Could Groupons Save the World?
Two-and-a-half year old web start-up Groupon is a stunningly successful company. It reportedly turned down a six billion US dollar buyout offer from Google in December, and Reuters reports that is now planning an initial public offering that may value the company at between $15-20 billion. It has achieved this staggering valuation with a simple business model: every day in each of a number of cities (now hundreds worldwide) it offers on its web site a deal from a merchant wanting to access Groupon’s email subscribers in the local market. The daily deal might offer such luxuries as a massage, a day of paintball, a restaurant meal or hotel stay for two, or tooth whitening treatment, at a discount of about 50-70% off the regular price. The concept is that a minimum number of people have to sign up to the deal for it to be valid, so Groupon provides a bundle of willing buyers to the merchant. In return, the merchant provides what amounts to a bulk discount. The Groupon company makes money by operating as a middleman for payments: it sells buyers a voucher for the product, and Groupon passes on some of the money it received for the voucher to the merchant, keeping a chunk of it for itself.