- Subject: Strategic Management. - Mandatory book for this week's assignment (file attached - please include in citations): Rothaermel, F. T. (2013). Strategic management: Concepts. New York: McGraw-

B ack g ro und

A pply in g V R IO : T he R is e a nd F all o f G ro upon

A fte r g ra duatin g w it h a d egre e in m usic fr o m N orth w este rn U niv e rs it y , A ndre w M aso n

sp en t a c o uple o f y e ars a s a w eb d esig ner. In 2 008, th e th en 2 7-y e ar o ld fo unded

G ro u pon, a d ail y d eal w ebsit e th at c o nnects lo ca l r e ta ile rs a nd o th er m erc h ants to

c o nsu m ers b y o ff e rin g g oods a nd s e rv ic e s a t a d is co unt. G ro u pon c re ate s

m ark e tp la ce s b y b rin gin g th e b ric k a nd m orta r w orld o f lo ca l c o m merc e o nto th e

In te rn et. B asic a lly , th e c o m pany o ff e rs a “ g ro up c o upon.” If m ore th an a

p re d ete rm in ed n um ber o f G ro u pon u se rs s ig n-u p fo r th e o ff e r, th e d eal is e xte nded to

a ll G ro upon u se rs . F or e xa m ple , a lo ca l s p a m ay o ff e r a m assa ge fo r $ 40 in ste ad o f

th e r e gula r $ 80 . If m ore th an s a y 1 0 p eople s ig n u p, th e d eal b eco m es r e alit y . T he

use rs p re -p ay $ 40 fo r th e c o upon, w hic h G ro upon s p lit s 5 0-5 0 w it h th e lo ca l

m erc h ant. In sp ir e d b y h ow A m azo n.c o m h as b eco m e th e g lo b al le ader in e -

co m m erc e , M aso n’s s tr a te gic v is io n fo r G ro upon w as to b e th e g lo bal le ader in lo ca l

co m m erc e .

M easu re d b y it s e xp lo siv e g ro w th , G ro upon is o ne o f th e m ost s u cce ssfu l r e ce nt

In te rn et s ta rtu p s. It h as o ve r 2 00 m illio n s u bscrib ers a nd w ork s w it h o ve r 5 00,0 00

m erc h ants in th e U nit e d S ta te s a nd s o m e 5 0 in te rn atio nal c o un tr ie s. In deed,

G ro u pon’s s u cc e ss a ttr a cte d a $ 6 b illio n b uyo ut o ff e r b y G oogle in e arly 2 011 , w hic h

A ndre w M aso n d eclin ed. In N ove m ber 2 011 , ju st th re e y e ars a fte r it s fo undin g,

G ro u pon h eld a s u cce ssfu l in it ia l p ublic o ff e rin g ( IP O ) a nd w as v a lu ed a t m ore th an

$16 b illio n w it h a s h are p ric e o f o ve r $ 26. J u st a y e ar la te r, G ro upon’s s h are p ric e h ad

fa ll e n 9 0 p erc e nt to ju st $ 2.6 3. In e arly 2 013, M aso n p oste d a le tte r fo r G ro upon

em plo ye es o n t h e w eb, a rg uin g th at it w ould le ak a nyw ay, s ta tin g “ A fte r fo ur a nd a

h alf in te nse a nd w onderfu l y e a rs a s C EO o f G ro upon, I’v e d ecid ed th at I’d lik e to

s p en d m ore tim e w it h m y fa m il y . J u st k id din g – I w as fir e d to d ay.”

W hat w ent w ro n g? T he im plo sio n o f G ro upon’s m ark e t v a lu e c a n b e e xp la in ed b y a n

applic a tio n o f th e V R IO fr a m ew ork . Its c o m pete ncy to d ru m u p m ore b usin ess fo r

lo ca l r e ta ile rs b y o ff e rin g lo w er p ric e s fo r it s u se rs w as c e rta in ly v a lu able . B efo re

G ro u pon, lo ca l m erc h ants u se d o nlin e a nd c la ssif ie d a ds, d ir e ct m ail, y e llo w p ages,

a nd o th er v e nue s to r e ach c u sto m ers . R ath er th an u sin g o ne-w ay c o m munic a tio n,

G ro u pon fa cilit a te s th e m eetin g o f s u pply a nd d em and in lo ca l m ark e ts . W hen

G ro u pon w as fir s t la unch ed, th is ty p e o f lo ca l m ark e t- m akin g c o m pete ncy w as a ls o

ra re . G ro upon e njo ye d a fir s t- m ove r a dva nta ge. Its a bilit y to u se te ch nolo gy to s p ur

lo ca l c o m merc e w as c o nsid ere d s o v a lu able a nd r a re th at G oogle o ff e re d $ 6 b illio n to

b uy th e c o m pan y – u st a lit tle o ve r tw o y e ars a fte r G ro upon’s fo undin g! T hin gs

sta rte d to g o w ro ng s o on a fte r th at. The m ult ib illio n-d olla r G oogle o ff e r d re w th e a tte ntio n o f m any p ote ntia l c o m petit o rs

to G ro upon’s b u sin ess m odel. A s it tu rn ed o ut, G ro upon w as m ore o f a s a le s

co m pany th an a te ch v e ntu re , e ve n th ough it w as p erc e iv e d a s s u ch in th e w ake o f

th e W eb 2 .0 b o om . T o ta rg et a nd fin e-tu ne it s lo ca l d eals , G ro u pon r e lie s h eavily o n

hum an la bor to d o th e s e llin g. B arrie rs to e ntr y in th is ty p e o f b usin ess a re

n one xis te nt b eca use G ro upon’s c o m pete ncy is b uilt m ore o n a ta ngib le r e so urc e

(la b or) th an o n a n in ta ngib le o ne ( p ro prie ta ry te ch nolo gy). G iv e n th at G ro upon’s

v a lu able a nd r a re c o m pete ncy w as n ot h ard to im it a te , h undre ds o f n ew v e ntu re s ( s o

c a ll e d “ G ro upon c lo nes”) r u sh ed in to ta ke a dva nta ge o f th is o pportu nit y . E xis tin g

onli n e g ia nts s u ch a s G oogle , A m azo n ( v ia L iv in gS ocia l) , a nd F ace book a ls o m ove d

in . S purn ed, G oogle a lm ost im m edia te ly c re ate d it s o w n d aily d eal v e rs io n w it h

G oog le O ff e rs . A ls o , n ote th at th e a bilit y to im it a te a r a re a nd v a lu able r e so urc e is

d ir e ctly lin ke d to b arrie rs o f e ntr y , w hic h is o ne o f th e k e y e le m ents in P orte r’s fiv e

fo rc e s m odel ( th re at o f n ew e ntr a nts ). T his a llo w s lin kin g in te rn al a naly sis u sin g th e

re so urc e -b ase d v ie w to e xte rn al a naly sis w it h th e fiv e fo rc e s m odel ( w hic h a ls o w ould

h ave p re dic te d lo w in dustr y p ro fit p ote ntia l g iv e n lo w o r n o b arrie rs to e ntr y ).

T o m ake m atte rs w ors e , th ese G ro upon c lo nes a re o fte n a ble to b ette r s e rv e th e

need s o f lo ca l m ark e ts a nd s p ecif ic p opula tio n g ro ups. S om e d aily d eal s it e s fo cu s

only o n a s p ecif ic g eogra phic a re a. A s a n e xa m ple , C onejo D eals m eets th e n eeds o f

cu sto m ers a nd r e ta ile rs in S ou th ern C alif o rn ia ’s C onejo V alle y, a c lu ste r o f s u burb an

co m m unit ie s. T hese h yp er lo ca l s it e s te nd to h ave m uch d ee per r e la tio nsh ip s a nd

exp e rtis e w it h m erc h ants in th eir s p ecif ic a re as. S in ce th ey a re m ostly m atc h in g lo ca l

cu sto m ers w it h lo ca l b usin esse s, m ore ove r, th ey te nd to fo ste r m ore r e peat b usin ess

th an th e o ne o ff b ar g ain h unte rs th at u se G ro upon ( b ase d in C hic a go). In a ddit io n,

so m e d aily d ea l s it e s o fte n ta rg et s p ecif ic g ro ups. T hey h ave g re ate r e xp ertis e in

m atc h in g th eir u se rs w it h lo ca l r e ta ile rs ( e . g ., D aily P rid e s e rv in g L G BT c o m munit ie s;

B la ck B iz H ooku p s e rv in g A fr ic a n A m eric a n b usin ess o w ners a nd o pera to rs ; J d eal, a

J e w is h g ro up b uyin g s it e in N ew Y ork C it y , a nd s o o n).

“ F in din g y o ur s p ecif ic g ro up” o r “ g oin g h yp er lo ca l” a llo w s th ese s ta rtu ps to in cre ase

th e p erc e iv e d v a lu e a dded fo r th eir u se rs o ve r a nd a bove w ha t G ro upon c a n o ff e r.

T he p ro ble m is th at a lt h ough G ro upon a sp ir e s to b e th e g lo bal le ader, th ere is r e ally

n o a dva nta ge to g lo bal s ca le in s e rv in g lo ca l m ark e ts . T his is b eca use d aily d eal s it e s

are b est s u it e d to m ark e t e xp e rie nce g oods, s u ch a s h air c u ts a t a lo ca l b arb er s h op

or a m eal in a s p ecif ic T hai r e sta ura nt. T he q ualit y o f th ese g o ods a nd s e rv ic e s

ca nn ot b e ju dge d u nle ss th ey a re c o nsu m ed. S in ce th e c re atio n o f e xp erie nce g oods

and th eir c o nsu m ptio n h appen s in th e s a m e g eogra phic s p ace , th ere is r e ally n o

adva nta ge to h a vin g g lo bal s ca le .

O nce im it a te d, G ro upon’s c o m pete ncy to fa cilit a te lo ca l c o m merc e u sin g a n In te rn et

pla tfo rm w as n e it h er v a lu able n or r a re . A s a n a pplic a tio n o f th e V R IO m odel w ould

h ave p re dic te d, G ro upon’s c o m petit iv e a dva nta ge a s a fir s t m ove r w ould o nly b e

te m pora ry a t b e st ( s e e F ig -2 ) [1 ] . Fig u re 2

T he c o m pany’s s tr a te gic v is io n w as to b e a g lo bal le ader in lo ca l c o m merc e , b ase d

on a c o re c o m pete ncy th at c o uld b e d escrib ed a s “ lo ca l m ark e t m akin g.” N um ero us

co m petit o rs to o k a dva nta ge o f lo w b arrie rs to e ntr y a nd th e e a sy im it a tio n o f

G ro u pon’s c o m bin ed c o m pete ncy o f s o m e te ch nolo gy s kills w it h s a le s s kills , s o th at

G ro u pon fo und th at it s c o m petit iv e a dva nta ge w as o nly te m pora ry . G ro upon

co ntin ues to c o m pete b ut n eeds y o ur a dvic e o n h ow to b uild d yn am ic c a pabilit ie s th at

m ig h t h elp it p u rs u e th e v is io n o f b eco m in g a g lo bal le ader in lo ca l c o m merc e .

T he Q uestio n ( 2 0 P oin ts )

H ow m ig ht G ro u pon r e in ve st o r u pgra de it s te ch nolo gy a nd s a le s s kills s o it b uild s a

g lo b al c u sto m er b ase ? F or e xa m ple , a re th ere n ew p ro ducts o r s e rv ic e s th at w ould

m eet th e n eeds o f g lo bal c lie nts in e ach o f th e lo ca l m ark e ts w here th e c lie nt d oes

busin ess? B ra in sto rm w ays th at G ro upon m ig ht a dd v a lu e fo r it s c u sto m ers . H ow

m ig h t G ro upon b uild r e la tio nsh ip s w it h c lie nts th at a re m ore s o cia lly c o m ple x, m akin g

G ro u pon’s c o m pete ncie s m ore d if f ic u lt to im it a te ?

[1 ] G ro upon A nnu al R eport, 2 012; G ro upon in ve sto r d eck, M arc h 2 013; “ In G ro upon’s

$ 6 b illio n w ake , a fle et o f s ta rt- u ps,” T he N ew Y ork T im es, M arc h 9 , 2 011 ; “ T he

eco n om ic s o f G ro upon,” T he E co nom is t, O cto ber 2 2, 2 011 ; “ G ro upon: D eep

dis c o unt,” T he E co nom is t, A ug ust 1 4, 2 012; “ W hy G ro upon is o ve r a nd F ace book

and T w it te r s h o uld fo llo w ,” F orb es, A ugust 2 0, 2 012; “ G ro upo n C EO fir e d a s d aily -

d eals b iz b otto m s o ut,” W IR ED , F ebru ary 2 8, 2 013; “ S tr u gglin g G ro upon o usts it s

q uir k y C EO ,” T he W all S tr e et J o urn al, F ebru ary 2 8, 2 013; “ D on’t w eep fo r G ro upon ex-C EO A ndre w M aso n,” T he W all S tr e et J o urn al, M arc h 1 , 2 013; a nd G odin , S .

(2 00 8), T rib es: W e N eed Y ou t o L ead U s ( N ew Y ork : P ortfo lio ).