WisconsInnovation

Oprah loves it, Google wanted to buy it (for 6 billion dollars), and it may be the fastest-growing company ever. Groupon is a two-year old company that offers a different deal-of-the-day to registered users of Groupon.com. The deals that Groupon offers are typically for 50% off at a local retailer; whether or not the deal is offered depends on how many users sign up for it. The interesting part is that Groupon keeps about half of all revenues from sales and by utilizing Groupon, retailers are often giving away their products at a loss. For example, if Groupon offers a $200 credit to a local retailer for only $100, that retailer only gets only $50.

So why would a retailer want to use Groupon? According to this article, there are three reasons: 1)When you get someone inside the door, they're likely to spend more than the Groupon value. 2)People bring their friends. And 3) first time customers are likely to become repeat customers.

Although Groupon's business model isn't particularly innovative, the company is innovating the way retailers reach new customers and markets. Groupon mainly works with small businesses that don't yet have a solid customer base, so reaching new customers is essential to their success--even if it means taking on a bit of a loss.

Given Groupon's massive success and easy-to-copy business model, similar sites have been quick to emerge and are eager to offer consumers even better deals than Groupon. It will be interesting to see how long Groupon can maintain its success and whether or not they can continue to innovate relations between retailers and consumers.