Groupon Leads Adoption Of Revenue-Sharing Monetization Model

Where most online companies have been struggling to create a robust monetization model, Groupon has figured a way to leverage the Web to become an effective marketing tool for local businesses. Last week, they filed S-1, ending a much anticipated wait for their IPO. The issue is expected to raise $3 billion, pegging their valuation at $30 billion. Here is a review of the company’s strong performance in the past few months. Notable in their journey is the revenue sharing business model, a trend that I think will be major in the next incarnation of the web.

Groupon’s Financials
Compared with earlier reports that had estimated their revenues to be $920 million in 2011 and $1.9 billion by 2015, Groupon’s filing is much brighter. They ended 2010 with revenues of $713 million, compared with $30.5 million earned a year ago. They reported first quarter revenues for the current year at $644.7 million. According to sources, Groupon is projected to be well on way to earn $3 billion revenues this year as it records month on month growth of over 25% this year. Contrary to popular belief, Groupon’s margins too remain elusive. For last year, Groupon has reported losses of $450 million, which is clearly a significant increase over 2009’s losses of $6.9 million.

Groupon Expands into Other Verticals
Groupon is now focusing on topic specific deals. They began the classification with the Home and Garden section which featured services like dog walking, interior design, and painting, to name a few. As part of vertical focus, Groupon is also tying up with multiple companies.

Earlier last week, they announced a tie-up with Expedia to launch a travel deals service. The offering, being marketed as Groupon Getaways, will allow users to book vacations at Expedia for a discounted price. The service will begin by the end of this month with heavy discounts on hotel bookings to Groupon’s U.S. and Canada members. The service is expected to expand internationally and to cover offerings such as airfare discounts, package deals, car rentals and cruises in months to come. While the financial details of the deal are not known, I would expect this deal with Expedia to be a revenue sharing deal for Groupon.

Groupon is also targeting the online tickets for live-event market, which analysts project to grow to $8.5 billion in 2015 from $6.2 billion this year. Last month, Groupon had entered into a similar agreement with Ticketmaster’s parent, Live Nation Entertainment. Through GrouponLive.com, users will be able to buy discounted tickets for concerts. Groupon is expected to keep their 50% of sales made through the site.

And, Groupon is also venturing into the high cost real estate market. In April this year, they released a deal with Dream Town to offer a $25 coupon redeemable for a $1,000 cash transaction at closing a real estate transaction.

Groupon’s International Expansion
Besides vertical expansion, Groupon has also been driving growth across different regions. Last quarter, they went live in South Korea in Seoul, Gyeonggi Province, Busan, and Daegu. By the end of April, they had targeted to be present in 11 cities in the country. They also launched a site for Dubai and Abu Dhabi to serve the Middle East and are working to expand the offering in other cities in the region. Earlier this year, they had launched in Australia as Stardeals. Groupon now serves more than 70 million users spread across 500 markets in 43 countries.

Groupon’s Innovative Deals
Groupon is also experimenting with other deal types. For instance, last month, they launched Groupon Now, a service that lets merchants offer discounts to customers based on proximity to the business or deals that are limited to certain times of the day. They also tied up with multiple vendors in Chicago to offer to the market multiple deals worth $1. Recently they tied up with Springpad, an iOS app that helps users manage their calendars by organizing and reminding them of events and activities. Groupon will be able to target deals to users based on their activities planned for the day.

Groupon seems to be on the right path. Unlike others like LinkedIn, Twitter, and Facebook, which have managed to create a behemoth following but haven’t made a comparative effort at monetizing this subscriber base, they surely know how to leverage the Web to create a business model predicated on revenue sharing as opposed to CPM advertising and other relatively meager monetization models.