Making Big Bucks with Groupon

In the last two and a half years the daily deal site Groupon has been picking up momentum at the pace of the internal combustion engine once Gottlieb Daimler invented our prototype of the modern car. Growing at a rate of 2.241% since its inception, earning $94 million dollars in 2008 that has swelled to $664.7 million in the first quarter of 2011 alone, Groupon has been hailed as the fastest growing company ever. Let us put these numbers into perspective: Google grew at a 352% rate in its first several years and Amazon and Ebay grew at a 838% and 724% rate in its first two years respectively.  Needless to say, these are some staggering figures.

As James Surowiecki so perceptively pointed out in December around the time that Groupon turned down Google’s eye-popping six billion dollar offer, Groupon relies on more of an old school business model than the other internet tech and social networking models. Companies like Netflix and Youtube, Facebook and Twitter, as well as Bing and Google (think Gmail and Bing linking Facebook accounts to your searches) grow exponentially with their user base (the more friends you have that join Facebook, the more likely you will be to join Facebook; and the more friends that share their information on Facebook, the more services Facebook models based on that information, again drawing in more users). On the other hand, Groupon offers one service: a purchase option fo

r the deal of the day that are handpicked (not dependent on some arbitrary SEO analysis) and presented in fresh copywriting by Groupon’s staff. Because of the essential human component involved in Groupon’s service, they now have employed an army 7,000 full-time workers, an admirable feat and service in the job market of the world today where the latest and greatest marvels of the digital frontier such as Netflix and Facebook employ roughly 2,000 workers.

Just this last week Groupon announced that it had filed to go public, pursuing an IPO of $750 million. It’s not all buttery gravy despite Groupon’s rapid rise. Some critics are screaming bubble and citing the somewhat lackluster profit Groupon has reported so far. A net loss of $390 million was posted for 2010 and a net loss of $103 was posted for the first quarter of 2011, and on top of that Groupon has avoided filing marketing costs in the range of $200 million, claiming that in time they will no longer have to market as strenuously in the coming years since by that point they will have developed a solid customer base that will perpetuate itself. Andrew Mason, Groupon’s CEO is not promising any big returns in the near future, but sees long term growth as inevitable. In my estimation, it is Groupon’s service and not its pop-ups that have boosted it so far along, which would be a promising prospect for its continued success.


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