Stuff You Should Know: Groupon

Getting a coupon for a great deal at some local vendor is commonplace these days and has been for a long time. But it took a site based on the famous “tipping point” theory to turn the idea of coupons via email into a phenomenon.

But with an operation like Groupon, it seems like they’re so good at what they do that you never even think to look into them any further than finding out what kind of discount they can get you on frames for those velvet Elvis paintings you’ve had in your closet for the past year. So we decided to look into it further, you’ve obviously got bigger fish to fry.

Here are eight things you should know about Groupon…

The idea that would blossom into Groupon didn’t have much at all to do with deep discounts on deep tissue massages. Rather, it was something a little less pleasant that put the wheels in motion for founder Andrew Mason.

“I had to cancel my contract, and it was such an ordeal,” he says. “I just thought, There has to be a large number of people with these same problems, and if we were united in some way, we could leverage our collective power.”

Collective power, large number of people…Groupon is born! Right?

Wrong. All of that pent-up customer service rage led Mason to start a website called The Point, which is still alive but by no means thriving. The Point was based on the tipping point principle. Basically, a person could (or still can, in theory) post a plea for cash to help with whatever cause they’re promoting. Most of the causes lean toward the philanthropic, but we suppose if you really wanted to you could hop on and see if enough people would think chipping in to get you a hooker for the night might be a good idea.

That’s how it works, at least. And that’s where the similarities to Groupon can be seen. With The Point, no matter how many people pledge $20 for your cause, their credit cards aren’t charged until a predetermined number of people make pledges. That sounds familiar, right?

We seriously mean the “fast forward” part. A lot of things happened in between the founding of The Point and 2008 when Groupon finally launched. Like when Chicago entrepreneur (and Andrew Mason’s former boss) Eric Lefkofsky provided $1 million in seed money to get The Point off the ground. That particular investment didn’t work out too well, but he’s probably been nicely compensated since. Or maybe he hasn’t and there will be a gigantic lawsuit and Kevin Spacey or that creepy Ben Linus character from LOST can play Lefkofsky in the resulting feature film.
In just over a year, the Groupon staff expanded from a few dozen to over 350. As of October 2010, the company has set up shop in more than 150 markets in North America and 100 markets in Europe, Asia and South America. In all, they’ve amassed 35 million registered users.

What do those users look like? According to statistics, the average Groupon user is a single female between the ages of 18-34. Two-thirds of those users make between $50,000 – $100,000. So, you know, call us, ladies!

Also, that probably explains why…

Okay, maybe the money is growing a little bit faster than the staff. After just 16 months in business, Groupon was valued at over $1 billion. The only company to reach a billion dollar valuation faster was YouTube. That’s some pretty rarefied air as far as comparisons go. Notice there are no Facebooks or Googles mentioned there, just Groupon and YouTube.

Apparently, the only thing the Internet loves nearly as much as watching hot chicks fall through trampolines is paying $12 for $25 worth of drinks and authentic Mexican (valid for dine-in only).

So, to put it mildly, things are going pretty well. But it might not stay that way.
As explosive as Groupon’s growth has been, they face one huge problem with their business model… it’s super easy to copy. Right now, Living Social is their biggest competition, but they’re far from the only deal slinger hoping to knock Groupon off the throne. In fact, as many as 700 or more Groupon copycat sites are in operation around the world.

Having 700 identical businesses to yours flooding the market is obviously cause for concern, but it mightGroupon certainly has a lot of imitators, but they’ve also got a lot of cash. So, when a competitor gets a little too big, Groupon just buys them. They’ve already purchased competitors in Europe, Asia and just about anywhere else people might be in the market for extreme savings via email.

If that doesn’t give you an indication of how strong Groupon is financially, consider this… work out fine in the end, because…

The mighty Google came along in 2010 with a $6 billion buyout offer and Groupon straight shot them down. In response, Google was rumored to be planning a daily deals site of their own.

If it’s anything like Google Wave, Groupon shouldn’t be too concerned.