Marketplaces 2010: Groupon Founder Andrew Mason

Groupon Founder and CEO Andrew Mason talked about the roots of the “deal-a-day,” collective buying phenomenon and how he intends to protect has franchise against one hundred plus competitors during a keynote appearance at Marketplaces 2010 this week in San Diego.

Mason noted that Groupon launched in November 2008 and now has 3.5 million in 46 cities. More than 2.7 million Groupon coupons have been sold.

“We’re larger in daily distribution (in Chicago) than The Sun-Times. By the end of the year, we’ll be larger than The Chicago Tribune,” he notes. He thinks it is ironic that he actually wanted the site to work with companies like The Tribune. “It became apparent they couldn’t move at our pace,” he says.

The site is basically a spin-off from The Point, a crowd-based community site that has donefun things like trying to formulate a crowd based offer to buy the Cubs, or to make Election Day a naitonal holiday. Mason is forthright about building the new service to make money.

“Collective buying might seem like a simple concept,” said Mason. But many elements go into it.

In fact, the site really should be thought of as more of a “Trusted City Guide” that curates local business and has strong media values rather than a traditional coupon service. That’s why it is not really so easy to imitate, he believes – although many sites try. It won’t be the companies that merely ape Groupon that have a chance to ultimately beat it, he says.

Mason also notes that Groupon is choosy about which businesses seem interesting enough to be featured and it doesn’t allow businesses to repeat too often. It will also go for interesting businesses such as zero gravity flights, museum tours, tattoos or Ferrari Rentals over more pedestrian deals, even if the short term profit potential is limited. The site can do this because it doesn’t charge any upfront fees, instead charging between 30-50 percent of the purchase price of a Groupon coupon. Groupon handles the entire transaction and mails checks to merchants.

The site is also very quality conscious. Customers are guaranteed satisfaction with their purchase, and Mason says 1-2 percent have asked for their money back. “We have a super liberal return policy. We’re sticking with a model that people will behave well if we treat them well.”

Groupon also only solicits businesses that have three stars or more in terms of user ratings, presumably from popular services such as Yelp. The site has no premise sales or local sales, instead relying on call center operations in Chicago.

Businesses also tend to be pleased because customers tend to spend significantly more than the value of a Groupon. Ninety-eight percent want to be featured again, says Mason. But the deal-a-day model has real limitations in terms of inventory, and in more mature cities, there is a backlog of 100+ businesses that want to be featured.

My colleague Charles Laughlin has his own take on the Groupon keynote at BIA/Kelsey’s Local Media Watch.