Oct to Nov 2010 - Teletimes

and offered him $1 million of
angel capital to crank up the
hidden-agenda site.
The idea soon morphed into
ThePoint.com, an online platform
for petitioners to muster
support for all sorts of causes.
ThePoint launched in November
2007 and drew national
press attention for its users’
zany campaigns. One amassed
1,000 people committed to
donating millions of dollars
toward solving Africa’s aids
epidemic--on the condition
that u2 front man Bono would
retire from public life. Another
corralled several thousand supporters
of building a dome over
Chicago to keep the city warm
all year. The publicity helped
lure $4.8 million in venture
capital from the likes of Sand
Hill Road’s nea. “I figured it was
just a matter of time before I
had my $400 million company
and got my big payout,” quips
Mason.
But ThePoint didn’t attract
enough eyeballs to live on advertising
revenue. One of Mason’s
lieutenants, Aaron With,
proposed paying for popular
Google search terms related to
societal issues--such as “make
weed legal.” Mason got traffic,
just the wrong kind. Obnoxious
fans of the band Insane
Clown Posse, known as Juggalos,
made ThePoint their online
playground. As losses mounted
in 2008, Mason trudged
to With’s house to lay off his
friend. “If I was a rational person,
I probably would have quit
right there,” says Mason.
One promising trend: Some of
ThePoint’s most effective campaigns
banded consumers together
to gain buying power.
Mason began featuring a blog
that offered readers a different
deal from various vendors
every day. Having little to lose,
his investors encouraged him to
pursue the strategy. Groupon--
then called Getyourgroupon.
com--was born.
Mason’s crew of seven people
each made 100 calls a day hunting
for campaigns. Some days
the deals would “tip”--meaning
they’d meet the minimum number
of takers demanded by the
vendor--and some days they
wouldn’t, meaning Groupon
got zilch. (Today 98% of the
deals tip.) Using a 5,000-name
mailing list, Groupon sold 100
$25 passes to an experience involving
one hour inside a pitchdark,
soundproof tank containing
skin-temperature salt
water. At that point Mason
knew he was on to something:
“Who would think this many
people would be interested in a
sensory deprivation chamber”
In the next six months Groupon
opened in Boston, New
York and Washington, D.C.,
giving each city a Web page
featuring its deal of the day.
More than half of visitors drop
in on the page because they’ve
heard about it from friends.
Groupon’s salespeople, most
working in Chicago, earn salary
plus commission, based on revenue
and the ratio of refunds
(usually negligible). Writers
earn entry-level salaries commensurate
with salaries of
journalists, around $35,000 a
year. Aaron With, now Groupon’s
editor in chief, oversees
enough copy to fill a 190-page
novel every day.
Landing a Groupon deal, even
at a loss, can put a small business
on the map. In March East
Coast Aero Club, a flight school
in Bedford, Massachusetts, offered
introductory helicopter
flying lessons, normally priced
at $225, for $69. The deal had
to be shut down at 11 a.m. after
subscribers signed up for 2,500
lessons; the club had expected
perhaps 200. “I knew we had a
problem when I checked in right
after receiving the e-mail and
30 lessons had already been
sold,” recalls Philip Greenspun,
the head helicopter instructor.
“We look at this as incredibly
effective advertising.”
So effective that Mason claims
Groupon now has 35,000 companies
clamoring
to be on its
roster. Only one
in eight applicants
makes the
cut. The winners
must already be
getting kudos
at online review
sites like Yelp,
CitySearch and
TripAdvisor, and
the deals must
offer a substantial
discount
from normal
prices and not be
similar to other
promotions regularly offered
by the vendor.
One problem with the Groupon
model: Anyone can replicate it.
More than 200 copycat sites
have sprung up in the U.S., with
another 500 overseas, including
100 in China. The competition
isn’t bashful. Many sites
closely mimic Groupon’s copy
and graphics. One Russian site,
called BigLion, ripped off Groupon
right down to the fonts
and colors. (While he probably
has grounds for a suit, Mason
says going after a startup in
Russia isn’t worth the effort.)
In China a copycat has begun
operating at www.groupon.
cn, using the same graphical
interface. “Groupon is looking
at this as a winner-take-all
situation, but they may find it
tough to sustain their position
in every market,” says Andrew
Razeghi, a marketing professor
at Northwestern’s Kellogg
School of Management.
LivingSocial, Groupon’s closest
rival in the U.S., raised $40 million
since launching its service
in July 2009. Chief Executive
Timothy O’Shaughnessy thinks
his Washington, D.C. outfit
has a long-term edge because
it puts a full-time salesperson
in each of the 50 cities it’s in.
Groupon has people in about
half its markets. “You’re dealing
with a lot of small merchants
whose business is their
life,” says O’Shaughnessy, “For
them being able to work with a
real person is a big deal.”
Big players lurk, too, including
Twitter, now with over 80
million users and 70 million
tweets a day. In June Amazon.
com bought Woot, a site that
offers one piece of discounted
merchandise a day. “This space
is bound to attract somebody
big; there’s just too much money
involved,” says Lefkofsky,
Groupon’s largest shareholder.
“We think we have a big lead.”
Being the first mover has its
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15Oct - 14Nov 2010