Groupon's business model social and local

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INFORMATION SYSTEMS & ELECTRONIC COMMERCE GST 5083

GROUPON’S BUSINESS MODEL: SOCIAL AND LOCAL

- Case Study

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INFORMATION SYSTEMS & ELECTRONIC COMMERCE – GST 5083GROUPON’S BUSINESS MODEL: SOCIAL AND LOCAL

Case SummaryThis case study is regarding business model of Groupon. Actually Groupon is a business that offers subscribers daily deals from local merchants. The catch a group of people (usually at least 25) has to purchase the discounted coupon (a “Groupon”).

Groupon (an abbreviation from “group coupon”) is a deal-of-the-day website that features discounted gift certificates usable at local or national companies. Groupon was founded by Andrew Mason in 2008 and going public in June 2011.

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The first market for Groupon was Chicago, followed soon thereafter by Boston, New York City, and Toronto. By that time, Groupon had more than 83 million customers operated in 43 countries in 2011 and increase to 48 countries in 2013, and had sold over 70 million Groupons.

Nevertheless, Groupon has been struggling to show profit. In 2011, it lost $254 million on $1.6 billion in revenue. Groupon embarked on acquisition spree in the first part of 2012, purchasing companies such as Uptake, Hyperpublic, Adku and Feefighters.

The question is whether Groupon’s business model can work in the long run or no.

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The company offers one “Groupon” per day in each

of the markets it serves. The Groupon works as an

assurance contract using The Point’s platform if a certain

number of people sign up for offer, then the deal becomes

availabe to all; if predetermined minimum is

not met, no one gets the deal that day.

This reduces risk for retailers, who can treat for

the coupons as quantity discounts as well as sales

promotions tools. Groupon makes money by keeping

approximately half the money the counter pays for

the coupon.

Question 1. How does Groupon take advantage of social networking and location technology?

Question 2. Do you think this business model is viable? Why or why not?

Case Study Questions:-

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Groupon takes advantage of social networking and location technology are as follows:-

i. Groupon combines two of the major new trends in e-commerce; localization and social network.

ii. Facebook and Twitter are two of the leading in social networking as well as for advertising – friends recommending friends.

iii. Groupon’s business model are to offer discounted coupon to the group (usually at least 25 members) has to purchase the same coupon.

iv. Groupon take advantage in using social networking such as Facebook and Twitter by targeting individual and their friends who are members of the social networking communities.

Question 1. How does Groupon take advantage of social networking and location technology?

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Groupon’s earns revenue by asking people to recruit their friends through social networking to sign up for discount coupons in order to create a “critical mass” of potential customers for a local product or service.

In addition, Groupon breaks into new markets by identifying successful local businesses by:-a. sending in an advance a number of employees to research the local market.b. approaching a business with outstanding reviews and explaining the model.c. using social marketing sites such as Facebook to further promote the idea.

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‘So many of the things we spend money on are inherently social, like going to the theater with friends,” he says. The site takes advantage of the popularity of special networking venues such as Facebook and Twitter. Members forward Groupon.com’s daily emails or mention them on Facebook posts or Twitter “tweet.” Sometimes the deals are mentioned in water cooler conversations around the office – one example is a set of “ pole dancing” lessons that were eagerly discussed in one San Francisco office. The integration of social networking and viral marketing with e-commerce is part of a new trend called “social commerce,”

• Andrew Mason Groupon’ CEO

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Overview of web technologies used by Groupon.

Description on Homepage

Description from Alexa Popularity rank

Main visitors locations

Groupon: Deals on Restaurants, Fitness, Travel, Shopping, Beauty & moreDeals from 50-90% off on Restaurants, Fitness, Travel, Shopping, Beauty, Spas, Holiday Gifts and moreFeatures a daily deal for most major metropolitan areas in the United StatesNumber 379 of all websites according to Alexa

Country Visitors Country RankUnited States 83.4% 96Canada 5.2% 161India 2.1% 2,471City Visitors City RankLos Angeles, CA, US 10.4% 98New York, NY, US 8.7% 98San Francisco, CA,US 5% 112

Website Background

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Question 2. Do you think this business model is viable? Why or why not?

No, We think this business model is not viable and can

not work in the long run. These were

because:-

i. The main issue is

Groupon has no patent, copyright, or “secret” formula to

stop other companies from simply doing the

same thing.

ii.Merchants found

that the new customers from the coupons tended not to become regular

customers.

iii.Groupon is in the

spam business which is increasingly

being more regulated, banned,

and effectively screened out by

various email programs.

iv. A successful deal with the merchant could temporarily swamp

a small business with too many

customers, risking a possibility that

customers will be dissatisfied, or that

there won’t be enough product to meet the demand.

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Groupon’s CompetitorsWorldwide, there are over

500 sites similar to Groupon, including over 100 in US. However, by

2010, only one competitor, Living Social, had been described as a serious

competitor; according to one estimate, it received an investment from Amazon of $175 million. Other notable

firms operating in the market include Plum

District, Jasmere.com, meerkatmall.com and

chipspree.com.

In January 2011, reports surfaced that Google planned to launch a

competing product, called Google Offers, following its failure to purchase Groupon

for $6 billion.

In April 2011, Facebook began testing a social-buying programs. This

move was speculated to be a competitive threat to Groupon, but Facebook

ended the project by August 2011.

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In October 2011, Adlibrium announced Adlibrium Dailies, the first free daily deal service for merchants which according to estimates, researches nearly 4 million consumers via email and mobile combined.

The growth of Groupon buying also created an increase of “deal comparison websites” such as Amazon Local.

In order to survive the challeging global marketplace without boundaries and easy entry into the industry, Groupon needs to adapt new business model and technologies with fresh creativity and innovative way to attract more customers and maintain its position.

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Groupon's business model social and local