Groupon Head Andrew Mason 'We've Succeeded in Making Coupons Cool'

The online service Groupon has brought coupon cutting into the Internet age and turned it into an immensely profitable business. In an interview with SPIEGEL ONLINE, company founder Andrew Mason discusses Groupon's skyrocketing growth, complaints about cheap customers and the future of small-scale retail.

Groupon head Mason: "Our mission is to be the operating system for commerce."

Groupon head Mason: "Our mission is to be the operating system for commerce."

SPIEGEL ONLINE: Do you know the date you'll be allowed to sell your stock after your company, Groupon, has gone public?

Andrew Mason: I believe it is some time in May. If you're implying with your question whether I count the days, I do not.

SPIEGLE ONLINE: Will you sell any stock?

Mason: At some point, I'm sure I'll sell some. I've already sold stock before the IPO. But, financially, I've achieved all I've ever wanted to achieve. I'm in this because of the excitement for Groupon and because of what we are trying to do there.

SPIEGEL ONLINE: Your company is currently valued at roughly $12.5 billion (€9.7 billion), but you have yet to turn a profit. Are your investors getting restless?

Mason: We're a 3-year-old company. We have decided -- along with our investors -- that local commerce is an enormous opportunity and (that) we should invest in our long-term success in that opportunity. Our investors are focusing more on building long-term shareholder value.

SPIEGLEL ONLINE: Analysts criticize Groupon for having a business model that's easy to copy. Do you know how many Groupon clones are out there right now?

Mason: Several thousand, at one time or another. I don't know how many are operating today. There were a number of competitors, introduced by large Internet companies, that were shut down or reduced the scope of their venture -- OpenTable, Facebook, Yelp, TravelZoo, etc. What those companies have found is that the barriers to enter this business are quite low, but (that) the barriers to success are equally high.

SPIEGEL ONLINE: In what way?

Mason: It's an extraordinarily complex and detail-oriented business. Every day, we have thousands of salespeople in 47 countries talking to tens of thousands of merchants -- negotiating deals, fine-tuning for quality, dealing with customer and merchant service. And, at the same time, (we are) innovating (and) thinking about what Groupon will become in three or five years. It's a full-time project.

SPIEGEL ONLINE: Is the large sales force needed to operate this kind of company the main barrier to entry?

Mason: It's one of them. Our scale has become a large barrier to entry, as well. We have 150 million subscribers in 47 different countries and a quarter of a million merchant relationships.

SPIEGEL ONLINE: Many small business owners seem to feel that the people Groupon attracts to their businesses are just there for the cheap, one-time deal but don't really bring enough return business to make it worth investing in a deal with Groupon.

Mason: This is the criticism that I'm most disappointed to see because, inside the company, we couldn't feel more differently. We do what we do in large part to support and elevate the small business owners of the world. The reason for this disconnect is that Groupon isn't perfect; some merchants have bad experiences, but that's a small minority. Ninety percent of our merchants are satisfied. We contact the ones who aren't satisfied and work with them to make it work again. Over half the businesses we featured in the third quarter of 2011 are merchants we featured in the past, so we see merchants coming back again and again. But even if 1 percent of merchants are unhappy, that's still 2,500. As hard as we try, we'll never completely eliminate that. At the end of the day, we're advertising, and I'd argue that we have a far higher satisfaction rate than any other form of advertising for local businesses.

SPIEGEL ONLINE: We've received emails from small business owners in Germany saying that they were not at all happy with what happened after offering Groupon deals. Did they do something wrong?

Mason: It's a constant evolution. We have a new merchant center application, a dashboard they can use to manage their Groupon promotions, and a return on investment (ROI) calculator, where they can tell us their cost of goods and the average oversell for each customer to actually calculate the ROI. Most small business owners are not particularly sophisticated business people. That's not a criticism; they're passionate about cutting hair or cooking food, and that's why they got in the business, not because they have an MBA. We've had to coach them so they see how an ROI works. In the US, we're piloting our rewards platform right now, where consumers can earn rewards by visiting a merchant several times.

SPIEGEL ONLINE: Coupons have been around in the United States since the 19th century. In Germany and other parts of Europe, though, it hasn't really caught on. Is it more difficult to persuade people to use your service on this side of the Atlantic?

Mason: I don't think it's so different in the US. Couponing wasn't cool there; it was lame. When you think of couponing, you picture a mom cutting coupons out of the back of the newspaper. Part of what we've succeeded in is making coupons cool. By keeping an extremely high bar for the businesses that we feature, we have a much more desirable demographic: 18- to 35-year-old females (and) college educated people. That's quite different from the demographic of a traditional coupon user. I think there is a similar dynamic in Germany. What we can say is that the doubt (about) whether couponing will work in Germany or in Europe has clearly disappeared.

SPIEGEL ONLINE: You've recently announced a partnership with Deutsche Telekom, Europe's largest telecommunications company. What are you specifically planning to do with the company on the German market? Will a Groupon app be pre-installed on Telekom cell phones?

Mason: We're still working out the details, but it'll be something along those lines. Both Groupon and Deutsche Telekom believe that local commerce will become one of the fundamental use cases of mobile, as common as email or checking your stocks.

SPIEGEL ONLINE: Two years from now, will you still be sending out emails with special offers? Or is mobile couponing the model of the future?

Mason: All the trends show that email usage among the younger cohorts of Internet users is declining. Whether it will take five or 30 years for email to go extinct, I'm not sure. But a lot of our work is making the Groupon website just as powerfully a pull experience, rather than just a push one, as well as making investments in mobile.

SPIEGEL ONLINE: Do you worry that Google could still crush everybody else in that market, given its access to phones and its ubiquitous mapping application? After all, it would probably take Google just a few weeks to deploy a sales force as large as yours.

Mason: That dynamic rarely plays out that way, even if it seems that a company should have the resources to do it. Google's a great company, and we respect them deeply. But, first, local commerce is an enormous market, so there's room for plenty of winners. And, second, I don't think it would be that easy for them to spin off a sales force over night.

SPIEGEL ONLINE: As a restaurant owner, if you had a lot of empty tables, you could use Groupon to send out special offers to the phones of people nearby. At the moment, is Groupon about optimizing local small businesses the same way big-time businesses optimized themselves years ago?

Mason: Our mission is to be the operating system for commerce -- to use price and discovery to deliver more buying power for consumers and more profits for businesses using the dynamic you've described.

SPIEGEL ONLINE: But won't this lead to things like brutal pricing wars between downtown restaurants waged to get the lunchtime crowd away from your competitors and into your place?

Mason: I can't predict the future. I doubt the traditional way of shopping will ever go away, in case some people are frightened by a technology-enhanced future.

SPIEGLE ONLINE: Mobile phones are essentially sensors people carry around. Is the future of a downtown environment one in which consumer streams are monitored and offers are calculated in real time to move people from one shop or restaurant to the next? Will it be governed by algorithms, like a stock exchange?

Mason: A future like that is possible, but it will reveal itself to the end consumer in a much simpler way. It's a future where consumers will be armed with much more buying power (and be) able to patronize local businesses more frequently and receive better value. It becomes a win-win for both sides.

SPIEGEL ONLINE: A lot of retailers complain about the disadvantages brought about by being able to compare prices online. Will mobile applications force small businesses, restaurants and others to experience similar drawbacks?

Mason: Even if a business might make a little less on each hamburger, they'll sell enough additional hamburgers to far outweigh the reduced margin. Think about how much food merchants and restaurants throw away. Think about how many empty shops you see walking down Main Street in your town. Right now, 80 percent of businesses are 20 percent full. That's the problem we're trying to solve.

SPIEGEL ONLINE: Does that mean a world in which the price of a hamburger depends on the time of day?

Mason: Yes.

Interview conducted by Christian Stöcker

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