Groupon growing fast in Seattle, eyes expansion as it looks to be the ‘operating system of local commerce’

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Vinayak Hegde at the Groupon offices in Seattle

When Vinayak Hegde joined Groupon from Amazon.com 18 months ago, he imagined growing the new Seattle engineering office to about 30 employees. Fast forward to today, and Groupon is bursting at the seams in its offices at 505 Fifth Avenue South, already running out of space on the third and sixth floors.

The daily deal site, which stumbled after its initial public offering but has since bounced back under new leadership following the departure of co-founder Andrew Mason, now employs 127 people in Seattle. And it’s looking to get bigger.

Much bigger.

The company is on the prowl for more office space, though Hegde wouldn’t specify exactly how much.

“I don’t want to give a number, because every number I give, goes wrong,” said Hegde, noting that his earlier estimate on employee growth for Seattle was way too low. “We moved here and within a few months of moving, we were almost full.” It has achieved that growth through a broad-based recruiting strategy, with Hegde saying he spends a lot of time in coffee shops meeting potential hires.

Groupon, like other large technology giants such as Facebook, Google and Salesforce.com, is finding Seattle to be an attractive base of technical talent. It doesn’t hurt that two of the largest e-commerce companies on the planet are also headquartered in the region: Amazon.com and Expedia. In fact, Groupon has formed an alliance with Expedia around Getaways, a deal site for travel destinations that the company says is growing very nicely. Much of the engineering related to that offering is in Seattle, but there are other teams that are taking root here, namely computational marketing and business intelligence.

“We are still recruiting in this market, and we still want to expand…. Anyone of caliber, we hire,” said Paul Taaffe, head of communications at Groupon. “This is a global hotspot, and we started building it out just over a year ago.”

mobile-grouponGroupon has 11,000 employees worldwide. It posted revenue of $601 million for the first quarter as it swung back to a profit, helping the stock recover. (Shares are up more than 80 percent so far this year, with Groupon now boasting a market value of $5.8 billion).

As Groupon undergoes a rebirth of sorts, the technologies being developed in the Seattle office will continue to play an important role. Hegde, who previously served as general manager of worldwide marketing at Amazon.com, said that they are now developing technologies that use big data to better target deals.

“Instead of humans deciding what ad we show, it is machines computing these things and deciding what keyword we should put an ad on and what city should we put an ad on and what should be its value,” said Hegde. That sort of automation and targeting is taking on a bigger importance as Groupon shifts to the mobile world. Forty five percent of Groupon transactions took place on a mobile device during March, and the company now boasts more than 40 million mobile app downloads.

“Consumers have moved from passively buying Groupon — looking at what’s in the email and going to buy it — to it almost becoming a part of their daily habit because they are going into their mobile device and buying,” said Taaffe.

Seattle’s operation also is helped by some of the executives who’ve moved up the ranks in Groupon, some of whom trace their roots to companies like Amazon.com and Drugstore.com. Former Amazon.com exec Jeff Holden, who sold his startup Pelago to Groupon two years ago, now serves as senior vice president of product management. Former Drugstore.com and Global Scholar CEO Kal Raman serves as COO, while former Amazon.com finance chief Jason Child serves as CFO. Another former Amazon defector, Rich Williams, heads marketing at Groupon. (Taaffe declined to offer any insights on the CEO search at Groupon, which is now operating with dual CEOs).

Given all of the Amazon blood in Groupon, one has to wonder what’s in store for the two companies. A face off?

Amazon.com certainly is a beast when it come everything e-commerce, and its Amazon Local service is a direct rival to Groupon. But Groupon believes it’s better positioned to be what Hegde describes as the “operating system of local commerce” — the idea that it can revolutionize how local merchants price their products and services in much the same way that airlines do.

groupon-getaways“If we are truly able to build a platform that allows (merchants) to maximize yield, then we will build the next big thing,” said Hegde, adding that they are working on technologies that target different deals at restaurants depending upon the time of day the patron arrives. Merchants also can now set a limit on the number of deals they want to push through Groupon, or target certain times of year to run campaigns.

With Groupon boasting about 43 million active subscribers and more than 40,000 active daily deals in North America, Taaffe said that they are in a strong position when it comes to competing against Amazon.com and Google (which you may recall tried to buy Groupon for $6 billion). He said that his rivals have less than five percent market share in the space, noting that they are “almost an irrelevant player.”

“The reality is, we can only do these services we are talking about — offering 200 per month; buying by time or buying by place — you can only do that if you have critical mass on merchant relationships and subscriber relationships,” said Taaffe. “And all of the other guys put together, they don’t have the same level of contact relationships and subscriber base, so they can’t go to this type of thing. Great, they are all in the market, but it is really a small fraction of the share.”

What’s next for Groupon in Seattle? More meetings in coffee shops for Hegde who continues to hire at a rapid pace.

“The thing is, we know that we are going to outlast this space. And we need more space. We continue to grow,” he said. “We are going to definitely expand.”

  • http://www.dennisjsmith.com/ Dennis J. Smith

    It’s good to see Groupon on the rebound and creating more jobs right here in the US. I just have to remember to use my Groupons before they expire. :-)