Photo: Dan Frommer, Business Insider
Groupon is the fastest growing business in all of history, now on a $2 billion run-rate. Earlier this year, it rejected a $6 billion offer from Google, which was the right move. Groupon is now the leader in an incredibly fast-growing business, and is outrunning its competitors with surprising ease.The company has been among the most innovative on its core product. It is now experimenting with deal personalisation, so that people get deals that fit their preferences the best, and they can serve more businesses. It is building a self-serve platform so that local businesses can do deals on a self-serve basis instead of having to go through Groupon’s huge but swamped sales and marketing team.
To decide what Groupon should do next, it should keep in mind what it is: the best-ever advertising platform for small and medium businesses. Its job is to serve small and medium businesses to reach consumers better and more cost-effectively. Or to put it more succinctly, its mission is to help small businesses get the most out of the internet.
That alone is probably worth more than $6 billion. Google can still get access to that.
Well, today Groupon spends incredible amounts of money on Google ads to acquire the email addresses of consumers. Its well-funded but less-successful rivals have bid up prices to a level where if Groupon had gotten started today, it couldn't have grown. Group buying is probably the most effective form of advertising ever invented for small businesses, but search ads are still a close second, and Google can't reach the small businesses who would profit by buying them. It would be wholly consistent with Groupon's mission to sell Google's products in exchange for steep volume discounts on ad buying. Google could even put a Groupon email form straight on relevant search pages. This would help small businesses, help Google and help Groupon widen the lead with its rivals.
Groupon should do the same with Yahoo, Microsoft and AOL and others who also have great search products and/or tons of email users who would love to become Groupon subscribers, and possibly even media partners. It would be a nice to have for Groupon, not a must have, but it would help them widen the lead with their competitors in a big way.
Groupon is kicking butt in the US, but its international operations are not doing well. Instead of one deal a day, Groupon sends us four deals a day in Paris, and that amazing, hilarious copy they're known for is nowhere to be found. Groupon expanded internationally through acquisitions so it makes sense that these offshoots are less Groupon-like, but at some point they need to fix it.
The market has priced Groupon: $6 billion. Actually, the price is almost certainly higher today. We're sure plenty of investors would love to put $500 million or more into Groupon at any price they would name. (They're already working on that part.)
Speaking of inventing wonderful, new forms of advertising, social media is right up there with Google and Groupon.
Social media is another great big wave of marketing, both directly through buying advertising on Facebook (and soon Twitter) and indirectly through earned media. Plenty of startups have sprung up to hand-hold users through managing social media, and that's a valuable service.
Social media can be a boon to small businesses, but they are often confused about how to do it, and startups who can help them have a hard time reaching them. Wildfire helps small businesses run promotions on their Facebook fan pages and Postling, founded by some of the co-founders of Etsy, helps small businesses manage their social media presence.
This is right up Groupon's alley, and they already have zillions of small businesses on file to sell to. Another potential acquisition in this area would be CafeBots, a stealth, Kleiner Perkins-backed startup started by Stanford PhDs which is building algorithms to make social media advertising more efficient.
This one might sound weird. SquareSpace is a great website-building service.
The company is profitable because, oddly enough, it actually charges for its product. Why does it work when there are zillions of free alternatives? Because the product is beautiful and very easy to use.
But what does it have to do with Groupon? Simple: the number of small businesses who have websites, let alone pretty websites, is still staggeringly low. And the market is still cornered by that ruthless conglomerate, 15-year old nephews who want to bump up their allowance.
Again: Groupon's core mission is to help small businesses get the most out of the internet. Having a good website seems like an obvious first step, but most small businesses don't even get there. Groupon can help them, by buying SquareSpace and taking it to free for small businesses that have a Groupon Store.
It would also be a great way for Groupon to lock in small businesses, because if they set up their websites through a Groupon-based service, then Groupon can come back to upsell them at leisure.
Groupon already has Groupon Academy for its writers. Now it should set up Groupon University for small businesses.
It already does many things like that through its bulletin boards and guides, but it should turn it into a more conscious, broader effort. Videos, tutorials, testimonials, best practices, etc. It should do its best to be the best resource in the world for small businesses on how to run their businesses better -- and not just online.
Small business owners are men and women with a passion, whether it is for making pizza or making handbags. But they're not often rigorous, savvy businesspeople. Most small businesses fail, in large part because they don't implement some of the recognised best practices of running a business.
With Groupon University, which must be 100% free, Groupon would build an amazing marketing asset, and make the world a much better place for passionate entrepreneurs.
If this post sounds like a recipe for disaster, relax. We're aware of the dangers. Nothing screws up a hot, young, incredibly fast growing company like buying tons of tangentially-related businesses and losing its focus in the aftermath.
There are risks to some of the acquisitions we're suggesting. But there are also risks to not doing it.
The market for social media advertising is still inchoate, but there will come a time when a startup has at least as much success with it as Groupon is having with daily deals, and it is an opportunity as large. Groupon is uniquely suited to buy into it, and it needs to do so fast or potentially lose that chance. But if it does these acquisition, screws them up and gets distracted, it can also lose everything.
There's a model for Groupon on not screwing up acquisitions: Amazon. Most of its big acquisitions have worked out incredibly well for everyone. Why? Because it leaves them alone for the most part. They acquire companies that already have great entrepreneurial leaders who are motivated by a vision, not by money, like Zappos' Tony Hsieh, and give them the tools to expand that vision on a bigger stage.
Groupon should buy Postling and SquareSpace, but let them run as independent companies for the most part, just providing them with capital and using its considerable sales force to expand the reach of their services.
What we're proposing for Groupon is ambitious, but that matches the success the company has had and the scale of the opportunity it is presented with.
Groupon is far enough along that it will be a huge business no matter what. But it has a chance to do something even bigger, which is to put all the pieces in place to help small businesses reach customers, and thereby dramatically increase the odds of success of starting a small business, which is probably one of the hardest thing anyone can do, and thereby fulfil one of the biggest promises of the internet.
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