Group Buying Systems on the Rise

On January 21^st, Google announced that it is preparing to launch Google Offers, a competitor to group-buying giant Groupon¹. A few months earlier, Google tried to buy Groupon for more than 5 billion dollars. Groupon rejected Google’s offer and is preparing for an initial public offering that will put the company at an estimated $15 billion in value². On a related note, Groupon’s main competitor LivingSocial has recently acquired a $175 million dollar investment from Amazon.com.

What has Groupon done that has Google scrambling to imitate it? Groupon has taken the old age concept of discounts and coupons, and combined it with a new age concept – social technology. Groupon invites local merchants to launch a coupon that Groupon sends to all its customers in that localized region. Each “Groupon” deal has a minimum sign-up number it has to reach: if a number of people sign up for the deal, the discount becomes available to all Groupon members. However, if the minimum sign-up number is not met, nobody gets the deal of the day. Users are only charged when they sign up and if the minimum sign-up number is met. Groupon sign-ups not only give the merchants a guaranteed customer base, but also give their brands exposure to the public.

The idea behind the process described above is that Groupon reduces the risk for merchants and creates a win-win situation for both the sellers and the buyers. The predetermined minimum of sign-ups allows for the merchants to make up the lost revenue from the discounts through the additional volume from Groupon’s massive subscriber base. Due to Groupon’s 33 million worldwide subscriber bases, merchants may also use the process as a promotional platform for their own products and brand. Groupon deals encourage consumers to try out new products with the great discounts Groupon provides.

We live in a new and exciting world in which old concepts such as mail, media, and networking have been transformed by technology. The coupon business, on the other hand, has managed to stay well-saturated and unchanged for decades. The success of group buying companies like Groupon and LivingSocial shows that the coupon business too can be digitalized and revolutionized with social technology. Lastly, with the help of technologies, more local businesses could be introduced to the general public by advertising their products through Groupon.

References:

http://mashable.com/2011/01/20/google-offers/

http://mashable.com/2011/01/13/groupon-prepares-for-spring-2011-ipo-at-a-15b-valuation-report/