Friday, December 03, 2010
Groupon's Missed Opportunity
The tech industry has a total crush on Groupon, that darling of the start-up scene that emails you huge discounts on everything from Gap jeans to gym memberships. Now that Google wants to acquire the Chicago-based start-up for billions of dollars (update: Groupon has reportedly turned down Google's offer), it’s like the tech blogs are all competing to see who can gush the most about how great Groupon is and how smart Google is for wanting to acquire them. It’s really not that big of a deal – how many times have we seen this kind of story before?
Though I don’t find the acquisition news all that interesting, I’m fascinated by the concept of Groupon, mainly for the incredible opportunity they missed. On the surface, Groupon seems to be about killer deals. They negotiate huge discounts with national and local businesses in exchange for the promise of thousands of new customers – pay $25 and get $50 worth of Thai food, for example, or pay $60 for a normally $250 dental exam. It’s a classic loss-leader tactic – gain new customers at a loss in hopes that they return and generate more business later.
When you take a closer look at Groupon’s phenomenal success, though, there’s a lot more going on than just bargains. Groupon was one of the first companies to successfully harness the power of group behavior across the social web in the name of a common purpose. That’s incredibly powerful! Think of the potential – for the first time in history, the physical barriers to collective, powerful action have been torn down, and Groupon figured out how to focus that power into a single, common goal. That’s huge!
Unfortunately, Groupon never sought a higher purpose for the power it unlocked. Instead, it predictably capitalized on this newfound way to part consumers with their money en masse. Even the much-lauded value it creates for small businesses is rather mixed. Small businesses don’t profit much from Groupon sales, and they can wind up losing money if they don’t play the math exactly right (here’s an interesting article on Groupon’s double-edged sword). Not necessarily bad or evil, but hardly an engine for meaningful, long-term value creation.
I’m not trying to hate on Groupon. Like most companies, they’re just pushing commodities to make a profit, quite cleverly so. And that’s the missed opportunity. Groupon chose to be clever, when they could have done something truly remarkable with the power they unleashed. It’s not evil. It’s just boring and predictable, and utterly typical of the commoditized society in which we live.
Compare Groupon with a company like Kickstarter. Kickstarter is an online funding platform that also enables collective, powerful action on the web, but they do it for a much more meaningful purpose. Anyone with an awesome idea and a dream can post it on Kickstarter and ask for funding from ordinary people who believe in making a difference. Anyone can pledge to any project. If the project reaches its goal, you get the money, minus Kickstarter’s 5% fee. If you miss your goal, you don’t lose anything. Even your donors get refunded. It’s simple, elegant and incredibly powerful.
Kickstarter has made possible independent films, music albums, the social network Diaspora, a book on punk mathematics and the dreams of countless other artists and entrepreneurs. In short, Kickstarter has democratized start-up funding. They may not compete with multi-million-dollar investment firms (yet), but they – because they’ve harnessed the power of online group behavior for good as well as for profit – can give a promising idea just the start it needs to blossom.
Kickstarter is the kind of company that can flourish and make the world a better place. That’s way more valuable, more empowering and more meaningful than 70% off laser hair removal. It’s the difference betweenmeh and awesome.I don’t know about you, but I want to see a lot more awesome.
Robin Cangie is a writer, thinker and digital geek who likes to wonder about things. She writes about 21st century business, sustainability and whatever is on her mind on her blog, robinoula.com. She tweets as @robinoula.
Great post. Really gets to the power of the social web and the opportunity that has heretofore lain dormant. That won't always be the case.
Thanks, Harry. What I love about the social web is that it empowers us all to make a difference. However large or small, it all matters!
Groupon started out with a higher purpose when they were running The Point. Their manifesto and reason-for-being was innovative and revolutionary (http://www.thepoint.com/about).
They also tried to re-ignite it recently through an internal programme called G-Team (http://www.groupon.com/g-team).
However, I think they struggled with making The Point a success. At least I guess that is what happened when they saw a larger opportunity with local businesses.
Don't forget Eventful's DEMAND feature did long before Kickstarter or GroupOn. It's changed the music industry, and has caused thousands of concerts to happen that might not otherwise have happened, in cities that might not have gotten the artists otherwise. And it's been used for film screenings (it put Paranormal Activity 1 and 2 on the map), all sorts of other events too.
Great post per usual. One thing to note is that the founder of GroupOn started off with ThePoint.com, kind of like a Kickstarter for social action. It appears that they didn't get the traction they had hoped for initially, so they stumbling on one of the greatest pivots of all time, GroupOn. Interestingly enough in my opinion, they initially raised a significant amount of money for a social activism site, and because they had enough funding, they were able to pursue an alternate strategy. This almost goes against conventional wisdom of raising only as much money as you need.
I guess Gap coupons and 60% off your nearest spa is much more viral to many than many social activism opportunities, but I'm glad to see the Kickstarters of the world make a big difference each and every day. It would be interesting to study more on how the Diasporas of the world were able to be such an outlier compared to the typical campaign.
You're on point about the lack of value creation by Groupon, but you need to consider the company's history...
Groupon started out as The Point (http://www.thepoint.com/), which was a startup focused on organizing people for collective offline action based on the "tipping point" phenomenon (again, like Kickstarter, the notion of "all-or-nothing" action/fundraising). The Point was a magnificent concept, but was doing poorly before the founders pivoted to the Groupon idea. Not sure about the story behind the pivot, but it seems to suggest the difficulties of building a company around social good.
Gordon, Emilie, Harish,
Thank you for mentioning the ThePoint.com - that definitely adds an interesting layer to the conversation! It's a shame that Groupon's founders were unable to realize the same kind of success with The Point that they could with Groupon, but since I don't know the back story there, I won't speculate as to reasons why.
I'm ultimately more concerned with where Groupon ended up - a sort of "meh" organization that has made lots of money but isn't terribly awesome. We desperately need positive, world-changing innovation and creativity if we're going to return to prosperity, and Groupon just ain't it.