Groupon Business Model

Groupon started as a Wordpress Blog and is now a full fledged jewel in the Social Shopping arena. It is one the recent example of Lean startups which uses Customer Development process having more frequent contacts with end users and hence avoiding incorrect market needs and assumptions at the earliest.Such startups minimizes the work and time required to help the business to find the what attracts the market. Its always better to test the market first before scaling your product offering and that is what Groupon did.

Google in its bid to catch up with the lost social web space had reportedly bid for the Groupon acquisition offering it around $6 Billion at the start of this month but the offer got rejected. Groupon has now gone for a fresh round of funding which have valued it around $4.75 Billion currently.

With social media on rise , online collective action and fundraising activities is picking up the pace. Groupon bargains for huge discounts with businesses in local cities by guaranteeing them a certain minimum number of takers and send the deals to its subscribers. If the required number of takers are achieved then everyone gets the deal otherwise none gets it. Its a quick win for all - Groupon gives the businesses large number of customers in quick time and users pass the deal to many others enabling them to reach the minimum guarantee numbers. The best part is that the overall process is very fair and democratic. If the numbers are not reached then Groupon don't charge any penny from anyone. And even after the purchase , if the customer feels that he/she has been let down by the offer, a refund is done without any questions being asked. And they were smart to go local rather than offering national products such as a software or TV as Amazons, Tescos and Walmarts of the world are already providing deals on such items and they have ample muscle power to drive volume-based discounts. And you cannot see the deals rightaway on landing their page. The first thing which they do is to get people sign-up and subscribe to their mailing list for the daily deals. The current count is about 10 million subscribers and this small pie of the social media space has made the company almost touch the billion dollar sales.The game seems to have just begun.

There are pitfalls too. Firstly , there is an uncertainty on the actual number of people turning up for the deal, so if the number exceeds to what the respective business can cater to then it impacts the overall delivery and service. Secondly, the shoppers fall into the deal trap, thereby at times buying stuffs which they normally wont do and wont use. Third problem is that the overall model can be easily imitated. Amazon has been already funding the current biggest competitor of the Groupon - 'Living Social' and will surely acquire(to integrate with itself) it once the things scale up for good. In fact , the model is so simple that Groupon.com domain name was already bought by one individual based in UK for same objectives/plans and he twice denied the sale offer from the Groupon founders who finally got the trademark for Groupon which extended to UK as well and hence were able to buy the domain in third attempt for around $250,000.

By the way , will you call the model as a click and mortar one?