The Story of Groupon & its Daily Deals

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.

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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.

Next Page: User demographics, usage patterns, and how Groupon leverages Twitter and Facebook.

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