Some companies do not make a profit from Groupon promotions.
By Erica Naone
Why: By encouraging millions of people to sign up for quirky daily advertising e-mails, Groupon has created one of the fastest-growing revenue generators on the Web.
Key innovation: Offers local businesses a way to guarantee a return on their promotional budget, thereby tapping into a huge advertising pool that has eluded many Web companies.
Groupon negotiates discounts with restaurants, shops, and event promoters that are then passed on to subscribers through a free daily e-mail. Consumers benefit from the collective power of Groupon's user base to get discounts of up to 90 percent; businesses benefit from a guaranteed flood of new customers.
Partly due to the economic downturn, consumers are more interested in searching out the best deals on products. Groupon now has over 50 million subscribers in 35 countries, and the company claims it has saved consumers over a billion dollars and generated hundreds of millions of dollars for businesses.
Groupon began as a side project of The Point, a website devoted to harnessing the power of collective action. While the company recruits businesses to feature in its deals, subscribers are instrumental in getting the word out through social media like Facebook and Twitter. While generally focused on deals from local restaurants and businesses, last year the company offered its first nationwide deal for the Gap. By the end of the campaign, 400,000 Groupons were used, generating $11 million in revenues for the clothing retailer.
Challenges and Next Steps:
Numerous other daily deal sites have popped up in the wake of Groupon's success, the largest of which is LivingSocial, which recently received a $175 million investment from Amazon.com and is rapidly gaining market share. Last December, Groupon spurned a $6 billion buyout offer from Google in order to remain independent.