Social shopping has been a big trend over the past year and there have been few more successful startups in this domain than Groupon. It's a relatively simple concept: offer daily shopping deals to groups of consumers. The details are a little more complicated, in that a deal only eventuates if a pre-set number of people take it. But that's what makes Groupon attractive to businesses, as usually they can only afford to offer low prices if items are bought in bulk. So the service has been a win-win for consumers and businesses.
I caught up with Groupon CTO Ken Pelletier, who has been with the company since it was founded in 2007, to find out how Groupon began and what's made it such a success.
The Birth of Groupon
Richard MacManus: Can you tell us how Groupon was conceived. Were you around right at the beginning?
Ken Pelletier: A lot of people think that Groupon began in November of '08. That's when we made a significant change in our direction, but we really started back in early '07. Andrew Mason, our founder, had an idea for a collective action platform [where] the collective solve problems that are not easy to solve as individuals. So we built that platform [called The Point].
It was an open platform where anyone could create a campaign. At a tipping point and if you've got enough people - or money in a case of a fund raiser - to solve your problem, only then would anybody be on the hook to do whatever the action was, or to give the money that they pledged. So that was the basic model.
We had a fairly small crew then. I was one of the first people in, I think second after Andrew [the founder]. We had a team of about four or five. Three of those people are still here.
At the end of '08, in the fall, we'd had this idea knocking around for a while to use the same model [for] collective buying. We thought it would be logistically heavy and sticky for us, selling products, having to have sales people and customer service. But, at that time, we decided to do an experiment - just to see if that idea had any legs. So we did the cheapest thing that we could possibly do to improve how we ran some local deals here in Chicago, with merchants. The first one was right here in our building.
We built up a small mailing list [and] got a recipe that we thought would work best for local stuff. A new deal each day. We launched something pretty quickly, really just a few weeks between the time we decided we'd do that experiment and [when] we built it.
We manned it on top of the same [collective action] platform that we'd already built, The Point. I mean most of what Groupon was built on was The Point and we were just putting a new face on it, a new user experience. And kind of adapting it for Groupon.
How Groupon Has Evolved Since 2008
RM: Since the launch in late 2008 till now, did the product change over that time?
KP: Yes, significantly. Once we realized that it looked promising, we started spending more of our time pursuing that [idea]. Then fairly quickly we pivoted and said: let's go full steam on this. Because we were getting signals that it was really good and was going to work well for us. So we decided that we'd put all our efforts into it.
We invested pretty heavily in tuning the user experience in particular, as a first step. And then we changed the core platform to do more things that were really squarely in the collective buying category, as opposed to an open flexible platform for anything. And we've grown the team and done lots of things.
Richard MacManus: Is there a particular type of person that uses this product a lot, in terms of the demographics, or is it pretty broad?
Ken Pelletier: I think it's pretty broad. It makes it a fun product to work on, where there's a really broad appeal. We have a pretty good handle on our demographics, but there's fairly wide spectrum. We know that skews toward women [and] it's a fairly young audience. But we offer [retail] products and we're in a number of different cities, so that makes the spectrum of demographics pretty wide.
RM: Since the launch, have there been any particular usage patterns that have surprised you as the product has grown? Things that you perhaps weren't expecting when you launched the product...
KP: We've had a really strong word of mouth element to our growth. I guess it's no surprise, but it's one of the things we thought about in the beginning - and to try to tune for. People like to share a deal with friends for a variety of reasons. Maybe to help them save money, or maybe they want to plan to do something together. Or for a lot of social reasons. It's an easy thing to do, whereas on The Point when we were doing collective action, it's a little bit of a higher bar.
So it certainly is a high level of social sharing and we see lots and lots of activity on Twitter and Facebook. So in subtle ways we try to optimize for that.
Twitter and Facebook
RM: Facebook and Twitter have become extremely popular in the last year or two, so has that changed the way people use Groupon?
KP: I think so, yeah. I think there's a natural shift towards people using those different types of media to share - which we are certainly happy with. So we make all of that possible right from the site.
We watch those [platforms] and they are really, really active. There's a lot of hype [about] Twitter in particular and Facebook as well. It's a little bit easier to see [results] on Twitter, if you get a live search going and you watch references to Groupon. It's pretty active, so it is certainly a big factor.
Focus on Mobile
RM: In April, you had a big investment into the company and I know that a lot of that will be used for expanding into different markets [i.e. new countries and cities]. But in terms of the product itself, are you planning to expand the product - for example targeting different devices or creating new features?
KP: Yes, absolutely. Of course, part of that is to expand and we're expanding rapidly. We're in 30 countries now, something like 250 cities internationally - including about 100 cities in the US. We're growing rapidly and hiring for expansion. But a big part of that is certainly going to be focused on the product.
There are some big things that we're doing and things that we've announced already, like personalization of deals.
Mobile is a big push for us. We've got a whole team of mobile developers and we are already on Android and iPhone. We've got a mobile website as well. We're seeing a lot of growth in that area [and] we think it's a really natural fit. And there's certainly a trend in the industry toward mobile.
One of the things that I see as a challenge is to keep the simplicity which we think is one of the key parts of the recipe that makes Groupon work. It's a pretty simple interface, it's easy to use. So we're going to defend that and not just add features. We're investing pretty heavily on features that don't change the way the user acts, like a personalization engine. It doesn't compromise that simplicity. [But] there's a lot of complexity and sophistication that goes into that. It gives a better over-all experience. At the end of the day, you're [still] presented with a single deal per day.
Those were the kinds of things that we're working on, plus lots of things that we're not announcing yet.
RM: Thanks Ken! Readers, let us know in the comments if you use Groupon or similar 'deal of the day' products. What's been your experience of it?