Introduction Groupon is a deal-of-the-day Web site that is located in major geographic markets across the world. Launched in October 2008 by Andrew Mason, Groupon has been characterized as one of the fastest-growing companies of all time. It was first offered in Chicago, followed soon thereafter by Boston, New York City, and Toronto. Since then its growth has been spectacular. It is now in over 550 cities, has 44 million subscribers and 3,100 employees. According to an August 2010 feature in Forbes, Groupon topped $500 million in revenues in 2010 and is on pace to become the fastest company in history to reach $1 billion in sales. Groupon's name is a combination of the words group and coupon. Most subscribers see Groupon as a fun way to shop and learn about businesses that previously were unknown to them. For businesses, Groupon is largely a customer acquisition tool. It's becoming increasingly difficult for brick-and-mortar stores and organizations to drive traffic to their locations. As a result, they're looking for ways to increase foot traffic and jump-start their sales. How It Works Groupon offers one deal a day in each of the markets it serves. If a certain number of people sign up within a specified time, the deal is on. If not enough people sign up, the deal is off and no one is charged.The day this case was written the Groupon deal in Oklahoma City, Oklahoma, was $5 for $10 worth of breakfast and lunch fare at Ground Floor Cafe, a restaurant in downtown Oklahoma City. A total of 50 people needed to take the deal for it to be on. By 7:55 A.M. the day the deal was posted, the 50 person minimum had been met. By noon, 229 people had taken the deal and by 5:00 P.M. the number was 337. To participate, an individual must be a Groupon subscriber, which is free. Once a subscriber takes a deal, a reservation is made in his or her name, and the subscriber's credit card is charged once the deal is on. A voucher is then delivered via e-mail to confirm the purchase. The voucher is taken to the merchant offering the deal to redeem the purchase. There is usually an expiration date on the voucher6 to 12 months is common. A 6- to 12-month time frame gives the purchaser a comfortable amount of time to use the voucher, and spreads out the number of people coming into a business to redeem the voucher. Once you become a Groupon subscriber, you sign up for one or more cities, and then receive the daily deal for each city via e-mail, Twitter, or Facebook. Groupon makes money by keeping approximately half the money the customer pays for a deal. So, if an $80 massage is offered for $40, then Groupon and the retailer spit the $40. Groupon's primary target market is 18- to 34- year-old urban females. A visual depiction of Groupon's business model, from both the business side and subscriber side, is shown below. Groupon's Pitch to Merchants Groupon's pitch to merchants is that it's a custom Groupon's pitch to merchants is that it's a customer acquisition tool. The hope is that the people who take the deal will not only redeem their coupon, but will spend more money when they're in the store and will become repeat customers. Groupon works best for service-based businesses that have high fixed costs and low variable costs, making the cost of offering a deep discount palatable. Groupon's five most common groups of offerings include restaurants and cafes, food, salon, makeup and spa, and tickets. Groupon is particularly attractive to small businesses that have trouble getting the word out about their offerings and don't have a large advertising budget. A small yoga studio is an example of such a business. Prior to Groupon, the studio's options for increasing awareness would have been newspaper, radio, online, and via social networks. The disadvantage of these forms of advertising, with the exception of social networks, is that they must be paid for up front. Groupon is free. The yoga studio doesn't pay Groupon to set up the campaign. It simply splits with Group on the revenue that's generated. Typically, a business like a yoga studio can take on additional customers without increasing its fixed costs. The only additional costs incurred to service the business brought in by Groupon may be to hire additional instructors to offer more classes. Not all Groupon campaigns have worked out, and the company has come under increasing criticism. For example, a successful deal could temporarily swamp a small business with too many customers, risking the possibility that customers won't be satisfied or that the business will not be able to satisfy the demand. For example, one coffee shop in Portland, Oregon, signed up with Groupon in mid-2010, and offered $13 worth of products for $6. Nearly 1,000 people bought the deal the day it was advertised, swamping the small shop for three months. In a blog post, the owner said that the volume of sales coupled with the deep discount threatened the survival of the business. Similarly, U.S. Toy Company's store in Kansas City offered $20 worth of merchandise for $10 in July 2010, hoping to spur sales and acquire new customers. About 2,800 people took the deal. The campaign was a disappointment. According to the company, about 90 percent of the Groupon takers were already customers, and the majority of them came into the store only to redeem their $20 coupon. The company says it lost money on about threequarters of its Groupon-related sales. For its part, Groupon says that its overall satisfaction level is high, and 97 percent of businesses that run Groupon campaigns ask to be featured again. Groupon's Growth Strategy Groupon has grown organically and via acquisitions. Its organic growth has been generated largely by signing up new subscribers and expanding to new cities. It's also been a busy acquirer. Groupon made at least 10 acquisitions in 2010 and early 2011, including European deal-of-the day site MyCityDeal, Indian deal-of-the day site SoSasta.com, mobile technology company Mob.ly, and Pelago, the parent company of check-in-service site Whrrl. Groupon has fueled its growth through several rounds of substantial funding. In early 2011, it raised $950 million from a group of investors. In early 2010, it raised $135 million. Observers speculate that Groupon has used the money to expand its sales force, scale its back-end operations, make acquisitions, and prepare for future growth. It's rumored to be anticipating an IPO in the foreseeable future. Future Growth Prospects and Challenges Ahead Looking forward, Groupon has both possibilities for additional growth and challenges that it must deal with. Likely possibilities for future growth are shown next. The viability of each of these possibilities for growth hinges on two factors: (1) whether they're in Groupon's best-interest to pursue and (2) whether they're within Groupon's capabilities. For instance, in regard to the former, Groupon has resisted deal-of-the-day initiatives that focus on products rather than services, and are national rather than local in scope. There were multiple deal-of-the-day sites that focused on products, such as electronics and jewelry, that preceded Groupon and failed. Groupon has built its success on offering local deals for service providers. In regard to the later, observers wonder how large Groupon can grow before it needs to pause to allow its leadership capacity to catch up with its growth. Groupon also faces challenges with the primary one being the number of copycat sites that are being launched and are trying to erode the firm's market share. Its most direct competitor is LivingSocial, which has a business model that's very similar to Groupon's. Other sites are springing up, both domestically and internationally. In China, for example, there are now more than 50 Groupon-type daily deal sites. It's unclear how Groupon will deal with increasing competition. Groupon also runs the risk that negative publicity will deter business participation. Reports about merchants who have lost money running Groupon campaigns may cause some prospects to pause. In addition, it runs the risk of subscriber fatigue. By appearing in its subscribers e-mail boxes every day, some subscribers may tire of the drumbeat of Groupon deals and eventually

The question is, Will Groupon Maintain Its Sizzling Pace of Growth?