s company ‘The Point’ could not fly and it failed. In November of 2008, Groupon was born from the ashes of ‘The Point’ and from there on there is no looking back for Mason and Groupon.

In simple terms Groupon is nothing but the deal-of-day site. There is a huge competition for Groupon from the companies like LivingSocial, Tippr, Bloomspot, Scoutmob, and BuyWithMe, but what makes Groupon so competetive is its core business design and the funny and attractive pitch they offer to their clients. In simple terms Groupon has tie up with serveral businesses and in return promote attractive deals in order to generate revenue for themselves and for their business partners which can be restaurants, massage parlors & gyms etc . A good example would be Groupon promoting the coupon for some XYZ hair salon. The original price for the hair cut is say $20, but on Tueday between 2-3 this XYZ hair salon will cut your hairs for $12. Why Tuesday between 2-3? That is because the business usually gets slowed down for XYZ during that day and in those hours so instead of sitting idle they want to make money and want you to save $8. Groupon takes around 40-50% from those $12 that XYZ made from that deal and this is how revenue gets generated for Groupon.

As per the current estimates Groupon’s business is capable of generating $3 billion to $4 billion in revenues this year which is significantly higher to what they have made last year i.e around $750 million. Around couple of months back Google tried to buy Groupon for $6 billion and Groupon turned down the offer. There is a speculation in the market that Groupon is working with several major banks in order to launch its IPO (Initial Public Offering or public shares) sometime this year. According to various analyts the IPO could generate $25 billion for Groupon. I guess Mason and the investors of Groupon were smart enough to turn down that deal with Google. Apart from generating fantastic revenues Groupon is also expanding at an enormous rate and has over 5,900 employees another drastic jump for the company this time in terms of the workforce which was around 120 in 2009.

One of the major drawbacks for Groupon and other companies which are in the same business of deals for the day is that this business model is highly vulnerable in terms of copying. In order to beat the competition Groupon will keep on improvising its business startegy and one of the very first steps Groupon took in that direction is by introducing ‘Groupon Now’ which is a new feature that can be accessible via smartphones and can guide the consumer to make use of the deals in real time. Another drawback and this time from the business owners is that they see consumers getting addicted to coupons and would not buy anything without using them.

Mason and his team is working real hard to make Groupon the next best thing as far as deals are concerned. Will they be able to stand out from the ever growing competition or Groupon is another bubble? I guess only time can answers these questions, but what one can analyse from the current trends can predict the success for not only good Mason and Groupon but also for Chicago. With its headquarters in Chicago, Groupon can be the next big thing for Chicago and can help in the economic recovery of the windy city, hope so.