Groupon – I called this one!

When I first saw deal-of-the-day website Groupon in San Francisco a year or so ago I thought this is going to be a hit!  A company that can offer you major online discounts to restaurants and services in your home town, gives you Groupon “cash” to invite friends, uses Facebook / Twitter etc., has to be a winner unless they really screw up.

I started checking out this Chicago based company and liked their business model from the get go.  I cannot truthfully say that I thought a year later they would have a valuation of $1.2 Billion or that imitators would be popping up but I knew they had a solid chance to succeed if they stuck to their strategy.  As of the beginning of April they had over 3 million subscribers, are in approximately 40 markets and make money by getting a cut of the deal from the retailers (revenues expected to surpass 9 digits this year).  CEO Andrew Mason seems to have a good strategy in place.  But I’m curious how he plans to knock out the upcoming clone wars (my apologies for the bad pun – Mr. Lucas / Star Wars) which are already popping up in this space.  With the war chest he has in place ($50 million in cash) he might just squash them like Microsoft would (market leadership premium) or just continue to grow faster?

As far as I can tell there are not any patents surrounding Groupon, therefore the barriers to entry are manageable.  Silicon Valley Venture Capitalists always tell me they want something in “white space” but whenever you bring something like that to them they often have real trouble figuring out:

A. What is its value (nothing to compare it with)?

B. Are we brave enough to make the bet?

C. How quickly should we pull the trigger, or should we waffle and think about it?

The Groupon investors weren’t afraid of white space.  Early investors Eric Lefkofsky and Brad Keywell used some of the recent $135 million from Digital Sky Technologies (see Zynga) and Battery Ventures, to start a new VC called Lightbank which is re-investing in new social networking business such as Where I’ve Been and Poggled.  Both feel that the social commerce space has lots of room to grow and I’m betting their right.

Most importantly this new investment allows some of the early investors / employees to cash out now (atypical) while funding a global expansion.  Most investors / employees are first in last out waiting for their payout when the company IPO’s or more often is acquired.  Digital Sky seems to be on the forefront of this type of investment pattern (See Zynga, Facebook) and I expect it might be a welcome trend for entrepreneurs.

Notes: Previous to the $135 million “Series C” raise the Series B round of  $30 million was by Accel Partners and New Enterprise Associates.

Failures in this space of note: Mercata – Paul Allen – Vulcan Ventures

Social Networking & Business Marketing

There was an interesting article last month in that staid publication “The Economist” about online social  networks changing the way people communicate  http://economist.com/specialreports/displaystory.cfm?story_id=15351002.  Maybe working in Silicon Valley has me in the proverbial “bubble” but it took them this long to figure it out / write about it?  Any company that doesn’t “get” social networking from a business as well as societal perspective is missing out on one of the most inexpensive as well as important marketing mediums there is.  

By combining website marketing, SEO, product focused blogs, corporate tweets (Twitter), face book followers (see Jet Blue   http://facebook.com/JetBlue),  LinkedIn, delicious etc., companies are communicating with their clients in a way that wasn’t conceivable a decade ago.  They can push out content as well as receive feedback faster than ever before. 

Savvy marketers are pulling out all the stops to ensure that their corporate brand is properly marketed in all the different social mediums and ensuring they are maximizing their online presence as well as gaining very useful market research.  They’re also aware that bad press in this new world is a challenge and some of the more switehed on companies actually search for bad press to jump on customer problems before they go viral.  For example, if a Comcast cable subscriber “tweets” or “yelps” that “Comcast Sucks” with an addressable issue their searching for it and have a customer service representative contacting them with the hope that their next tweet / yelp talks about them solving the problem / how responsive great they are.

The bottom line is that marketing is evolving at hyper speed and the companies that are switched on and embrace social networking will benefit to their bottom lines.  I’m going to go out on a limb and bet they will be writing about this time period in the business schools and history books in the not too distant future as a transformational era that completely changed traditional marketing as we knew it, just five short years ago.