From karaoke to kickball, some things just don’t work without a group of people. A startup wants to add one more to that list: Online bargain hunting.
Groupon, whose name combines “group” and “coupon,” offers daily deals on products and services, such as tailored shirts, meals at restaurants and paintball games. There is a catch: A certain number of people in a given city must sign up for the deal to go through.
So far, Groupon is succeeding where others have failed. In less than a year, its group-buying business has turned a profit and is expected to be available in more than two dozen cities by the end of the year.
Groupon began in late 2008, growing out of a startup called The Point that lets people organize groups around raising money or taking action on an issue once they reach a certain target — such as a dollar amount or a number of members. For instance, a band raised $1,000 to go on tour and group of nearly 300 people formed to urge a cosmetics company to stop testing on animals.
Andrew Mason, The Point’s 28-year-old founder, noticed that people were using the site to gather groups to get better deals on things such as magazine subscriptions. He decided to find a way to turn that into a business.
Mason, a former University of Chicago graduate student who dropped out to run The Point, knew he was hardly the first to roll out an online group-buying service. Several companies — including one called Mercata, which was backed by Microsoft co-founder Paul Allen — failed during the dot-com boom.
Mercata had offered name-brand consumer products such as DVD players and power tools. Mason bet that by mostly focusing on local deals, and especially on discounts for activities and services, Groupon could prosper. He also figured…