My girlfriend Kim in Connecticut was unfamiliar with Groupon, a fact which left me practically speechless. Here in Chicago, Groupon is being hailed as the company that is “transforming the culture of Chicago,” providing the right environment to cultivate a new boom in start-ups by proving to entrepreneurs that you don’t have to leave Chicago to get funding and support, and proving to investors that you can find great ideas right here in Chicago. Think that’s too much hype? Maybe it’s not enough.
What is Groupon?
It’s a daily deal (not a lame “coupon thing,” geez Kim…) at half-price or better for some awesome thing to do in your city (yes I mean your city, whether that is San Francisco, Seattle, one of three different neighborhoods in Los Angeles or Albuquerque or my hometown of Dayton, OH or dozens of other smaller cities). The deal only goes into effect if enough people buy it. The number of people who have to buy it is presumably set in cooperation with the company offering the deal, but I’ve never seen a deal NOT reach the minimum.
So consumers get something new at a great price, businesses get a shot at a new customer, and Groupon gets 10-50% of the revenue, depending on whether they promote it or just let people find you. If you are not already getting the daily deal via email, sign up here (seriously, do it here, because I get $10 for every person I referred who subsequently buys a Groupon).
And in case you, like Kim, are unfortunate enough to live someplace other than Chicago, I will also tell you now that Groupon apparently turned down a reported $6 billion offer from Google. That’s a pretty big deal, and signals that they think even bigger things are on the horizon. I believe it. Why? Because I not only buy Groupons, I proselytize about Groupon (see above) and I try to get my friends to buy Groupons with me so we can do things together. Sticky, loyal, repeat customers like me translate to huge revenues and an incredibly valuable business.
What Does Groupon Have to Do With Social Enterprise?
Social enterprise, by my definition, is something that harnesses the power of the markets to bring a new solution to a social problem. In other words, a revenue-generating business that makes the world better. You don’t have to be a for-profit business, as many non-profits have revenue-generating enterprises that support their social mission, but you do have to be making money to meet my definition. So how is Groupon a social enterprise? Well, they clearly have harnessed the power of the markets.
According to their web site, over 20,000,000 Groupons have been sold already, over $850,000,000 saved. If the amount saved is conservatively estimated to be 50% on each deal, then the amount saved is roughly equal to the amount spent. So if I’m thinking about this correctly that makes Groupon’s cut in the range of $85-$450,000,000. Roughly speaking, of course.
And what about the social part? To demonstrate the power of Groupon, let me share with you a few of the Groupons I have purchased:
And here are a few others I’ve seen go by but haven’t purchased:
That last deal, for Irv & Shelly’s Fresh Picks, is particularly interesting to me because they were one of three social enterprises selected to present at the first Chicago Social Venture Forum, organized by Foundation Source and the Chicago Booth School of Business. Here’s the description from Groupon:
“Fresh Picks works closely with local crop producers and purchasers, filling each of its delivery boxes with the highest-quality organic produce it can snatch from the harvest’s catwalks.”
Through Groupon, this small but growing social enterprise that supports and promotes organic farming and seeks to provide healthy produce to Chicago’s urban food deserts, had the opportunity to get almost 3,000 people to try their service. If it’s good, those people become long-term customers.
Like any small business, social enterprises selling consumer goods and services can benefit from the foot traffic that Groupon provides.
Innovation in Friendraising
For nonprofits like art museums, planetariums, ballet companies, orchestras and other performers, Groupon may be more appropriately viewed as a “friendraising” vehicle, rather than a direct fundraising mechanism. Nonprofits have (theoretically…hopefully?) set their ticket prices with some idea of what revenue they need to support their operations. But for many of these organizations, ticket revenue will never cover their costs, and they will always rely on charitable donations to make up the difference. So selling half-price tickets for seats that would otherwise have been empty (because, let’s face it, the ballet in Des Moines might not be sold out for every performance) is a better way to accomplish your mission than letting those full-price seats go empty.
So Groupon can help deliver “butts in seats” to charitable organizations like museums, architecture foundations, ballet companies, orchestras and the like. These kinds of organizations need to reach people, and the more people they reach the better they are generally considered to have fulfilled their mission. And they usually have excess capacity (that is, empty seats at performances they are giving anyway, or fewer people in the museum than would be allowed by the fire marshal). No excess capacity? No need for Groupon.
One of my favorite examples of creative friendraising through Groupon was a recent offer to “support the public school project of your choice with today’s deal, which lets you boost your charitable donation to DonorsChoose.org by 60% through generous funding by the Pershing Square Foundation.” (Kudos to Pershing Square Foundation for underwriting this innovative experiment to attract new donors to a well-regarded nonprofit).
By combining mainstream offers for sushi, fitness clubs, car services and other popular items with these social-benefit organizations like the Joffrey Ballet, Groupon has helped create a culture of folks for whom supporting nonprofits is just another cool thing to do in their town.
In all, Groupon has enormous influence to direct consumer power toward social enterprises, great nonprofits and small businesses of all kinds. Because of this power to amplify the work of so many other social-benefit organizations, I’d argue that Groupon itself is perhaps the largest, most successful social enterprise to date.
For the Haters
Let’s acknowledge early criticism that Groupon deals brought the wrong kind of customers, those that only wanted the deal and weren’t likely to convert. But let’s also acknowledge that Groupon has responded with a whole suite of merchant services that help small businesses structure their deal in a way that is most likely to be successful, handle the resulting traffic and even provide advice about how to convert Groupon users into long-term customers. I bet Oprah doesn’t offer that kind of support to companies she lists as her favorite things.
There is still a great deal of debate on whether Groupon is a good deal for the businesses. For example, Chicago’s Navy Pier is currently pointing fingers at Groupon for the fact that ticket sales for its Winter Wonderfest attraction are up 12% but revenue is down 8%. This shift resulted from a Groupon offering half price tickets ($9 each) which netted Navy Pier only $4.50 per ticket on 7,500 tickets sold through Groupon instead of the door price of $18 each. In my view, if Navy Pier couldn’t have predicted this outcome based on some simple math (1/4th the revenue per ticket means we have to sell 4x as many tickets to net the same amount of revenue), they have no one but themselves to blame. It suggests that there are some businesses that are better suited to benefit from Groupon than others, and one-time events are not one of them.
In any case, small businesses with consistent, repeatable products to offer seem like a better fit. Get your Groupon discount the first time, but come back for the fantastic new place you just discovered, paying full retail price, of course.