Digging a Moat

By Cox, Rob | Newsweek, June 18, 2012 | Go to article overview

Digging a Moat


Cox, Rob, Newsweek


Byline: Rob Cox

Groupon needs to fortify its position.

Groupon founder Andrew Mason has built a castle. His Internet coupon empire will harvest some $2.4 billion in sales this year thanks to rapid growth in its wittily worded email offers for discount pole-dancing lessons and two-for-one chicken Parmesans. Mason's next trick needs to be digging a moat around his business. That's arguably tougher, and it means being more like online restaurant-booking outfit OpenTable--or buying it.

Until Groupon persuades investors that it can fend off competition, it will probably continue to rival Facebook as the crappiest big Internet IPO of the past year. Last week Groupon's stock dropped below $9 a share, half last November's offering price. Mason's firm at one point was worth less than the $6 billion offer he rejected from Google a year before going public.

Mason knows he must protect the fruits of Groupon's aggressive expansion, and his solution is to step it up a notch. The 31-year-old wants merchants to come to Groupon for more than one-off email blasts. He hopes to provide services ranging from reserving customer appointments and rewarding them for their loyalty to managing deliveries and even payments. He talks of the company becoming "the operating system for local commerce."

This need shouldn't obscure the fact that Groupon represents a textbook case of the business principle known as first-mover advantage. …

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