Launched in November 2008, Groupon features a daily deal on the best stuff to do, see, eat, and buy in a variety of cities across the U.S., Canada, Europe and soon beyond. They have more than 300 people working in their Chicago headquarters, a growing office in Palo Alto, CA, as well as local account executives in many cities. How Groupon obtained $500M in revenues in two years and a valuation around $3-4 billion (according to rumours of acquisitions by Yahoo or Google)?
According to LA Times:
“A new breed of coupons — zapped daily to consumers’ e-mail accounts and offering local deals for spa treatments, restaurants, yoga classes, hot-air balloon rides, stores and even Botox — has transformed the dowdy discounts into a social media phenomenon that’s attracting a new generation of fans. The savings are eye-popping: 50% to 90% off is typical. But there’s a catch. If you want that $40 mani-pedi for 15 bucks, you’ll have to pay upfront with a credit card and you’ll have to move fast. The chance to snag one of these vouchers usually lasts no more than 24 hours (though merchants will honor them for weeks or months).
Bargain-hungry shoppers are hooked. “Daily deals” websites including Groupon, LivingSocial and Screamin Daily Deals have attracted millions of users, a lot of them young, urban and tech-savvy. Many say they love the excitement of waking up in the morning, checking the latest deal online and deliberating with friends on Facebook or Twitter about whether to buy — all while the clock ticks down… The daily deals phenomenon “is a rocket ship unlike anything we’ve probably seen in consumer shopping online,” said Brad Wilson, a discounts expert and founder of BradsDeals.com. “It’s brilliant… Wilson said he’s betting that the trend will survive the economic downturn, in part because consumers simply can’t resist the allure of a bargain. “There’s such a compulsion to it,” he said. “People end up spending more than they intended in the excitement of the countdown of that day.”
Launched two years ago, Groupon is now the leader in this sector. It really takes off over the past year. Groupon offers a way to get important discounts while discovering fun activities in your city. Their daily deals consist of restaurants, spas,massages, theaters, hotels, and a whole lot more, in dozens of cities across the US and Canada. It recently acquired firms outside the USA for expansion.
Yahoo made it known to Groupon executives and backers that it was willing to pay as much as $3 billion to $4 billion to acquire the company. Besides Yahoo, other potential Groupon suitors include Amazon, Google, and eBay. The company is deciding between an eventual IPO, opening itself to acquisition talks with bigger companies, or raising more capital. Last week, Bloomberg reported that Groupon is looking to raise money at a $3 billion valuation. Groupon raised $135 million at a valuation above one billion dollars in April. The company currently has 3,000 employees serving markets in 29 countries. Internally, it is believed to be “many, many multiples larger” than its nearest competitor, LivingSocial.
However, Living Social continues to nip at the heel of Groupon; last month, it actually had more unique visitors than the coupon giant. The company currently has 10 million subscribers in the U.S., Canada, Britain and Ireland — said it has saved consumers more than $100 million this year.
Businesses not only have to offer deep discounts but also must give the daily deals websites a big chunk of those sales: A 50-50 split is typical.
According to Business Insider here are the main reasons for Yahoo to acquire Groupon:
“Yahoo’s most valuable assets is its HUGE lead in email. Unfortunately for Big Purple, the the once-fast growing business it has developed with that traffic – brand advertising – is starting to slow. So how would buying Groupon help? Groupon makes ALL of its money ($400 million this year?) sending mostly local coupons to its users’ email inboxes. Its biggest cost is user-acquisition – buying its way into inboxes. If Yahoo were to buy Groupon, it would eliminate Groupon’s biggest cost AND increase its subscriber base to over 100 million people. Cha-ching!
The kicker? Yahoo is ALREADY making money off Groupon ads in its inbox. See the screenshot of my Yahoo Mail inbox below. But instead of reaping Groupon’s huge margins, Yahoo is just collecting mediocre CPMs for lousy email banner ads. Worse, it doesn’t have any relationships with the local businesses fueling Groupon’s spending.”
Read more: http://www.businessinsider.com/heres-why-yahoo-wants-to-buy-groupon-2010-10#ixzz15Ycr50fv
Thus, Yahoo’s M&A Strategy could focus on Local Commerce Rather Than Content.
“Right now, Groupon-style group buying is more or less just coupons that get sent to you via email to entice you to sign up. What if you could look at a real-time, auction-style exchange of local offers from merchants or retailers or restaurants in your vicinity — maybe even on your mobile device — and pick the offer you wanted for dinner that evening? You can’t do that now, but that’s one vision of where the local group-buying phenomenon is headed in the future, according to Don Rainey, a partner with Grotech Ventures and an investor in LivingSocial, the number two player in the U.S. group-buying market next to Groupon. Rainey said he sees a day when merchants and potential customers interact through a kind of real-time exchange — like a stock exchange, with buyers and sellers, but for local offers on meals or other goods. “I can see local retailers and consumers bidding in a real-time system for where that consumer is going to go for dinner,” says Rainey. If a merchant is having a slow night, they can put an offer into the system and users can choose between that and multiple other offers, based on location and the time they want to go out. As someone who is constantly looking for new options for places to eat in my local area, this sounds like a winner to me.
Groupon gets all the press when it comes to group buying, primarily because it’s the largest player in that market by far; it has raised more than $165 million in venture financing and has sales that are approaching $500 million. However, LivingSocial is a strong number two in that expanding space, and in some regional markets, it’s a larger player than Groupon, according to Rainey. “
One important value added brought by group-buying coupons is that some small and medium businesses who could not afford a decent advertising budget, can now do it for a very small percentage of what it costs before via print, radio or TV.
Recently, Amazon is looking to invest around $100M in Living Social the main competitor of Groupon, which has around the same number of daily visitors on its website.
A big potential resides in the connection between mobile and social networks. Daily mobile alerts, which can be personalised to customers, would bring value added to both consumers who can make targeted very interesting deals, and retailers who can reach more “offers-friendly” customers.