A few selections from Groupon’s Q4 2014 earnings call*:
We also made progress in the quarter across our 2014 strategic initiatives, in which we focused on building a local and mobile marketplace that we could eventually export to every country in which we operate. For us to fulfill our vision, we have to get local right and create a geographically relevant experience for our customers every time they interact with us. And to get local right, we believe we have to basically do two things.
The first is to create a marketplace filled with enough high-quality inventory that our customers can find just about anything they are looking for locally, and save money while they are at it. We need Groupon to become a daily habit that our customers check first before they make a purchase. We began building this marketplace about two years ago. We now have more than 135,000 deals available on Groupon in North America, not counting coupons or specials, which is up from 80,000 a year ago.
While this might seem like a lot, we’ve come to realize we need more inventory in our market to create a more ideal consumer experience. Our consumers are still burdened with far too many null search results when they look for something on Groupon. To augment our primary efforts and help populate our market, we built merchant pages, a new product that helps us display the nearly 25 million tips and ratings we’ve collected. Creating the start of a transactional relationship between us and the universe of merchants we don’t do business with today.
We build millions of pages, and have begun to index them in search. Today, we have released over 800,000 of our merchant pages to be indexed on Google, up from over 500,000 a quarter ago. When it comes to the rollout of pages, we are taking a city by city approach, targeting our top markets first.
Ultimately, we believe the success of pages will be measured by how much revenue they generate, but today, you can look at two metrics to measure their progress. First nearly 800,000 people have begun following our merchants or have hit Request A Deal on pages. Second, they have generated millions of unique visitors for Groupon. So, while we’re pleased with the progress to date, as our customers are engaging with them and they are generating meaningful traffic, it’s still early.
While we are focused on the quantity of deals in our market, it’s not enough to just get more merchants on our platform. We also need the best merchants. We’ve always been willing to do whatever it takes to get the very best merchants to run deals with us. If that meant lowering discounts or take rates, we’ve done so.
In Q4, our local take rate in North America was down roughly 250 basis points compared to last year, and yet the gross profit dollars we generate from local were higher. With profits measured in dollars rather than percentage points, we would happily trade a bigger business at lower take rates for a smaller business at higher take rates, as long as the trade-off produced more dollars at the end of the day. That said, we expect take rates to remain relatively stable in our North American local business throughout 2015.
The second thing we need to do to get local right, is to ensure that our customers have an amazing experience every time they buy a Groupon. The current experience is far from perfect. Too many customers let their Groupons expire, the process of booking appointments or reserving tables is still manual, and when you’re at a merchant, paying your bill can be clumsy at times.
We need to make the experience of using a Groupon easier than not using one. Over the past few years, we’ve invested significant time and money in connecting merchants to our marketplace through our in-store tablet, which used to be called Gnome, we provide a point of sale system to our merchants that don’t have one, a payment platform, dashboards, and analytics, and a redemption device, so our customers can redeem their Groupons by name or through Bluetooth signature without ever pulling their phone out of their pocket.
We’ve now shipped about 10,000 tablets, and intend to continue rolling them out nationwide in 2015, focusing on those merchants that have the highest frequency of Groupon customers coming through their doors. In an effort to bring some of the capabilities of our operating system to a broader set of merchants, we’re launching an additional product that utilizes beacons, which are available for merchants who claimed their page.
With pages and beacons, merchants will be able to upload content, get real-time access to customer feedback, track consumer behavior, and use proximity signals to connect to nearby customers from our community of almost 110 million people that have downloaded our app so they can run targeted promotions to attract new customers. Beacons are our lightweight solution for merchants that don’t do enough business with us yet to warrant us shipping a tablet.
As with the merchant tablet, there is no significant financial implication of us deploying beacons. Both are typically paid for by the merchant, or have a very short term return. Tablets and beacons are powerful tools for merchants and consumers. But, they’re only part of the solution to improve the experience of using Groupon.
We are also rolling out our new booking engine to more deals, and expanding the ability for merchants to offer discounts that are both day of week and time of day sensitive. Our goal is to have tens of thousands of merchants using these tools by year-end.
And finally, we are building a suite of new products that we believe will enhance our customers ability to pay their entire bill at a merchant using their Groupon account, so they don’t need to pull out their credit card or try to reconcile the amount they owe.
As you can see, we have a lot going on. But each of these initiatives is aimed at making the process of buying and using a Groupon easier.
*This excerpt contains forward looking statements. Groupon’s earnings materials, including a message on the use of forward looking statements, are available at www.groupon.com under the heading “Investor Relations.”
