EcommerceBytes-Update, Number 259 - March 21, 2010 - ISSN 1528-6703     4 of 8

Groupon Combines Social Networking and Ecommerce with a Local Twist

By Greg Holden

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In a single day, small dental office in Chicago's Old Town neighborhood was recently flooded with more than 1,500 new customers, all ready to make appointments. Was there a candy convention in the city? Something wrong with the water? Nope: the reason for the sudden influx of business was a website called Groupon.com.

Groupon.com has found an innovative way to combine the "Daily Deal" approach being followed by a variety of marketplaces with social networking and with another new trend: promoting local businesses. Groupon.com offers goods or services from one local business per day in each of the 40 U.S. cities in which it has a presence. The business offers a deep discount for its goods or services. For the dental office mentioned above, So-Well Dental Associates, the deal was $300 worth of X-rays and other services for only $53.

This deal, like other Daily Deals, was sent to Groupon.com members, who then decided whether or not to buy in to the deal. In such cases, if a "tipping point" is reached and a specified number of people push the Buy button and indicate they want what's being offered, the deal is "on." But the threshold number has to be reached in a 24-hour period. It's to the advantage of Groupon.com members to spread the word about the deal, on Facebook, Twitter, and other venues. If they can get enough of their friends to make a purchase, they get the service and their credit cards are charged. If not, the deal is withdrawn and the charge is not made.

In the case of So-Well Dental, the tipping point was 150 new customers committing to buy $53 worth of dental services by submitting their credit card numbers to Groupon.com. As it turned out, ten times that number actually decided to "buy" the reduced-price exam. The receptionist at the So-Well Dental office didn't seem overwhelmed when I called her. "We were hoping for a good response, and we got a good response," she said simply.

Groupon.com's CEO, Andrew Mason, is a 29-year-old musician and entrepreneur who, like the company, is based in Chicago. He started the company after running another website with a social networking aspect called The Point.

"At the Point, there was both fundraising and group buying," he explains. "One big difference was that individuals would start fundraising or other campaigns on the Point, while we start business campaigns on Groupon. On the Point, we found that if we could get 80 people together to, say, subscribe to the magazine The Economist, we could all get 50 percent off the subscription. Those kind of deals seemed to be working so we moved them to Groupon."

Groupon first went online in November 2008. The first deal was two pizzas for the price of one at the bar/restaurant located in the same building that housed Groupon.com's offices. The site is growing rapidly: it adds a presence in six new cities each month, and its membership has swelled to 3 million. "I'm overwhelmed and flattered by the success," Mason comments.

Both small and large businesses are featured on Groupon.com. Spas, restaurants, bakeries, and salons are especially popular. Sometimes, the businesses themselves approach Groupon.com; other times, Groupon.com employees make suggestions. "We do our best to identify the best businesses in the city, based on reviews," says Mason. "We'll then call the business and ask if they want to be featured." The company checks out businesses to make sure they are legitimate, and often tries out the products or services themselves. Early in Groupon.com's history, a manicure/pedicure salon was going to be featured. Mason himself went to the business and got a manicure to make sure the services were "up to snuff." Mason and his girlfriend occasionally take advantage of Groupon deals. "She got one for a haircut," he says.

Why the emphasis on local commerce? "So many of the things we spend money on are inherently social, like going to the theater with friends," he says. The site takes advantage of the popularity of social networking venues such as Facebook and Twitter. Members forward Groupon.com's daily emails or mention them on Facebook posts or Twitter "tweets." Sometimes the deals are mentioned in water cooler conversations around the office - one example is a set of "pole dancing" lessons that were eagerly discussed in one San Francisco office. The integration of social networking and viral marketing with ecommerce is part of a new trend called "social commerce," Mason explains.

One of the most popular Groupon.com offerings was a deal on tickets to the Chicago Auto Show, an event that draws crowds every winter. The deal resulted in 15,000 tickets being purchased in a single day.

Looking ahead, Groupon.com plans to expand to 100 U.S. cities by the end of the year and start offering deals in foreign countries as well.

One of the most enjoyable parts of running the site, for Mason, is the creation of humorous deals and descriptions related to them. For instance, the site is offering $100,000 to anyone who can survive for a year solely on Groupon.com deals. "I like the fact that if you have to spend time working on the site, you might as well have fun with it," he says.


About the author:

Greg Holden is EcommerceBytes Contributing Editor. He is a journalist and the author of many books, including "Starting an Online Business For Dummies," "Go Google: 20 Ways to Reach More Customers and Build Revenue with Google Business Tools," and several books about eBay, including "How to Do Everything with Your eBay Business," second edition, and "Secrets of the eBay Millionaires," both published by Osborne-McGraw Hill. Find out more on Greg's website, which includes his blog, a list of his books, and his fiction and biographical writing.


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