Groupon's Busness Model Essay

1224 words - 5 pages

I. Introduction
The term business model gained popularity due to “the explosive growth of new ventures sparked by the internet”1 and is often erroneously used “to glorify all manner of half-baked plans”.2 Strategy is another “buzzword” that is often mistakenly used interchangeably with business model. There are numerous differences between the two but the defining characteristic is that a “business model is independent of competitors and the current state of the market”,3 focusing inwardly to describe, “as a system, how the pieces of a business fit together”.2 Strategy focuses on performance, looking outwardly at the industry, analyzing the current competition, future competition, suppliers and customers, and answers the key question “how you will do better than your rivals.” 2
Analyzing Groupon’s business model and strategy will give insight into how they need to focus efforts in an attempt to rebound from a recent downturn. Focusing on how they are looking inwardly to restructure the business model rather than outwardly towards a shift in strategy, will emphasize the role that both concepts play in creating and maintaining superior performance.
II. Background
Groupon is a social commerce website connecting buyers and sellers with “deal-of-the-day” coupons through emails, apps and social media. Launching in Chicago in 2008, they quickly expanded to New York, Boston and Washington DC. By 2010 the company served over 250 markets in 35 countries. A first mover advantage and a simple business model of linking buyers and sellers while keeping a percentage of the transaction proved successful for Groupon early on, but recent struggles to maintain a competitive advantage have resulted in drastic changes to Groupon’s business model.
III. Definition of Concepts
A business model is always a variation of the universal value chain. One element consists of all the measures taken to “make something” and a second element consisting of all the measures taken to “sell something”1. Magretta’s presents two tests for a good business model. With the narrative test, the business model can be looked at as a “story that tells how the enterprise works.” 4 The story must have characters, a plot and like any well written story, a twist in the plot. A good story or good business model will answer Peter Drucker’s age old questions: Who is our customer? What do they value? And, how do we make money delivering what our customers value, because a successful business model must also create economic value in order to pass “the numbers test”, the second of Magretta’s two tests.
Strategy addresses one crucial aspect that the business model doesn’t, competition, defining how the company will “do better by being different”2 Michael Porter, who refers to strategy as “the creation of a unique and valuable position, involving a different set of activities”4, introduced the five forces model which has become a framework for industry analysis and the foundation for developing...

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