What Is Groupon And How Does It Work?

You may have been hearing more and more about Groupon and wondering, “What in the world is Groupon?”  I certainly have been hearing it mentioned in ever widening circles as it has been gaining in popularity.

Groupon is actually a social e-commerce buying service that is group based.  It launched last year during a time when many other retailers were feeling the economic pinch, and Groupon was able to actually able to grow quite quickly.  They started with $4.8 million of funding from New Enterprise Associates and funding from an angel investor to the tune of $1 million.  What is remarkable, though, is that they reached profitability by June.

How Groupon Works

You sign up at the site and need to list your email address and the city in which you live.  Then, Groupon offers daily deals on a variety of services from many different retailers in your area.  If enough people sign up for a particular offer, then the whole groups gets the daily deal.  If there are not enough people to sign up, then no one gets the deal.  Groupon then collects payment from its members (for the deal), takes their fee from the funds, and then passes on the rest of the money to the business.

As you can see, it’s a bit of a win-win-win situation.  The consumer gets a deal, Groupon takes a small cut and profits, and the business is able to see an influx of sales.

There is, as I have already mentioned, a tipping point that must be reached with every deal.  If a certain number of people do not sign up, then the deal is not made for anyone.  But this is the genius part of the program and where the social aspect kicks in and makes the Groupon experience work.  The system relies on the fact that those who want a particular deal to go through will send it to friends so that they can sign up, and then everyone reaps the reward.

The company has hired researchers and fact checkers to ensure that they only offer products and services that customers will really love.  With coupons having become big business during this recession, Groupon has focused its deals on getting the consumer to try something new, and not just getting the same old thing, over and over.  For this reason, they hope to stay in demand by remaining an important guide as to what to do and the best things to see in cities across the United States.

Groupon Also Helps Local Businesses

Groupon is also helping businesses navigate and get a taste of the new world of social media and Internet Marketing.  With an approachable and creative way to get online, many businesses are seeing that an appearance on Groupon can solidify their status as a truly cool part of their respective communities.  This is not your traditional advertising and a successful partnership with them can often deliver more customers in a 24 hour period than some businesses have in 2 or 3 months.

With steady growth and an innovative way of doing business, Groupon does not look as though it plans to do anything but continue to expand and help consumers and businesses alike.  They expect to reach 100 markets total by the end of 2010; hopefully your city is on the list!

Click here to sign up for Groupon and start seeing the deals.