In 2015, Groupon continued on its mission to become the daily habit in local commerce — making some of our most significant progress on this front in our seven-year history.
We introduced 1.5 million new customers to our marketplace, we added more than 300,000 active deals to our platform, and we continued to make strides in local and mobile commerce with more than 100 million transactions occurring on a mobile device.
We also hit the reset button in some key areas. We made a series of fundamental changes to the business, reprioritized aggressively, and implemented a new strategy that we believe sets a stronger stage for long-term success.
Even as we endured some short-term bumps in the road, we moved quickly and decisively because we believe the opportunity in local is simply too vast, our overall operational advantage too strong and our team too talented to let competitors or markets dictate our path. While we have not always done a good job of telling our story, I am energized by our progress and leadership position and look forward to spending my first full year as CEO building on our momentum.
Taking a Step Back
Before going further, I’d like to take a step back. What do we mean when we talk about the “opportunity in local”?
Local commerce is a multi-trillion-dollar global economic engine, and it’s proven to be among the last spaces to benefit from the internet and mass mobile adoption. There are tens of millions of diverse small businesses around the world, and for the most part they have yet to be fully connected to and enabled by technology. And they’re all looking for customers.
The vast majority of these merchants aren’t marketers by trade. They’re largely living out their dreams of making great pizzas, giving amazing massages or helping people discover the world around them. Even when they have the expertise, many lack the time and resources to effectively market their businesses.
Groupon was built around connecting small businesses with consumers at scale. Combining our loyal and active customers with our local marketplace has proven to be one of the most effective small business marketing channels ever — one that comes at no up-front cost to merchants, and yet has resulted in billions and billions of dollars flowing into small businesses and neighborhoods around the world.
No one has proven to be more effective at coupling relevant local offers with high transactional intent. And we’re only getting better, having evolved from a daily email company to a largely mobile marketplace with tremendous scale and a number of levers business owners can use to grow and succeed.
Given that we are just seven years old, and given the millions of merchants and hundreds of millions of consumers with whom we’ve yet to work, we see the opportunity as vast, our team talented and our competitive position strong.
Building the Daily Habit in Local
So what then does it mean to build the daily habit in this vast local commerce space? Our roots as the daily deal email company are fundamental — it helped make the Groupon brand a household name and synonymous with saving money. Few brands ever achieve that kind of position or equity, let alone in seven years. The downside is that as we’ve expanded our value proposition and evolved beyond the daily deal email business, we didn’t bring customers along with us as quickly as we could have.
Being the daily habit in local means that customers don’t just wait for their morning Groupon email — something that tens of millions of our customers do every day — it means that they think of Groupon when they’re hungry, when the kids are bored and need to get out of the house, or when they need a manicure or haircut. That habit will be reinforced by our customers knowing that they’ll find amazing value on Groupon, whether that value comes in the form of a great discount or via being able to make an appointment and tip and pay at a small business without touching a wallet.
Achieving our mission means that Groupon is a transactional and marketing engine for local commerce. It means bridging a vast white space that many internet and mobile technologies have yet to reach. It also means so much more to the communities in which we operate.
While building the daily habit could very well mean that Groupon becomes an even bigger business and creates a lot of shareholder value over time, it should also mean that we’re making a significant positive impact on neighborhoods around the world. We believe that winning in local means that small businesses are winning, which matters on a level much deeper than dollars and cents.
Small businesses are the economic backbones of the neighborhoods we live in. They are also job creators, meeting places, cultural hubs and, occasionally, local legends. They are at the core of what makes “your” neighborhood special and often times what keeps your neighbors employed. We shouldn’t — we can’t — lose that. Groupon is committed to giving small businesses the tools to do more than compete — we’re here to help them grow and win. When that happens, we all win.
Focusing the Business, Driving results
When I took the CEO post last November, I focused the business on a few key initiatives. I said that we would streamline how and where we do business, that we would dramatically increase our customer acquisition efforts and that we would move away from empty calories — those low-margin product categories that drive short-term revenue but fewer long-term benefits — particularly in our shopping business. For 2016, we added making dramatic improvements to the customer experience to our priorities.
Our most significant changes in 2015 involved how and where we operate. We became a leaner, more efficient and productive company as we took a hard look at where it made the most sense for us to do business.
At the beginning of 2015, we operated in 47 countries. By the end of 2015, we operated in 28. We took a broad approach to this initiative. In some cases we found partners to help fund future investment in markets we think have great promise. In some cases we streamlined the business to focus on local businesses, rather than products. In some cases, we exited a market entirely, simply because winning there did not deliver long-term returns or justify the short term investment. In all cases, we focused and rationalized the business, creating regional shared service centers for our deal factory and customer service groups in order to generate operational leverage and a more consistent customer experience.
When complete, we will have a geographical footprint and operating model that we believe is significantly more sustainable.
We also made a strong bet on the future of Groupon — our customers. Simply put, we had not grown our new customer base at a rate commensurate with the potential of our marketplace. In the second half of 2015, we began to significantly expand our customer acquisition efforts to better match supply and demand on our platform. We decided to invest an additional $150 to $200 million in marketing to better match customer demand with the growing supply of deals on our platform. This work will continue throughout 2016, but the early results confirm that people everywhere are looking for great value, and looking to Groupon to deliver it in a local, relevant way better than anyone.
Next came our Shopping business. It is a growing part of the Groupon experience and something our customers consistently tell us is interesting, fun and a trusted source of value. However, we had also become too reliant on what I call “empty calories” — those product categories that generate short term revenue gains, but less in the way of long-term customer loyalty or support. We decided to move away from these items and focus on the categories that generate healthy margins and bring customers back to the site again and again. We made strong progress here, even through the price-competitive holiday season. 2016 is off to a good start as well.
Making the Customer Experience Great
We spent 2015 focused on the fundamentals — three key areas where we could quickly make bold moves to drive the business over the long term. In 2016, we intend to make dramatic improvements to the customer experience. As we add tens of thousands of merchants to our platform, as we drive millions more customers to our marketplace and as we make our shopping category a true advantage for us, it is imperative that we make the total Groupon experience unmatched.
While we have made improvements, today’s core Groupon experience isn’t all that different than it was a few years back. Consumers and merchants still experience too much friction when redeeming a Groupon. Expirations still vex customers and pose a barrier to new purchases. Our customer service levels must catch up to the expectations our customers have for our brand.
Our advantage here is that we have cemented our position as a leader in mobile commerce and a trusted mobile utility for our customers. Groupon was one of the first large-scale ecommerce companies to be predominantly mobile, and now nearly 60 percent of our global transactions occur where we are a clear leader: on mobile devices, all around the world.
Our opportunity is to bring a better mobile product that more closely matches the current and future use cases in local — with a low friction buying and redemption experience supported by amazing customer service. We began this work in 2015, but we expect the payout will be seen in 2016 and beyond. Delighting customers isn’t a one-year proposition. It’s an every-year requirement and one we plan to fulfill.
The Road Ahead
Shortly after taking the CEO post, I acknowledged that the path for pioneers is rarely easy. It is difficult — but also hugely rewarding — to be first. That remains true for Groupon. There is much work left to do, but we have already made tremendous strides in just seven years toward becoming an indispensable asset for consumers seeking value and for small businesses seeking exposure. We believe no other company is poised to better connect these two groups, and the potential in doing so makes any challenges well worth it.
Fortunately, the Groupon team is purpose-built to meet these challenges. I am incredibly fortunate to work with a group of talented and dedicated people who truly care not just about building a great company but also about the consumers, businesses and communities we serve.
The first company to truly bring local commerce into the online world — to be the app for Main Street — will be a very special thing. Groupon continues to march closer to this goal. In 2015, we learned some hard lessons and made some hard decisions, but we also made real progress. It is still amazing to me to think that in just seven years we’ve sold more than a billion Groupons and are a part of everyday local life for tens of millions of customers and hundreds of thousands of merchants. In 2016, our goal is to accelerate our progress and add even more value to our customers’ lives, which is central to generating long-term shareholder value.
I continue to believe that focusing on our four strategic priorities — which ultimately are improving the fundamentals and delivering a great customer experience — are the key to faster progress. So far that focus has delivered a Groupon that is stronger, leaner and faster today than it has been in a very long time. We are steadily improving and our marketplace is developing faster than ever. We have the people, a strategy we believe in and more hard fought experience in local than just about anyone. We also have a mission with impact potential that far exceeds our customer, merchant and shareholder reach — a fitting reward for a pioneer in a space this vast.
We never expected that winning in local would be easy — there simply are no silver bullets in this space. But we do expect to continue to build on our momentum with ever-improving execution. It’s a challenge we gladly take on every day. Thank you for joining us on this journey.