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May 2012
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Groupon’s Business Model and competitors

Note:You can buy a  readymade report on Groupon for 20$. Please contact or Skype: masterblaster001. Payment by paypal to

In the last couple of years, there has been a sudden spurt in the number of online players who are diving into the daily deals business such groupon, livingsocial and Snapdeal. By looking from the outside as an investor, one might be tempted to put some money on business models similar to groupon. But that is not a wise thing to do. If one were to analyze the business model of Groupon, which focuses on the power of group buying, there are certain things that strike an investor. The first thing that tells their dream success story was their ability to mop up $173 million dollars in a matter of 1.5 years.

Overview of Groupon business model

Started in October, 2008 with some employees of Linked In, the first investment that they got was from an angel investor worth $1 million in January of 2007. In April 2010, this time a company called Digital Sky Technologies invested $135 million, which works out to be 135 times the initial funding amount. Any one by looking at this will say that Groupon has grown by leaps and bounds. But was it that attractive for a company to invest $135 million dollar. Before answering these questions let’s look at the operating model of Groupon.

Groupon actually gets into a deal with their suppliers or retailers. The deal works like this. First they tie up with a retailer after making the retailer to provide attractive discounts. Groupon promises the retailers a certain number of customers that will purchase the product from the retail shops at the discounted rates. Now Groupon takes this deal and markets it to the customers through various on line means including the social networking platform. Groupon sells these discounts as discount coupons to the customers and based on the number of coupons sold gets a commission from the retailer. Usually groupon tries to get discount in the range of 30% to 50% and passes it on to the customers. One of the main features of this on line retailing business is that the customer has already purchased the product, but the product is still lying with the retailer. Customer has only bough the coupon and he/she has to take the coupon to the stores and then get the discount on the purchased product. Thus the retailer continues to hold a certain section of the products as reserved for groupon buyers and they are going to definitely sell it. This is the basis of this groupon business model, which has attracted so much attention in the recent past.

Explosive Growth

Groupon has tied up with the retailers retailing products belonging to the consumer goods, Auto parts and accessories, Electronic components, Entertainment, Fashion, Health, Pharma, Diet and Fitness, Beauty, Leisure travel and financial services. If one looks at this list, this pretty much covers the entire gamut of products that are available in the retail mode. So, going back to the question whether the decision to fund $135 million dollar was a short sighted one. Group On doesn’t really reveal their future plans, even at least for the next three years. For any investor, the most important thing to look for is the company’s performance in the next 3 or 5 years. We don’t have access to the financial reports of and neither can we expect it, as it is not a public limited company. It need not answer the questions raised by the shareholders regarding their future plans. Though they have expanded their market base to 35 different countries, it’s jus the initial spurt and going forward will face more challenges in sustaining the growth rate

Rise of competitors and aggregators

LivingSocial is the main competitors having 10% of market share has just scored a $175 million investment from Living Social also received an additional $8 million investment from Light speed Venture Partners. Now let’s look at the other competitors of Groupon, who have also made rapid strides in the last couple of years. Some of its competitors include,,, and Then there is more number of copy cats which have sprung up, Particularly in China. If one wants to know the category of deals and the discount percentage in this Chinese version of Groupon, then one could follow the link

[1]The following link provides the detailed information regarding the various Chinese Group On clones This concept is catching up fast and big corporate like Adidas and Dell has started to unleash the potential of group buying. These companies have started to announce great deals for the products that are bought as a group.

Also there are free deal providers like, which providers the retailers the ability to create deal by themselves at no cost. Hence they need not depend on the daily deal portals such as the Groupon. This is another factor the investor should consider before jumping on the board.


Note: If you need a readymade report on Groupon or any other business advisory, Please contact or Skype: masterblaster001

groupon business model

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