Student Presentation - Social Media & E-Commerce (Groupon) / BCO-216

Editor's Notes

• #3: The company Groupon offers members day-to-day deals from merchants that are in the area. However, members have to actively engage with each other to receive such discounts. “The catch: a group of people (usually at least 25) has to purchase the discounted coupon (a “Groupon”).” The idea is that “if you really want to go to that Italian restaurant in your area with a 50 percent discount coupon, you will need to message your friends to pay for the coupon as well. As soon as the minimum number of coupons is sold, the offer is open to everyone.” This makes Groupon a company that combines social media with e-commerce.
• #4: Social Media are “computed-mediated tools that allow people to create, share or exchange information, ideas, and pictures/videos in virtual communities and networks.” Social media is different from the traditional media that is found in the Internet today, especially in the aspects of reach, frequency, usability and immediacy. The usage of social media is constantly growing. In the U.S., the time spent on social media was estimated to be 66 billion minutes in the year 2011. The following year, the figure rose to 121 billion minutes spent. The largest network and most frequent used one is Facebook, others are: Twitter, Instagram, LinkedIn and Pinterest. Social media can be accessed over a PC or a mobile phone. The PC is the most common device that is made use of when it comes to the Web 2.0 However; mobile social media is on the rise and perhaps may offer an even larger opportunity for Groupon.
• #5: All these aspects offer great potential and allow Groupon to fully engage with specific customers at specific times. Groupon is combining two major trends in the area of e-commerce: the localization and social networks. “Selling goods and services on the Internet is increasingly based on social networking - friends recommending friends, as is the case with Groupon, and companies targeting individuals and their friends who are members of social networking communities such as Facebook and Twitter.” E-commerce is also becoming increasingly localized, as companies gain detailed knowledge about customer locations, offering location-based goods and services. These offers are usually distributed through smart-phones, easily allowing companies to track customers. Groupon has also invested into an application which functions in a similar way, making the smart-phone an essential distribution tool.
• #7: Groupon has been founded in the year 2008. The company went public in the year 2011, meaning that the first three years Groupon has experienced growth without a stop. Groupon has reached 83 million customers in around 43 countries, and surpassed the 70 million mark of sold “Groupons.” However, Groupon has trouble creating a profit. In the year 2011, Groupon made a loss of $254 million despite a revenue of $1.6 billion. Groupon’s largest expense lies within the marketing department, spending $768 million in the year 2011.
• #8: One indication for the loss is that the revenue per customer is falling. Which means that the conversion rate of customers into subscribers is slowing down.
• #10: Groupon is actively pursuing a strategy with the objective to gain size. The idea behind that is to develop the image of the company so that competitors will have a difficult time of finding customers. With enough customers and with a growth rate that is fast enough, Groupon is trying to solve its profitability problem. Through mergers and acquisitions of the companies Uptake, Hyperpublic, Adku and FeeFighters, in the year 2012, Groupon has boosted its growth even more. The aim, particularly of the mergers, is to position Groupon in the small and medium-sized business market.
• #11: Power of Suppliers Stores that use Groupon may want stimulate their publicity. Groupon reaches out to a lot of people – which is the main advantage of the company. However, local stores have numerous alternatives in terms of marketing. Threat of New Entrants Access to the Internet is an effortless act and cheap. Competitors are everywhere around the world and entry is very easy. New entrants can be a threat as there are many and the growth rate in the industry can be rapid. However, it will take time to gain publicity and challenge leaders. Threat of Substitutes Substitutes exist all around and can also be found without the Internet. The threat of substitutes is significant. Power of Buyers Buyers can easily switch discount providers. They also have to engage with each other in order to buy the coupon, placing Groupon in a position where they are highly dependent on their buyers – their users. Without sharing and purchasing the coupon, Groupon will not receive any commission. Power of Competitors Competitors are large in number. Groupon has the largest market share but that does not matter if the subscribers are not actively purchasing Groupon’s. The power of competitors is strong, especially if larger companies sponsor them.
• #12: Groupon may be the largest firm that offers a deal-a-day business, but competitors are numerous. The estimated number of companies that offer such a service world wide are around 300. Even though Groupon has the largest market share, and in the peak month of September 2011, 11 million visitors on their website, competition is not far behind. LivingSocial had 7.2 million visitors during that month, and far behind is the Gilt Group with just over 800.000 visitors. However, powerful companies back some of these companies. Amazon backs LivingSocial, and Google is also trying to find a way into the market with Google Offers. As Groupon is trying to reach numerous customers, companies like TravelZoo and Bloomspot are focusing on specific niches, and perhaps doing a better job than Groupon does.
• #13: The business challenge facing Groupon is “how to create a profitable business that can take advantage of Internet technology and social networking tools in the face of powerful competitors.”   The management of the company has decided to base the business on localization as well as social technology. “Groupon makes revenue by asking people to recruit their friends to sign up for discount coupons to create a “critical mass” of potential customers for a local product or service. Participating merchants sign up with the expectation of attracting large numbers of new customers.” However, Groupon has serious competition and merchants “do not always reap benefits, it is unclear whether the business model is solid and profitable.”