By offering local service marketing using social Web behavior patterns, Groupon has taken local classifieds and group buying to a new level of precision and creativity. The site was in the news last year when it turned down Google’s $6 billion offer. This is not surprising in the least considering the pace at which the company has grown.
Groupon evolved from the group action platform The Point, which focused not only on organizing group discounts but on all forms of collective action. Groupon, founded in November 2008, built on The Point’s framework for collective buying. A small company that started in Chicago has now expanded to a more than 3,100-employee organization with a presence in Europe and Latin America. Today, the local daily deal site serves more than 500 markets. It runs 660 deals a day in 41 countries for more than 54 million subscribers and has apps for the iPhone and for Android and BlackBerry devices. According to comScore, in August of last year Groupon became the Web’s most visited coupon site in the United States. In November of last year, it reported 10 million unique visitors, an increase of 54% over the previous month.
While its growth may be phenomenal, its numbers are still relatively small when compared with others. Zynga, the online game developer, recorded over 300 million users in 2010, primarily because it is powered by Facebook. Facebook itself has more than 500 million active users worldwide. Even when it comes to monthly unique visitors, within the United States, comScore reports peg Yahoo! as the leader with 178.9 million unique visitors in January, followed by Google’s 178.5 million unique visitors. Facebook came in fourth with 153 million unique visitors.
According to various estimates, for 2010, its second full year, Groupon to have earned revenues of $760 million compared with the $33 million recorded a year ago. This number is expected to increase to $920 million by 2011 and $1.9 billion by 2015. Forbes calls Groupon the “fastest-growing company ever.” To put this in perspective, Zynga reported revenues of $850 million in 2010, its third year of operations. Revenues had more than tripled over the previous year.
But it is still unknown how much profit Groupon earns on its revenues. The company charges local businesses anything between 30 and 50 percent of the purchase price of a coupon on their site as its fee. In cases where the deal is worth less than $10, Groupon gets to keep the entire amount. Based on that, analysts estimate the company earns $1 million or more per week in pure profit.
After rejecting Google’s acquisition bid, Groupon is said to have assessed the IPO market, and analysts estimate it to be valued at close to $15 billion. In January of this year, the company received $950 million in funding from investors, and it recently raised another $16.12 million. Since inception, Groupon has raised more than $1.1 billion in funding from investors.
With market interest in local search expanding, Groupon is also facing stiffer competition. Earlier this year, rival Living Social offered the biggest coupon sale ever by selling 13 million Amazon gift cards worth $20 for $10 each. A recent similar deal by Groupon for a Barnes & Noble voucher generated a comparatively smaller sale of 700,000 vouchers, translating to $7 million. Also, bigger Internet players are entering the market. After being snubbed by Groupon, Google launched Offers, and Yahoo! launched its version of a daily deals program with Local Offers.
Groupon’s Global Expansion
Groupon is also expanding in international markets and has made several acquisitions to that effect. Analysts estimate that last year, it earned $285 million from international operations. One of its big acquisitions was CityDeal, which helped Groupon to grow in Europe. CityDeal was a German player with presence in 80 cities across 16 countries. It is estimated that the acquisition cost Groupon up to $100 million. The European coupon market is a growing business: According to comScore, in Europe the number of monthly unique visitors to coupon sites in December grew 162% over the year to 34.9 million. Groupon accounts for 12.3 million unique monthly visitors in Europe, nearly a third of the total.
To expand in the Asian market, Groupon acquired Qpod, Atlaspost, uBuyiBuy, Beecomonic, and GroupsMore. Opod will help the company to grow in Japan and Atlastpost in Taiwan. Atlastpost has more than 1.2 million users in Taiwan and is the country’s third-largest social networking site. uBuyiBuy will help Groupon to expand in Hong Kong, Beeconomic in the Philippines and Singapore, and GroupsMore in Malaysia. Groupon also entered the Indian market with the acquisition of SoSasta.com. The website gives out deals in 11 cities in India and will now be looking at other cities.
Together with investment from Tencent Holdings, China’s biggest Internet company, and Yunfeng Capital, a private equity fund, Groupon recently launched Gaopeng.com to enter the Chinese market. According to researchers, online retail sales in China doubled last year to 513.1 billion yuan ($78 billion) and are expected to double again in the next two years. To address this growing market, Gaopeng.com will initially cover the Beijing and Shanghai markets before expanding to other major Chinese cities. Groupon’s Hong Kong office currently has 120 employees, and the company plans to increase this number to over 1,000 in the coming quarter.
To enter other regions, Groupon bought Darberry for the Russian market and Chilean deal site ClanDescuento for the Latin American market. It also opened a new site called ClubeUrbano in Brazil. Earlier this year, the company bought Israel-based Groupor and South Africa–based Twangoo.
Groupon is on a growth path with its extremely scalable business model. Despite market reports citing dissatisfaction among some local businesses with deals that Groupon runs, the company’s growth has not slowed. Groupon has figured out the way to harness the local Web by hyper-targeting according to neighborhood, city, or region, and appears to be an effective marketing tool for local businesses. As I said earlier, it could be the next local ad sales channel after the Yellow Pages and become far more than an online coupon company.