What Groupon's Doing That Google Couldn't

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The social shopping site Groupon appears ready to close a new financing round of $950 million dollars at a valuation of $4.75 billion. While the latter number may be surprising, it's the amount of money that Groupon's sucking in that shocked me. That's green tech or biotech-level money. What could a tech company need all that money for just a couple years after its founding? It's not like Groupon actually, you know, makes something and needs factories or anything.

P Morgan Brown has a good explanation of what's going on. Basically, they've decided to go right after all the small businesses (SMBs) of America. And to do that, they're going to need, as Matthew Ingram put it, "a massive local-sales army." As Brown points out, not even Google has attempted to build that kind of fighting force.

Groupon knows that without people pounding the pavement, pounding on doors and pounding the phone, they won't reach the mass of SMBs who are 1) not actively seeking out new advertising options online and 2) are hounded by traditional SMB advertising providers like the Yellow Pages, who don't ever let up on closing small business deals. And to put that organization in place is going to take a ton of cash. You need sales agents in each city, you need sales management, you need office space, you need call centers, you need fulfillment, billing and operations teams to handle that size of a customer base. And that takes a ton of money.

What Groupon is doing is something that no other tech company has done in recent memory--made a real run at securing a big chunk of the SMB market. Sure, new local-business-focused companies pop-up all the time. But most of them are either niche providers or they partner with the big existing yellow page providers to get access to their sales organization. They become a B2B channel provider leveraging the existing sales force because few can generate or raise the cash necessary to build a sales organization to go out and reach those SMBs directly.

Even mighty Google has taken this approach until now. They're either unwilling to, or culturally unable to, commit to the SMB market with a massive sales force.

Read the full story at P Morgan Brown.

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Alexis C. Madrigal

Alexis Madrigal is a senior editor at The Atlantic, where he oversees the Technology Channel. He's the author of Powering the Dream: The History and Promise of Green Technology. More

The New York Observer calls Madrigal "for all intents and purposes, the perfect modern reporter." He co-founded Longshot magazine, a high-speed media experiment that garnered attention from The New York Times, The Wall Street Journal, and the BBC. While at Wired.com, he built Wired Science into one of the most popular blogs in the world. The site was nominated for best magazine blog by the MPA and best science Web site in the 2009 Webby Awards. He also co-founded Haiti ReWired, a groundbreaking community dedicated to the discussion of technology, infrastructure, and the future of Haiti.

He's spoken at Stanford, CalTech, Berkeley, SXSW, E3, and the National Renewable Energy Laboratory, and his writing was anthologized in Best Technology Writing 2010 (Yale University Press).

Madrigal is a visiting scholar at the University of California at Berkeley's Office for the History of Science and Technology. Born in Mexico City, he grew up in the exurbs north of Portland, Oregon, and now lives in Oakland.

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