Thomas White Global Investing
Global Players

Global Players

December 2010

Andrew Mason, Founder and CEO, Groupon


Andrew Mason

Image Credit: TechCrunch on Flickr under a Creative Commons license

“Time will tell, but I think we’ve succeeded in making coupons cool.”

— Andrew Mason, 2010.


For a startup, the chance to merge with or sell out to Internet behemoths like Google or Yahoo! is the surest way to instant fame and money. Yet, Andrew Mason chose to walk away from Google’s $6 billion offer for his e-commerce startup Groupon, which offers a deal a day to a cluster of customers. His decision left the business world scratching its head. Was it craziness or just pure genius?

Mason has a bit of both, which is the recipe behind Groupon’s rip-roaring success. As a graduate student of Northwestern University’s School of Music, Mason initially thought he “was going to be a rock musician until I was 25 or so.” But it turned out that he also had a rare entrepreneurial mindset. This surfaced at an early age, with Mason delivering bagels to his neighbors’ doorsteps on Saturday mornings at the age of 15.

Mason taught himself computer programming and after college, worked for InnerWorkings, a Chicago firm that matched up printing jobs with the lowest bidder. While there, Mason’s eye began to wander toward politics and public policy. With start up funds from InnerWorkings founder Eric Lefkofsky, Mason developed a social action networking site, thepoint.com, where people could come together to support different causes.

It was here that the seeds of Groupon were sown. Mason noticed that some of the most effective campaigns on the site were those in which people banded together to gain power. In 2008, he experimented with a blog that offered the site’s readers a deal a day from different vendors. “It seemed like a good idea, so we decided to launch Groupon sort of as a side project,” reminisces Mason in the Financial Times.

Their first successful coupon giveaway was a pizza deal that mustered 20 people to sign up. Soon, Groupon, a combination of ‘group’ and ‘coupon,’ began gathering momentum. In fact, the firm expanded at such a blinding pace that by early 2009 its presence was felt in Boston and New York. Today, Mason has taken Groupon international through timely acquisitions of similar online businesses in Germany, Japan, Russia, and Latin America. Among the 300 cities in which Groupon has created a market, only 130 are in the U.S., where 1,000 of the firm’s 3,000 staff work.

The concept of collective buying emerged ten years ago when a few companies did offer similar deals over the Internet. But at that time, e-commerce was a new idea and buyers had not yet begun to trust the Internet as a shopping medium. That’s where Mason’s genius stood out.

A report from Morgan Stanley states that Groupon shows all possibilities of exceeding $500 million in revenue in 2010.

Mason harnessed the power of the Internet to weld people’s fondness for deals to the concept of collective buying. Every day, around six million site subscribers wake up to a new deal on anything from yoga classes to live lobsters to car washes. The catch is that the discount is valid only if a specified number of customers sign up within a given time period. This drives word-of-mouth advertising — which Groupon banks on heavily — as people quickly ask friends and family to sign up to make up the required number. And Mason makes it easy for people to spread the word by linking his deals to Twitter and Facebook.

It is a win-win situation. “For customers, we’re a great way to get a deal on something they already love or want to try. For businesses, we’re hands down the best way to get customers through the door, which for small businesses is the difference between success and failure,” explains Mason to Forbes. Groupon once pushed 1,600 skydiving coupons for Chicago Land Skydiving, driving up their annual sales figure by 25% in just one day. Groupon’s share is 30% to 50% of each sale, which has kept it profitable from the outset while saving $85 million for customers.

Mason, who is known for his quirky pranks in the office, has fueled the company’s success by maintaining an entire sales team dedicated to identifying and negotiating with businesses to participate in the deal. Alongside, he has an editorial team that packages the deal of the day in witty copy on the site. It is maintaining this kind of quality that will test Mason’s smarts in the long run.

But Mason remains unworried. His barely two-year-old company has been valued at $1 billion, and Groupon is now growing at 10% per week. In fact, the 30-year-old founder CEO, described as ‘hyperkinetic’ and ‘a tough negotiator’ by one of his colleagues, recently announced plans to increase the number of deals Groupon offers every day.

Not everybody is convinced that there won’t be roadblocks for Groupon. “The biggest challenge is sustaining the model,” points out Sucharita Mulpuru, a retail analyst with Forrester Research. But for now, Groupon is the world’s fastest growing company, according to Forbes. And it appears that the future of this group project depends on one man.

 

 

 

 

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