The Social Change Roots of the World's Hottest Startup

Chances are pretty good that in the last year, you've been forwarded at least one web coupon that offers major discounts for some local service or product, if and only if a certain number of people sign up in advance for the deal. The group buying space is white hot, with dozens of companies getting millions in venture capital. What might surprise you is that the company that launched it all was originally built as an offshoot of a platform for social good.

Labeling any startup "the world's hottest," is a dubious art, but by just about any metric it's hard not to look at Groupon and think it's worthy of the title. A little over two years old, the company was recently valued at around $1.3 billion dollars. It will have estimated revenue of $350m in 2010. It has a legion of competitors who have raised in excess of $100m to copy (and try to improve, presumably) its group buying model, known collectively as "Groupon Clones." A few months ago, it expanded into Europe by buying a clone of itself that had grown so quickly it already had more than 600 employees, and quickly followed that by snatching up two clone companies in Latin America. Not bad for a couple years work.

What people don't always know about this much imitated startup is that it started as an online action platform for social good called The Point. The Point was based on the premise that when it comes to advocacy causes or nonprofit donations, sometimes every little bit doesn't count. If you're raising money to dig a well that costs $10,000, and you raise $9,000, you can't build the well. The Point gave people to ability to create a campaign that would aggregate commitment that would be engaged only when a specific threshold or "tipping point" was achieved. A campaign would look something like "If 1,000 people commit to dance in front of Congressman X's office for immigration rights, I will as well."

The site inspired some excitement, but had a hard time getting traction. It was organized as a for-profit company, and after a while, they began to brainstorm what all the uses of group power might be. According to founder Andrew Mason, they had always been interested in group buying, but had seen companies try and fail to make a group buying model work in the first internet bubble, and it wasn't until they really needed to experiment that they decided to give it a shot. "Groupon" started as one daily Chicago deal embedded on a blog at groupon.thepoint.com. When it started to take off, they knew they had something significant on their hands.

The brilliance of Groupon is how everyone wins, and how easily the financial model works. When a company creates a Groupon, they set a discount on some service or product and set a minimum number of buyers needed for the Groupon to go into effect. In this way, they are assured that there is at least a minimum business value achieved. Groupon subscribers get an email about one deal per day in their city, and have the day to buy it. They have an incentive to recruit their friends to ensure that the Groupon actually goes into effect, and when the minimum threshold of buyers is reached, their credit card is charged and they get their receipt which they can cash in at the businesses. Groupon takes their cut of the transaction and everyone wins.

While Groupon has taken off, it has kept The Point alive, looking for good opportunities to reconnect to the social change roots of the company. Recently, the two companies launched the G-Team initiative to do exactly that. The idea is to leverage Groupon's 6,000,000+ subscribers to support local causes on The Point. The local causes - which could be advocacy, donations, or something else entirely - will be organized on The Point, and then distributed with related Groupons. For example, a Groupon for a discount at a theater performance might come with a campaign to help a local theater fundraise.

This could obviously be a big win for causes that have access to a massive distribution list. But it could also be a win for consumers. Generally speaking, there is a stark divide between a buying experience and a community experience. Yet phenomena like the lines that wrap around city blocks waiting for new Apple products suggest that using buying as a starting point for community may not be crazy. Groupon is a more inherently communal buying experience, and adding in cause support could amplify that, which could ultimately be a big competitive advantage for Groupon against its legion of clones.

I'm really looking forward to seeing how the G-Team works. Even if it flops, the fact that one of the most explosive for-profit startups in the world is continuing to look for ways to re-up their commitment to social good is a hugely good thing.

Photo credit: orijinal