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RichardPrei├čler

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Hello,

I was wondering, how I could model Groupon's business model. It's a 2-sided market, bringing together price-sensitive customers with local merchants that gives 30-50% discount on their products and services.
Furthermore it's a shared revenue model. This means that the merchant equally shares the remaining 70-50% with Groupon. 

Looking forward to your hints! 

Richard
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KimWarren

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Reply with quote  #2 
hi Richard. Groupon is, as you say, a classic 2-sided business. Their basic proposition to retailers [often offering 'experiences' rather than products] is rather like LastMinute.com .. 'You have a perishable service and big periods of low demand, so offer big discounts to people booking through us to get that capacity sold' .. and to consumers, of course 'Get something much cheaper than normal'. 

We mention 2-sided cases briefly in class 4.6 of the online course.
  • starting from the standard business architecture where customers drive sales, and are won by an attractive product range, we need to add
  • ... that this product range itself is offered by 3rd-party providers
  • ... so the business must fill the Stock of those providers
  • but that will only happen if you have enough customers to promise the providers that it is worth joining
In practical terms, I suggest you start by modeling the customer-driven side of the business first, based on an assumption of an increasingly appealing 'product range' - that is a product range that initially fulfils only a small fraction of customers' needs of this type, but then extends its appeal to fulfil most of those needs - probably and S shaped development. Get that working and replicating well what you observe. Then, add the growing Stock of providers, and estimate how that drives the increasing appeal of the product range.

Note that in some cases, there may also be a geo-spatial 'quality' to the product range ... Sure, a small number of providers may together offer products that would meet all my needs of this type - but unfortunately, only 5% of them are close enough to be accessible, so in practical terms I can only fulfil 2% of my needs. Both product range and accessibility can be modeled by having each drive an in-flow to the 'Potential customers' Stock, from which actual customers are captured [as we do with the restaurant product range in class 5.6]. 

So far, so simple ... the complications include:
  • How to ensure the quality of what new providers offer
  • You can win too many providers, so each gets little return from joining and leaves again
  • Conventional competitors may drive prices down, or respond in other ways that cut your value-proposition
  • Customers may initially be excited and sign up, then lose interest
  • and so on ... See below for a class exhibit on AirBnb.
The value of a dynamic business model, of course, is from [a] pre-launch - the ability to test the viability of the business concept without burning real cash or personnel, then [b] during early trials - to detect the actual relationships in the real-life business and improve both the accuracy of the simulation and the accuracy of the decision-guidance the model can offer, plus use that model to raise cash for expansion from investors, then [c] when operating - use the model continually to make both operational and strategic decisions. See an interview with CEO Rod Brown of 2-sided business 'Opun' talk about his use of just such a model for these purposes. 

AirBnB 2 sided structure .. from class 4.6.jpg 

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