1. Observations on Groupon’s business model – a primer Christian Dahlen Nov 2010 www.linkedin.com/pub/christian-dahlen/1/447/4b3

2. Content of this document Business model Revenue model Customers Merchants Competitors Economic characteristics

3. GROUPON BUSINESS MODEL Customer signs with Groupon Deal reaches critical mass Customers pay Groupon Customer redeems coupon at merchant Groupon features deal Groupon pays merchant share Merchant signs up Groupon decides which deals are featured in a ZIP code area Payments spread out in 3 installments over lifecycle of deal, leading Groupon with negative working capital Notable sources: http://primitus.com/blog/whats-the-secret-success-of-groupon/

4. GROUPON REVENUE MODEL local US GAP, Body Shop # of geographies national international # of deals Long waiting list of merchants waiting to be featured Main deal x Categories/ geography Side deals New experimental feature Groupon stores Groupon net revenue x Gross/ List price Function of category; seems to have increased Discounted deal price x Net deal size x Discount to customers (%) Share to Groupon (%) Typically 30-50% ~ 50%. May trend downwards due to competitive pressure Notable sources: http://techcrunch.com/2010/05/02/teardown-groupon/

6. ‘ Urban females’

7. 18-34 yrs

8. Likely facebook and Twitter users

9. 60k-200k users/ city

11. Discover services/merchandise that they didn’t know of

12. Access to new services/merchandise

13. 4 smaller ‘side deals’ in addition to main deal

14. Deal personalization based on voluntary disclosure of preferences

15. Deals divvied up by ZIP codeNotable sources: http://www.grouponworks.com/demographics http://aimgroup.com/blog/2010/08/20/groupon-goes-niche-with-new-%E2%80%98deal-personalization%E2%80%99/

17. High customer acquisition cost

18. Business thriving on repeat customers.

19. Rice University study:

20. 66% successful

22. Redemption rate: ~80%

23. Incremental spending: Gap expectation that customers will spend more than just $50, likely upward of $75 to $100 once in the store

25. Learning curve in structuring a deal (too many responses; too many discount shopper, redemption over coupon life time) Notable sources: http://online.wsj.com/article/SB10001424052748703447004575449453225928136.html?KEYWORDS=groupon#printMode#ixzz0yt80rShB http://www.retaildoc.com/blog/groupon-worst-marketing-business/ http://adage.com/digital/article?article_id=145552 http://blogs.wsj.com/venturecapital/2010/09/29/rice-university-study-groupon-renewal-rate-not-so-hot/

26. MERCHANT PERSPECTIVE ON CUSTOMER INTERACTION Get customer to follow on Respond to Merchant Like it on Offer on Advertise on Notable sources: http://gigaom.com/2010/09/29/hey-groupon-its-time-for-a-localsocial-roll-up/

27. PRESENT AND FUTURE COMPETITORS Notable sources: http://www.evanmiller.org/is-groupon-the-next-google.html http://www.businessinsider.com/why-yelps-daily-deals-could-be-a-groupon-killer-2010-7 http://gigaom.com/2010/10/13/newspapers-need-to-do-more-than-copy-groupon/

30. No technology barriers to entry

31. No switching cost for merchants and customers

32. Scaling is expensive (sales people on the ground)

33. High cost of customer acquisitionNotable sources: http://techcrunch.com/2010/10/17/why-groupon-is-no-ebay/