The Rise of Daily Deal Marketing

Andrew Mason didn’t set out to build a marketing channel. In 2007, backed by Chicago investor Eric Lefkofsky, he launched a site called The Point, built around collective action: people would pledge to do something, donate to something or buy something, but only if enough other people committed too. It was a smart idea that mostly failed to find traction. What worked, buried inside The Point, was the mechanic of a group only getting a deal once enough people signed on.

In October 2008, Mason tested that mechanic on its own, stripped of the broader cause-driven premise. The first deal was almost comically small: two-for-one pizza at a restaurant on the ground floor of The Point’s own office building in Chicago. About twenty people bought it. The name Mason gave the spinoff blended “group” and “coupon” into Groupon, and it launched formally in November 2008, right as the wider economy was heading into the worst downturn in decades, a moment when a deep, guaranteed discount was exactly what both merchants and customers wanted.

The model was simple and that simplicity is what let it scale so fast. A local business offered a steep discount, often fifty percent off, in exchange for guaranteed volume and new customer exposure. Groupon took a cut of the deal’s revenue, usually keeping roughly half. Customers got a good deal and a reason to try somewhere new. Nobody involved needed to understand digital advertising, SEO or paid search. They just needed an email address, which meant Groupon could sell to small business owners who’d never bought online marketing of any kind.

Growth from there was extraordinary by any comparison available at the time. Groupon expanded from one city to dozens within about two years, and by 2010 press coverage was routinely calling it the fastest-growing company ever tracked, a claim that held up well enough that Google made a serious run at buying it. Google’s offer, reportedly around six billion dollars, was rejected by Mason and the board in December 2010, a decision that made national news precisely because turning down that much money from Google, this early, was almost unheard of.

The rejection didn’t happen in a vacuum. By late 2010, Groupon already had real competition. LivingSocial, which had started as a Facebook app developer called Hungry Machine before pivoting to the deals model in 2009, was growing fast on the back of investment interest from Amazon and building its own city-by-city sales team to sign up local merchants. Dozens of smaller copycats were launching in individual markets, betting that a good enough local sales operation could carve out a defensible niche even without Groupon’s brand recognition.

By the start of 2011, daily deal marketing had gone from a pizza discount tested on twenty people to a category with a household name, a rejected nine-figure acquisition offer behind it and a wave of competitors racing to replicate the same simple mechanic in every city in the country. What had made it work wasn’t clever targeting or sophisticated technology. It was a guaranteed discount, a low barrier for merchants who’d never done online marketing before and a moment in the economy when customers were actively looking for reasons to spend.