Why We Invested In Groupon: The Power of Data

Comment

Editor’s note: The following is a guest post by Greylock Partners VCs Reid Hoffman and James Slavet.

Reid Hoffman is Co-Founder and Chairman at LinkedIn and a partner at Greylock. His complete profile can be found at www.linkedin.com/in/reidhoffman.

James Slavet is a partner at Greylock. His complete profile can be found at www.linkedin.com/in/jamesslavet.

Groupon has been written about a lot in the media. Most of the coverage has been extremely positive, like a Forbes cover which called Groupon “The Fastest Growing Company Ever.” Other articles question whether Groupon is a defensible business built for the long-haul.

Late last year we boarded a Chicago-bound plane, along with a couple of our colleagues, for an initial meeting with the company to form our own opinion.

We went in positively inclined towards the Groupon management team. James had worked directly with Rob Solomon, Groupon’s president, years ago at Yahoo. Reid had gotten to know Andrew Mason, the company’s founder and CEO, after they struck up a conversation a while back at an industry conference. Groupon is targeting a market that is huge and broken. Local advertising is a $100 billion annual business in the U.S. and consumers spend something like 80% of their disposable income within a couple miles of their homes. Many local businesses still try to attract new customers through that heavy yellow book that gets dropped on your front doorstep until it rots or gets tossed in the recycling bin. We were interested in the team and the market and we’d also read the publicly available estimates about Groupon’s almost inconceivable growth in new markets, subscribers, business customers and revenue.

All those things were enough to get us on the plane, but it takes a lot of conviction in the future of a business to pull out your checkbook when the pre-money valuation has this many zeroes.

We knew that Groupon had a sense of humor. We emerged from our time with Groupon and our subsequent sessions together convinced that this is also a very serious business. Our discussion was data rich, unusually so. The team had a clear point of view on the consumer and merchant experience, as well as the key drivers of the business. They pre-empted and then dug deeper into our questions about Groupon’s operations and strategy by walking us through the data they look at on a regular basis. They talked us though the obvious data such as customer acquisition costs and lifetime value and the economics of entering a new region. But they also dove into some unique metrics we’d never seen startups track before.


We started really leaning forward in our chairs when the discussion turned to strategy, including the ways to use data to power Groupon’s future consumer- and merchant-facing products. Groupon is the clear market leader in the local deals market. Their scale advantage on both the consumer and merchant side enables them to offer the greatest number of high quality deals. It’s the company’s commitment to investing in personalization and relevancy that will drive deeper relationships with both consumers and merchants. Similar to markets owned by Google such as search and search advertising, this will likely become a “winner take most” market, and smart investments in driving scale plus relevancy will help propel the winner.

Groupon’s technology is there, just not where people usually look for it (on the website, which is visible to consumers). Instead, that technology lies deep in Groupon’s databases. We think the technologies visible to consumers will be increasingly commoditized, while the data used to understand consumers better will become increasingly proprietary and valuable. Groupon hired a Chief Data Officer from Netflix to help drive this effort.

Offers to consumers can be intelligently served up based on a person’s demographics, buying history and location. The merchant side of the equation is just as interesting. Local businesses need to be able to do more than just run a sale once or twice a year. The theater on Main Street or the children’s museum across town should have the ability to revenue optimize, like United Airlines or Hilton, by appropriately pricing and marketing unsold capacity. When the theatre is showing “The Tourist” to a half-empty house, it should be able to sell discounted tickets for $5 a pop.

Groupon will not be the first or the last organization to compete and win on the power of data. It’s happening everywhere around us. Turn on your TV on Sunday afternoon to watch football. Behind the scenes the coaches are relying on data scientists and proprietary algorithms to decide which players to draft or trade for, and whether to kick a field goal or go for it on fourth down. At least that’s how the New England Patriots work, and they’ve done pretty well. Closer to home, we see deep data initiatives at Greylock companies. Facebook, Pandora and Redfin use data to connect you with friends you’d forgotten about, recommend songs they know you’ll love or help you figure out when a home is over-priced.

We believe Groupon is the break-out leader in the massive local commerce space and its investment in data will be a critical ingredient in its long term march to build a meaningful and foundational company. We love to spend our days with entrepreneurs who have the ambition and skills to build break-out businesses that will endure. Sometimes that means we make a $100,000 seed-stage investment out of our Discovery Fund, and sometimes it means participating in a financing round that’s, like, a billion dollars.

More TechCrunch

When the founders of Sagetap, Sahil Khanna and Kevin Hughes, started working at early-stage enterprise software startups, they were surprised to find that the companies they worked at were trying…

Deal Dive: Sagetap looks to bring enterprise software sales into the 21st century

Keeping up with an industry as fast-moving as AI is a tall order. So until an AI can do it for you, here’s a handy roundup of recent stories in the world…

This Week in AI: OpenAI moves away from safety

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

23 hours ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

1 day ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies

OpenAI has reached a deal with Reddit to use the social news site’s data for training AI models. In a blog post on OpenAI’s press relations site, the company said…

OpenAI inks deal to train AI on Reddit data

X users will now be able to discover posts from new Communities that are trending directly from an Explore tab within the section.

X pushes more users to Communities

For Mark Zuckerberg’s 40th birthday, his wife got him a photoshoot. Zuckerberg gives the camera a sly smile as he sits amid a carefully crafted re-creation of his childhood bedroom.…

Mark Zuckerberg’s makeover: Midlife crisis or carefully crafted rebrand?

Strava announced a slew of features, including AI to weed out leaderboard cheats, a new ‘family’ subscription plan, dark mode and more.

Strava taps AI to weed out leaderboard cheats, unveils ‘family’ plan, dark mode and more

We all fall down sometimes. Astronauts are no exception. You need to be in peak physical condition for space travel, but bulky space suits and lower gravity levels can be…

Astronauts fall over. Robotic limbs can help them back up.

Microsoft will launch its custom Cobalt 100 chips to customers as a public preview at its Build conference next week, TechCrunch has learned. In an analyst briefing ahead of Build,…

Microsoft’s custom Cobalt chips will come to Azure next week

What a wild week for transportation news! It was a smorgasbord of news that seemed to touch every sector and theme in transportation.

Tesla keeps cutting jobs and the feds probe Waymo

Sony Music Group has sent letters to more than 700 tech companies and music streaming services to warn them not to use its music to train AI without explicit permission.…

Sony Music warns tech companies over ‘unauthorized’ use of its content to train AI

Winston Chi, Butter’s founder and CEO, told TechCrunch that “most parties, including our investors and us, are making money” from the exit.

GrubMarket buys Butter to give its food distribution tech an AI boost

The investor lawsuit is related to Bolt securing a $30 million personal loan to Ryan Breslow, which was later defaulted on.

Bolt founder Ryan Breslow wants to settle an investor lawsuit by returning $37 million worth of shares

Meta, the parent company of Facebook, launched an enterprise version of the prominent social network in 2015. It always seemed like a stretch for a company built on a consumer…

With the end of Workplace, it’s fair to wonder if Meta was ever serious about the enterprise