Groupon & For-Profit Social Impact

The NTEN conference call interview I did with Groupon’s head of social innovation Patty Huber last week went well. Patty fielded my conceptual questions as well as lots of nuts and bolts technical questions from the large audience. I learned a couple of interesting things. (See my post on the idea of Groupon as a social enterprise for background).

Most interesting to me was the fact that while Patty’s title is head of social innovation and the G-Team concept is directed at helping nonprofits benefit from Groupon’s services, the G-Team project is a purely for-profit project. While Groupon takes no cut of funds raised via G-Team, the activity is profitable for them because it brings new users to the Groupon platform. These new users often make subsequent purchases and so G-Team acts as a sort of profitable marketing investment for Groupon.

While I can already hear some people complaining that this somehow minimizes the degree to which we might celebrate Groupon’s efforts, it of course also means that the G-Team concept and the degree to which nonprofits can benefit from Groupon’s efforts can scale incredibly rapidly. The G-Team is simply not corporate philanthropy. It is a profitable project that is fully integrated into the business model of Groupon.

How fast can it scale? Well the Wall Street Journal reported this weekend that Groupon did $33 million in revenue in 2009 and $760 million in 2010! CEO Andrew Mason wrote in a memo to his employees that he hopes they achieve “billions in revenue” in 2011.

One of the reasons Groupon is growing so quickly is that they are considered one of the first, and certainly the most meaningful, successful approaches to helping local businesses leverage online marketing to drive sales. G-Team is simply acknowledging the fact that “local businesses” include nonprofits. Of course, as it was pointed out by an audience member on the call, helping local businesses grow is a pretty good form of job creation and so there’s an argument that Groupon’s core business is creating social impact.

To me, the big take away is that Groupon is a good example of the way in which a for-profit company can create a blend of social and financial impact. They are a living, breathing, quickly growing example of Jed Emerson’s Blended Value proposition.

One Comment

  1. I would agree that it’s not corporate philanthropy, it is cause marketing. This marketing activity costs $X and yields an estimated customer lifetime value $Y for a cost of customer acquisition that is lower or comparable with alternative marketing activities. Good on them supporting a customer acquisition strategy that has a social impact.

    I completely agree this should be celebrated and in no way is it somehow “less” than a business model that intrinsically and directly generates social impact (what I tend to think of as social enterprise) or even a corporate philanthropy effort that generates social impact.

    I think the far more interesting debate is whether there is utility in dissecting and distinguishing between the different methods that for profit firms can and do generate positive social impact.

    Many years ago I did work for a mining company in Africa that was basically strip mining coastal sands. The mining concession was negotiated well by the country so the mining company was going to do a huge amount of community development and income generation on the coast after it was strip mined. There was a clear and measurable positive social impact directly attributable to their for profit activities — but I doubt anyone would have referred to that as blended value.

    The really interesting debate is whether there is a difference in value or desirability between regulatory-required social impact, cost-driven social impact (lower customer acquisition costs, lower costs through energy efficiency, etc.) or social impact that is intrinsically part of a business model.

    And of these different types of real and measurable corporate positive social impact, which yields the most significant social impact? Which yields the most sustainable social impact?

    I actually fall on the side that Walmart can have some of the most significant global social impact just by virtue of the magnitude and structure of its supply chain — and they’ve been creating significant positive social impact (primarily environmental) by changing their business processes related to suppliers. Groupon is achieving social impact by virtue of their growth rate.

    Other more traditional “social enterprises,” on average, can’t achieve anywhere near the same scale, in my opinion.

    Taking this line of thought to a conclusion, does that mean that social investors and foundation endowments would have greater social impact by investing in GroupOn and Walmart?

    There is no magic answer here, but I think there is value in unpacking the ideas.