What Would You Do? Case Assignment
GROUPON
Chicago, Illinois
From 400 subscribers and 30 daily deals in 30 cities in December 2008 to 35 million subscribers and 900 daily deals
in 550 markets today, Groupon got to $1 billion in sales faster than any other company. Starbucks CEO Howard Schultz,
who was an eBay board member and is now a Groupon investor and board member, said, “Starbucks and eBay were standing
still compared to what is happening with Groupon. I candidly haven’t witnessed anything quite like this. They have cracked
the code on a very significant opportunity.” Eric Lefkofsky, who chairs Groupon’s board said, “The numbers got crazy a
long time ago, and they keep getting crazier.” So, what is propelling Groupon’s astronomical growth? How does it work?
Groupon sends a daily email to its 35 million subscribers offering a discount to a restaurant, museum, store, or
service provider in their city. This “coupon” becomes a “groupon” because the company offering the discount specifies how
many people (i.e., a group) must buy before the deal “tips.” For example, a local restaurant may require 100 people to buy.
If only 90 do, then no one gets the discount. Daily deals go viral as those who buy send the discount to others who might
be interested. When the deal tips (and 95% do), the company and Groupon split the revenue.
Why would companies sign up, especially since half of the money goes to Groupon? Nearly all of Groupon’s clients
are local companies, which have few cost effective ways of advertising. Radio, newspapers, and online advertising all
require upfront payment (whether they work or not). By contrast, local companies pay Groupon only after the daily deal
attracts enough customers to be successful. Another problem with traditional ads is that they are broadcast to a wide group
of people, many of whom have little interest in what’s being advertised. The viral nature of Groupon’s coupons, however,
along with tailoring deals based on subscribers’ ages, interests, and discretionary dollars, lets companies target Groupon’s
daily deals to customers who are more likely to buy. Groupon’s CEO, Andrew Mason, said, “We think the Internet has the
potential to change the way people discover and buy from local businesses.
Because there are few barriers to entry and the basic web platform is easy to copy, Groupon’s record growth and
80 percent U.S. market share has attracted start–up competitors like Living Social, Tippr, Bloomspot, Scoutmob, and
BuyWithMe, along with offerings from Google, Facebook, and Walmart. Globally, Groupon’s business has been copied in
50 countries. China alone has 1,000 Groupon–type businesses, including one that has copied Groupon’s website down to
the www.groupon.cn URL. Likewise, Taobao, which is part of Alibaba Group Holdings, one of China’s largest Internet
companies, has a group buying service call “Ju Hua Suan,” which translates to “Group Bargain.”
So although Groupon has grown to $1 billion in sales faster than any other company, competitors threaten to take
much of that business, especially in international markets, which Groupon is just starting to enter. As Groupon goes global,
should it adapt its business to different cultures? For example, it relies on a large Chicago–based sales force to build and
retain business with merchants, and 70 comedy writers to write ad copy. Similarly, who should make key decisions—
should Groupon run its business the same way all around the world?
Q3: How should Groupon expand internationally? Should it license its web services to businesses in each area, form a
strategic alliance with key foreign business partners (it rejected Google’s $6 billion offer in the U.S.), or should it
completely own and control each Groupon business throughout the world?