Groupon

Groupon is a website and app where you buy vouchers for local providers. A restaurant, for example, offers a set menu there for 20 euros that normally costs 40 euros. You pay for the voucher online and redeem it later on site. The name is made up of the English words for group and coupon, meaning voucher. Originally, an offer only came into effect if enough buyers were found for it. The company was founded in 2008 in the US city of Chicago and is now active in several dozen countries.

The fastest rise and the deep fall

Groupon grew between 2009 and 2011 faster than almost any company before it. Revenue rose within two years from a few million to over a billion dollars. Google offered around six billion dollars for the company in 2010. The founders declined and instead went public in 2011. At the IPO, Groupon was worth almost 13 billion dollars.

After that, things went steeply downhill. Over the years, the share price lost more than 95 percent of its value. Founder Andrew Mason was fired by the board of directors in 2013. In his public farewell email, he wrote drily that he had been fired.

That is exactly why Groupon still appears in business news today. Its fall shows that fast growth and fast money do not yet amount to a viable business. Anyone discussing young technology companies with high valuations often cites Groupon as a warning example.

How a discount turns into money

The basic principle is simple. A provider gives a very high discount, often 50 percent or more. Of what the customer pays, Groupon keeps a portion, often about half. With the 20-euro voucher, the restaurant is thus left with only about ten euros for a menu worth 40 euros.

The provider therefore deliberately makes a loss on this sale. It hopes that voucher buyers will become regular customers. In practice, that often did not work. Many users just collected the bargains and never came back. Some small shops were even overwhelmed by the sudden flood of customers.

On top of that came a second problem. For Groupon itself, costs were high because thousands of salespeople were needed to convince local businesses one by one. This work was difficult to automate. Competitors could also easily copy the model, since there was no hard-to-replicate technology behind it.

Groupon as a buzzword in today’s debates

The platform still exists. In Germany, you mainly find vouchers there for wellness, restaurants, classes and short trips. The company is now considerably smaller than before and has been trying for years to reposition itself.

More important now is the term as a benchmark for comparison. When an app grows rapidly but every order costs money instead of bringing it in, the comparison to Groupon quickly comes up. Similar questions arise today with delivery services and with some AI providers whose computing costs per user are higher than their revenue.

A common misconception is that Groupon simply failed due to bad technology. That misses the point. What failed was the assumption that bargain hunters would become loyal customers. Anyone reading news about start-ups can pick up a useful question from this: do customers stay even once the discount goes away?