How did Groupon do so well given its competition?


4

How was it that Groupon was able to become a billion dollar company despite so many similar sites and seeming easiness of copying whatever is unique about their model?

UPDATE : There seems to be agreement that the proximate factors for its success are great sales, great marketing, and the first mover advantage. Still, it seems to me like this isn't enough to get a billion dollars ahead of the competiion in most markets.. Usually you need a genuinely different product to do that. So I guess what I'm wondering is the economic logic that produced this.

The idea I've been tossing around in the comments is that this is a market where network and reputation effects make the first mover advantage and good marketing create a feedback loop, where the product becomes more valuable the more people use it. This exists in other industries but perhaps the huge advantage of Groupon is due to the extreme potency of this effect in its market. Would be interested in hearing your own thoughts on whether its success is due to the particular economics of its market and if so what's your analysis?

Competition

asked Dec 3 '10 at 06:25
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Babonk
143 points

11 Answers


6

I believe it had everything to do with focusing on the writing and the "voice" of the emails. Great writing is one of the most overlooked aspects of many successful email and web businesses.

answered Dec 4 '10 at 09:52
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Karl Krantz
334 points
  • Have one of these emails been posted online? – Babonk 8 years ago
  • +1 for the voice, and the accompanying graphic design manages to make he writing look less like an email and more like an invitation, giving the writing room to be read. – Matthew Frederick 8 years ago

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Timing and marketing are certainly the biggest parts of it. Perhaps their single smartest marketing choice was their name.†

Groupon ” is clever, it’s short, and it’s surprisingly memorable, perhaps because it sounds like it should be a word, yet isn’t.

Compare it to others in the space: “LivingSocial,” “Gilt City,” “BuyWithMe,” “Tippr.” Of those only Tippr has a reasonably strong and short name, though it's no Groupon, and Tippr was way late to the game, taking a long time getting city-specific deals in place.

One could argue that “Yelp ’s” foray into the space had potential — they too have a good name — but despite being very well known, Yelp wasn’t well known for doing what Grouon does.

“Groupon!” Just saying it is fun!


† Mind you, I’m not saying their name is the reason for their success. Just that it has a real and meaningful role.

answered Dec 3 '10 at 11:29
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Matthew Frederick
186 points
  • It seems like marketing can only make billions when there are significant barriers to entry. And the nature of network/reputation barrier effects in this particular market are so powerful (and accelerating) because of its group-based nature. Would you agree with that assessment for why marketing is so valuable in this market? – Babonk 8 years ago
  • Hmm. I don't think the barriers to entry were especially great for Groupon, other than the ones everyone has. The mental space for their specific offering -- local deals backed by a bigger-than-local group -- wasn't very crowded. In fact, part of the genius of their marketing (intentional or not) was making the consumer jealous of what other cities were getting and you were missing out on if you didn't subscribe. – Matthew Frederick 8 years ago
  • Wouldn't the network/reputation effects qualify as a pretty big barrier to entry. Not everyone has that -- this seems like it might be a niche where the first person to make it big secures it because of the way the product becomes more valuable with larger groups – Babonk 8 years ago
  • A catchy name doesn't put you that far ahead of your competitors. – Russell Steen 8 years ago
  • @Russell As I stated in my answer, it has a real and meaningful role in your success, not that it makes the company. I'm curious, though: do you have good examples of startups in the last decade that were far more successful than their competitors and whose name was obviously worse than those competitors? – Matthew Frederick 8 years ago

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Its not as simple as just building the website. In this article the founder talks about the business being a mix of technology and the human touch. They have 1,000 employees, with half of them sales. You need a bunch of people calling up small businesses to source the deals. It would be hard for a new startup to scale up in a crowded market and there would be all sorts of lessons that Groupon have learnt along the way. That is part of what makes up the first-mover advantage.

Also, most people really only a couple of "hooks" in their brain for each type of product. They might recall the name of the market leader and maybe one other major player. Groupon has name recognition and that is hard to displace unless a competitor finds a way to differentiate their product. Eg Coupon deals for pets, or coupon deals for high end products or whatever.

What this means is that a competitor is either going to need deep pockets with no guarantee of a return on investment in the face of an established competitor; or they can find a niche which allows them to start off small but potentially limits their growth potential.

answered Dec 4 '10 at 09:49
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Thomas H
151 points

3

You're looking at Groupon in hind-sight. Sure now it seems so simple. Why can't Burger King get past McDonald's or any of the other little burger joints? How hard can it be to make a hamburger?

Being first is no guarantee you will get to the top. Being on top doesn't mean you'll stay there. There may be some luck, but they're doing something right as well.

You can't copy execution, adaptability, cash, market share, and product knowledge. You'll always be behind the competition.

answered Dec 4 '10 at 03:44
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Jeff O
6,169 points
  • I don't disagree. One might argue that running a nationally known fast-food change is a similar market in that there's such a huge barrier to entry-- both in the investment required to expand and in the network/reputation effects you get once you reach a national scale. Groupoun seems to have only the second barrier to entry, but has it in droves, so that might explain why its able to earn so much despite similar products. Would you agree with that analysis? – Babonk 8 years ago

2

I think they built good PR buzz for themselves. I remember they were comparing themselves to how Chinese consumers get good deals.

PR, and publicity can make you or break you.

But, it might be a matter of time before something else takes over their market share.
Look at Facebook and Myspace. In a few years Facebook might be dead. Its funny to see the new MySpace advertising how it can update your Facebook wall!. Good PR. Good Customer Service, and staying 2 steps ahead of your competition and your consumers demands are all key.

answered Dec 3 '10 at 06:30
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Frank
2,079 points
  • So you'd say that PR + a competent staff can mean a billion dollars even when there are tons of similar sites out there? Maybe there's an element of "Tipping Point" style luck here.. In the long run I don't see how such a simple to manage could be so profitable – Babonk 8 years ago

2

By having a product that works and by being the first ones to release it. Read this article for a detailed opinion about this.

answered Dec 3 '10 at 06:30
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Ricardo
4,815 points

2

Much of Groupon's success can be attributed to their first-mover advantage. They were the first to really have any success with the daily deal coupon model. I would encourage you to read this article from The Business Insider by Vinicius Vacanti - a co-founder of the daily deal aggregator platform Yipit. He attributes Groupon's monumental success to the following factors:

  • Heavy PR. Being the first-mover made news outlets less enamored with all of the Groupon clones.
  • Low Cost to Acquire Customers. Groupon was the only company running daily coupon deal ads on major sites. Low advertiser competition means low ad costs.
  • Word of Mouth. As Groupon continued to accumulate masses of customers, these customers passed the word along about the great deals they were getting.
answered Dec 3 '10 at 16:23
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Ethan
316 points
  • PR, marketing, and being the first mover won't get you a billion dollars ahead of the competition in most industries-- typically you need some sort of unique value.. I'm thinking that there must be something about this particular market that makes it behave a bit differently? – Babonk 8 years ago

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4 factors

  1. Aggressive Marketing and Sales : they probably initiated a lot of meeting with local businesses establishing good connections prior to the launch
  2. Excellent Timing : They launched during bad economy when people where frustrated they can't afford going out to their favorite restaurants any more, they solved this frustration quickly and effectively.
  3. Amazing Domain Name: This is a big winner for sure
  4. Excellent Business Plan : They probably didn't leave any open holes, and got the best possible advice for building and launching their product. Perhaps some of their competitors didn't get the whole picture like Groupon did.
answered Jan 27 '11 at 22:57
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Shir
51 points

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I would say that their strongest point is their business model. They were able to offer a very good deal (50% off) that really appealed to people as they were offered to get this discount in local businesses which they know or can easily check. On top of that they created the incentive to buy now, because tomorrow the deal will not be available. So if you saw a good deal, you had the incentive to tell all your friends, otherwise the deal didn't take off. I think that the combination of limited time offer with the aspect of group-buying was the really advantage they had. And after it worked, they had the ability to duplicate the model quite fast in other locations.

answered Jan 27 '11 at 23:48
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Zottek
111 points

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A great way to be the biggest next year is to be the biggest this year, and work hard enough to stay there.

In times of market growth and positive investor sentiment, this observation is enough to become a self-fulfilling prophecy. The leader gets ready access to new capital to fund growth, and it sets out to flood-fill the space. And that's Groupon right now. They're good enough smart enough and lucky enough to be where they are, and that has given them and continues to give them access to that virtuous circle.

But there are no guarantees. It's always possible for yesterday's Myspace to become today's, well, Myspace.

My reading is that Groupon has a great name and a neat proposition, some market lock-in, but very little competitor lock-out.

And that makes it vulnerable to a wide range of attacks either on open ground or from protected spaces (cellular network operators, O/S owners and handset manufacturers each have efficient routes to scale, as do all the usual suspects in mass online services).

So Groupon's challenge may be a test of its ability to innovate - to leverage the community it has built and is building in new ways, or to push their process leadership into new markets.

For what it's worth, if you accept the current wisdom that location-based services are the Next Big Thing (which they have been for ten years, but what's new is the proportion of consumers carrying location sensing devices routinely), Groupon looks weak. It doesn't have direct access as the fabric providers do, and it doesn't have the total negotiating clout of Google and Facebook.

answered Jan 27 '11 at 23:54
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Jeremy Parsons
5,187 points

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I'd say something to do with their off the scale spend on AdWords...

answered Dec 4 '10 at 02:34
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David Benson
2,166 points

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