In December of 2010, Groupon declined a buy-out offer from Google valued at $6 billion. Business Insider noted that anti-trust concerns and low valuation were the two main reasons why the acquisition did not occur.
As Groupon pursues its IPO, valuations have range anywhere from $15-$25 billion. According to CrunchBase, Groupon has received $1.1 billion in five rounds of external funding.
By 2012, annual revenue in the daily coupon market is expected to be between seven and eight billion dollars.
Competitors
Groupon’s competitors number in the hundreds, including both large and small players. Three of the most concerning rivals are LivingSocial, Facebook Places and Google Offers.
LivingSocial
LivingSocial was founded in 2007 by co-founders Tim O'Shaughnessy, Eddie Frederick, Aaron Batalion and Val Aleksenko. Based in Washington D.C., Living Social collects anywhere from 30-50% on each transaction compared to Groupon’s standard 50% fee.
LivingSocial received $40 million in 2010 by AOL founder Steve Case. More recently, the site closed a $400 million round of funding from a number of sources, including Amazon. According to CrunchBase, it has received $640 million in five rounds of funding.
LivingSocial currently employees 1,300 people and targets customers in 250 markets. A recent Nielsen study found that while LivingSocial and Groupon’s users are both likely to be female (roughly 67%), other demographic data across the two sites vary dramatically. For instance, LivingSocial users tend to be wealthier, younger and live in the South and Pacific regions, whereas Groupon’s users tend to be older and more highly concentrated in the Northwest.
One strategy LivingSocial is using to differentiate itself is rolling out LivingEscapes, which promotes hotel deals and other getaway opportunities. Groupon has yet to enter this market, although GreatEscapes is another private online website operating in this same space. LivingSocial has seen varied success in its past travel deals, ranging from only 301 buyers for a six-night trip to Costa Rica to a more notable 5,473 buyers for a one-night stay at Arizona Grand Resort.
Facebook Places
During the month of April 2011, Facebook rolled out a location-based coupon offering with its Facebook Places product. Currently, it is offered in five cities: San Francisco, Austin, Dallas, Atlanta and San Diego. Facebook plans on deploying daily emails to promote its deals, along with publishing them on users’ Facebook walls.
With more than 500 million active users, Facebook already has more than 41 times the user base compared to Groupon. Since Facebook does not need to spend money acquiring users, it has significant leverage to direct this extra money to partnering with local merchants and building up its sales force. However, Groupon is active in 100 times the number of locations compared to Facebook Places, so while Groupon will have to invest in customer acquisition, Facebook will have to invest in scaling its operations to new markets.
Facebook also benefits from the wealth of consumer information readily given to them with which they can target their deals depending on age, gender, personal tastes, etc. Groupon, on the other hand, only asks for an email address for initial registration. However, once a user registers s/he then has the ability to enroll in “Personalized Deals” where s/he can enter gender, year of birth and zip code (which is still greatly limited in comparison to Facebook’s knowledge of its users).
Google Offers
In January of 2011 after the infamous failed acquisition, Google announced that it was launching Google Offers, an email deal-of-the-day service nearly identical to that of Groupon. Currently in beta, the site is targeting users in four cities: New York City, Oakland, Portland and San Francisco. According to the Washington Post, Google will give retailers 80% of the revenue three days after the transaction, and will give the remaining 20% after 60 days.
Product Positioning Analysis
When analyzing the uncertainty regarding increasing competitive threats, Groupon must determine whether to focus or diversify its product offering. As seen in Exhibit 2, Groupon does not have any rare attributes that sets itself apart from its competitors. Thus, Groupon should diversify in order to hedge its risk from pigeon-holing itself in the easily imitable coupon service. To do this, Groupon can leverage its valuable assets – namely its 12 million users in 500 locations – in order to build brand loyalty. This can be done by assessing their individual preferences and tailoring additional products to target these needs.
One market that Groupon has not pursued is the check-in geolocation mobile market that FourSquare currently dominates. FourSquare passed 7.5 million users in March of 2011, and continues to grow despite Facebook Places entering this domain.
In a 2011 mobile study by TNS, they found that “more than 1 in 4 global consumers [are] saying content and apps are a key consideration at the point of purchase.”
While Groupon currently has a mobile app, it only pulls in the standard daily deal. However, it should utilize geolocation information, the check-in gaming phenomenon and the social networking hype in order to develop a highly customized and personal hyperlocal experience. This can be done by allowing users to check-in at certain places, and then delivering deals for nearby merchants that users can utilize in real time.
Recommendation
By diversifying Groupon’s strategy into a collection of different strategic investments – deal-of-the-day coupons, social networking, check-in gaming and hyperlocal information delivery – Groupon will garner more stable returns over the long run.
Exhibit 1: Hugh Courtney’s four levels of uncertainty
Note: Due to the large uncertainty within the deal-of-the-day digital coupon market, fierce competition and further potential entrants, Groupon faces level three uncertainty where a range of futures is possible. Thus, a classic diversification strategy is vital for Groupon to protect itself from residual uncertainty.
Exhibit 2: VRIN Analysis
Valuable: 12 million users; 5,000 sales force; 500+ locations
Rareness: N/A
Inability to imitate: Non-compete contract with merchants
Non-substitutable: Only for consumers in places with no alternative - increasingly less
http://www.chicagomag.com/Chicago-Magazine/August-2010/On-Groupon-and-its-founder-Andrew-Mason/
http://sales-jobs.fins.com/Articles/SB130090099092197185/Salespeople-Fuel-Growth-at-Groupon-Living-Social
http://www.businessinsider.com/why-groupon-said-no-to-google-2010-12
http://www.crunchbase.com/company/groupon
http://tucsoncitizen.com/usa-today-news/2011/04/17/try-it-local-spreads-groupon-like-deals-across-the-country/
http://www.chicagomag.com/Chicago-Magazine/August-2010/On-Groupon-and-its-founder-Andrew-Mason/index.php?cparticle=2&siarticle=1#artanc
http://www.crunchbase.com/company/livingsocial
http://www.foliomag.com/2011/study-significant-differences-between-groupon-and-living-audiences
http://escapes.livingsocial.com/deals/past
http://www.cnn.com/2011/TECH/social.media/04/26/facebook.deals.launches.mashable/
http://voices.washingtonpost.com/fasterforward/2011/01/google_offers_confirmed_google.html
http://www.businessinsider.com/chart-of-the-day-foursquare-users-2011-3
http://discovermobilelife.com/wp-content/uploads/2011/03/Mobile_Life_Press_Release.pdf
http://www.quora.com/What-is-Groupons-strategy-for-defending-its-position-in-the-group-buying-space