On Groupon and its founder, Andrew Mason

THE REAL DEAL: Groupon, the social-media-driven shopping site, is the hottest Internet start-up in town. Can it become the city’s big high-tech breakthrough?

With Groupon, Andrew Mason has brought collective dealmaking to the computer. Photo: Taylor Castle

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Sliding into a chair at Japonais for an early lunch, Andrew Mason does not look like a multimillionaire CEO. With an untucked sartorial style and a tendency to stare at the table rather than make eye contact, the tall, wholesome 29-year-old seems more like the boy next door than the next Steve Jobs or Jeff Bezos—tech superstars to whom Mason is being compared in the business press.

“I’m just not used to talking that much about myself,” he says. “It feels strange.”

He doesn’t have the CEO patter down, either. That is part of his charm. Currently, as founder and chief executive of Groupon Inc.—the Chicago-based Internet business that has partnered social networking with bargain hunting—Mason has pulled together the biggest venture capital deal in the city. In April, Groupon announced that it had attracted $135 million from venture capitalists as widespread as Battery Ventures in Menlo Park, California, and Digital Sky Technologies in Moscow. The recent influx of funds places a $1.35 billion value on Groupon, according to TechCrunch, the online news source that reports on startup companies, products, and websites. ChicagoBusiness.com stated: “Groupon represents Chicago’s best hope of finally breaking into the internet big time—and attracting the talent, investment and attention that have eluded the city for decades.”

Each day, Groupon—the name is a mash-up of “group” and “coupon”—offers one localized “unbeatable” deal to more than six million Americans in 67 cities (plus deals in 14 other countries) who have signed up to receive its e-mail promotions. Recent Chicago offerings included $25 for a Segway tour of the lakefront ($49 value), $11 for a hand car wash ($27 value), and $55 for a hot stone massage ($220 value). For the deal to go through, a certain number of people have to buy in—if the number isn’t reached, the deal is off. (See “How Groupon Works.”)

The premise is “dead-simple value that you can comprehend by looking at one page in three seconds,” says Mason. While Mason declines to disclose specific revenue numbers, Groupon’s website states that since its beginning in November 2008, Groupon has sold more than six million deals. With Groupon taking 50 percent of every deal, plus a small credit-card handling fee, revenue is expected to top $350 million by the end of this year—a number that Mason doesn’t actively dispute.

“Really, it’s a way to get out of the house, to explore the city—an expensive city—and to spend more time with your friends or loved ones,” says Mason, who lives in Ukrainian Village with his longtime girlfriend. Others take a less modest view. The Wall Street Journal called Groupon “today’s web darling,” and ChicagoBusiness.com placed Mason and Groupon in “one of technology’s epic land grabs comparable to the race to dominate Web browsers, online auctions, and social networking.” Matt McCall, a venture capitalist with the Chicago-based New World Ventures, says: “Groupon has created the most lucrative monetization engine for the Internet since Google Search, and they have cracked the code on local marketing. They have a lot of headroom for growth ahead of them.”

As for Mason, he doesn’t seem to be caught up in all of the hype. “I never thought of myself as an entrepreneur before this,” he has often said, “and I still really don’t. I just like to build things and do things.”

 

It all started in 2006 with a problem with Mason’s cell phone contract. “I had to cancel my contract, and it was such an ordeal,” he says. “I just thought, There has to be a large number of people with these same problems, and if we were united in some way, we could leverage our collective power.” That got him pondering the idea of an Internet-driven network similar to social networking sites like Facebook but aimed at organizing people to take collective action. “This broader platform would be for people to come together over problems they can’t solve alone—an ‘I’ll do something but only if I can get 150 other people to join me’ kind of thing.”

Growing up in Mount Lebanon, a suburb of Pittsburgh, Mason showed an early eye for creative organizing. At 15, he started a Saturday morning delivery service called Bagel Express. He came to Illinois to attend Northwestern University, and after graduating with a degree in music in 2003—he plays piano and used to be in a rock band—he worked in web design for companies started by the Chicago serial entrepreneur Eric Lefkofsky.

Described by a former colleague as “hyperkinetic” and “a tough negotiator,” Lefkofsky has helped start a number of Chicago businesses over the last two de-cades, including Starbelly, an online-only promotional product company. In January 2000, just before the dot-com bubble burst, Lefkofsky and his partner sold Starbelly to Ha-Lo Industries for $240 million. Opinions about Lefkofsky vary. In 2009, the Chicago Sun-Times stated that since the sale of Starbelly, Lefkofsky had emerged as arguably “the most successful and prolific internet entrepreneur in Chicago.” Yet, in 2007, Barron’s described him as someone “who has a history of busting investors after promising to radically transform bricks-and-mortar industries.”

“I’ve just found Eric to be a great mentor,” says Mason. In September 2006, Mason left Lefkofsky’s employ to attend the University of Chicago’s Harris School of Public Policy on a scholarship. That was about the time he encountered problems with his cell phone contract. Following his interests, Mason started working on a web-based platform for organizing collective action based on the principal of a tipping point (the number at which many small individual items reach critical mass).

Word of the project reached Lefkofsky. “I learned early on—when Andrew was working for me at Innerworkings—that he was super talented,” says Lefkofsky. “And there aren’t many brand-new Internet ideas. So I knew immediately that he was on to something.” Lefkofsky asked Mason to put together an outline about his business idea. Mason did, and then Lefkofsky offered $1 million to bankroll the venture. “I was beyond stunned,” says Mason. “I didn’t know people actually did things like this.” Seizing what he felt was a once-in-a-lifetime opportunity, Mason dropped out of school and started developing what would become The Point, a web platform that allowed anyone to write a campaign exhorting others either to do something (stage a demonstration, for example) or give money to a cause (say, make election day a national holiday). People could make a monetary pledge and enter their credit card numbers on the site, but they would be charged only if a predetermined tipping point—a campaign’s target number of people or money—was reached.

Launched in November 2007, The Point has drawn some esoteric causes, to say the least. Mason used the site to propose building a dome over Chicago, thus protecting the residents from winter weather. “And some people pledged $5,000 or $10,000 toward this goal,” he says. “If you think of the value of making winter obsolete in Chicago, it’s phenomenal. The Point offers an intriguing way for people to think about what something is worth. That’s the question that usually gets in the way of solving big problems.” (Ultimately, $234,395 was pledged toward the set goal of $10 billion.)

After about a year, Mason says, Lefkofsky “started prodding me to figure out how The Point was going to make money.” Mason identified three possible ways: selling advertising on the site, taking a piece of the fundraising, or collective buying. “Definitely, collective buying seemed the most interesting,” he says, “because it was the most unknown.”

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