Groupon is a deal-of-the-day website that is localized to major geographic markets in the United States, Canada, Brazil, and the United Kingdom. Launched in November 2008, the first market for Groupon was Chicago, followed soon thereafter by Boston and New York City and Toronto. As of October 2010, Groupon serves more than 150 markets in North America and 100 markets in Europe, Asia and South America and has amassed 35 million registered users.
What niche market did Groupon fill? They essentially gave small, local businesses the ability to compete on a global scale without having to break the bank. Groupon’s profit sharing model is ideal for small businesses that run on a tight budget. Need proof that Groupon can deliver? On a recent interview with Charlie Rose, Andrew Mason, founder and CEO of Groupon.com, laid out a fascinating case study for one of their clients. The client was a helicopter flying lesson company based out of Florida. Since being founded over 30 years ago, the company has amassed a client list of 5,000 students. In one day, Groupon.com was able to send them 2,500 new students. So what it took the company 30 years to accomplish, Groupon was able to achieve in a matter of days.
So, how does it work?
The company offers one “Groupon” per day in each of the markets it serves. The Groupon works as an assurance contract using ThePoint’s platform: if a certain number of people sign up for the offer, then the deal becomes available to all; if the predetermined minimum is not met, no one gets the deal that day. This reduces risk for retailers, who can treat the coupons as quantity discounts as well as sales promotion tools. Groupon makes money by getting a cut of the deal from the retailers. There are certain businesses that Groupon will not offer its services to, including shooting ranges, abortion clinics, plastic surgeons and strip clubs. A critical disadvantage of the model is that it is easily copyable. In North America, there have been 200 similar sites that have sprung up with some sites even copying the color, font, and logo. Worldwide, there are over 500 similar sites including over 100 in China.
Due to Groupon’s market being primarily composed of young, educated, female customers, the deals are often focused on the health, fitness and beauty markets.
And the large retailers such as Amazon are taking notice. Local shopping, both online and at bricks and mortar locations, is going to be one of the hottest trends of 2011. There is good reason that companies like Amazon are standing up and taking notice.
Local Shopping: The Newest Trend for 2011
By Geoffrey A. Fowler
and Pui-Wing Tam
“Mobile” is so early 2010. The end of the year has already brought two investments–and possibly a third–by major tech companies in the latest hot e-commerce topic: local shopping.
On Thursday, Amazon.com invested $175 million for a minority share in number two local deals site LivingSocial. On Tuesday, eBay spent an undisclosed sum on product search site Milo.com, which collects data about the products that are in stock at local stores. Meanwhile, Google is believed to have made much bigger bid for the biggest name in the sector, Groupon.
Behind the activity is a wider renaissance in e-commerce, which for years had developed little beyond the auction system pioneered by eBay and the one-click-in-your-pajamas shopping experience perfected by Amazon. But Groupon, in particular, showed that there are a host of local businesses that are ready to use online commerce to get people out of their pajamas, and into physical stores and businesses.
By some counts, there are now well over 150 local deal sites in the U.S. alone. LivingSocial claims it makes $1 million per day in revenue from selling things like discounts at pizza parlors.
The LivingSocial investment is Amazon’s first in the sector. Jeremy Liew, a LivingSocial board member and venture capitalist at Lightspeed Venture Partners, said the move by the ecommerce giant and his own firm’s re-upping its own investment in the startup underscores “what we think about this space.” He added: “All the big guys have taken notice of the category because it is growing so fast and throwing off so much cash.”
He said the investments in LivingSocial give the start-up the “dry powder” to pursue opportunities.
Still, LivingSocial faces a tough competitor in Groupon. Hitwise reports LivingSocial gets just 8% of the traffic in the U.S. among a category of 81 group buying sites, while Groupon gets 79% How can LivingSocial catch up with Groupon? Both Amazon and LivingSocial were tight-lipped about plans for growth, and how they might work together.
In a statement, LivingSocial CEO Tim O’Shaughnessy said, “As the social shopping space continues to heat up, LivingSocial is committed to staying focused on providing the high level of quality that consumers and merchants have come to expect when working with us.”
Amazon spokeswoman Mary Osako declined to “speculate about what we may or may not do in the future.” She said Amazon made the investment because it “supports companies like LivingSocial that are innovating new ways for customers to shop online.”