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Groupon

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Yale School of Management
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In June 2011, when Groupon filed for its initial public offering, it was called “the cool new kid on the tech block,”and “the fastest growing company in history.”

Groupon was one of a rising generation of internet superstars that were based on social networking. These “Web 2.0” companies, including Facebook, LinkedIn, and Twitter, used the internet in a new way, not just to publish information in a different medium but to create a business based on user-generated content.

Groupon, whose name was formed by combining “group” and “coupon,” was a “daily deal” website for local businesses. The company advertised one deal a day in each city and recruited large groups to purchase products and services at a discount. Businesses were delighted by the surge of new customers who came through their doors overnight. Customers were delighted by the discounts they were able to receive through the power of group buying.

The idea had excited a great deal of interest among investors. Groupon had expanded at an amazing pace, growing 1,475 percent in first-quarter revenue between 2010 and 2011. It had attracted substantial valuations, and in 2010 it had turned down an offer from Google for $6 billion. Then in June 2011, only three years after its founding, Groupon filed for an IPO, which was rumored to value the company at $20 billion.

In spite of the company’s meteoric rise, not all analysts were persuaded that Groupon was a buy. One commentator said, “... this isn’t the slam-dunk that many fans and investors were hoping they would be getting.”Another observer warned, “We are totally partying like it’s 1999 again.”

These analysts had good reason to be cautious. At the time of the IPO, Groupon was $230 million in debt. It was also facing heated competition from numerous rivals: some 500 similar sites around the world peddled daily deals from local merchants, including the large and growing U.S. company LivingSocial. Even Groupon CEO Andrew Mason, in a memo to employees, confessed to being intimidated: “If you feel a little like Frodo climbing Mount Doom, you can’t be blamed.”

At the time of its IPO filing, Groupon held the lead among group buying sites, a 52-percent market share of revenue generated, according to the group-buying site aggregator Yipit. But many questions remained about its future. Would Groupon’s labor-intensive business model prove profitable? Would customers and merchants be loyal to Groupon? Would other companies take its business? In summer 2011 it was far from sure that the young company could maintain its lead.

Published Date: 15/08/2011

Suggested Citation: Ravi Dhar and Andrea Nagy Smith, "Groupon," Yale SOM Case 11-030, August 15, 2011.

Keywords: Internet marketing, Social media, IPO