Overview of the Group Buying/Daily Deals space

1. Daily Deals David Wolfe – COO – BuyWithMe david@buywithme.com 6/13/2011 1 DMCNY Breakfast Series

2. Table of Contents The Market Consumers Merchants Deals Groupon’s S1 Future 6/13/2011 2 DMCNY Breakfast Series

3. The Market – “Daily Deals” defined “Daily Deal” platforms provide a way for local businesses to connect with local customers. Consumers use the platforms to discover new local businesses , get deep discounts, and share them with their friends. Local businesses use the platforms to acquire new consumers on a performance basis. A daily deal is an online CPA based marketing campaign for a local business 6/13/2011 3 DMCNY Breakfast Series

4. The Market - History 6/13/2011 4 DMCNY Breakfast Series – [source Yipit]

5. The Market – Industry Structure 6/13/2011 5 Daily Deal Sites MERCHANTS CONSUMERS Vertical Deal Sites White Label Publishers Data Merchant Services Exchanges Aggregators Consumer Services Merchant Agencies SOON… DMCNY Breakfast Series – [source Yipit]

7. Affluent

8. 25 – 40 year olds dominateDMCNY Breakfast Series – [source Yipit]

9. The Market – Revenue Groupon’s 1st quarter 2011 revenue - 655 million These projections are already too conservative 6/13/2011 7 DMCNY Breakfast Series [source: Silicon Alley Insider & EMarketer]

10. The Market – Barriers to Scale 6/13/2011 8 The Virtuous Cycle of Daily Deals More Cities More Sales More Salespeople Improved Media Buying More Conversions More Deals More Deal Personalization More Subscribers DMCNY Breakfast Series [source: Needham & Company LLC via Yipit]

12. Consumers – Basic experience 6/13/2011 10 consumer & merchant consumer consumer consumer Discovers deal Participates in group buy Retrieves voucher Redeems Merchandized deal delivered through notification or app Payment authorized & cc stored Deal activated & payments captured Voucher’s activated for print or mobile access redemption processed [mobile or bulk process] Daily Deal Systems payment processor DMCNY Breakfast Series

13. Consumers – Benefits 6/13/2011 11 DMCNY Breakfast Series

14. Consumers – Acquisition 6/13/2011 12 Groupon’s 1st quarter marketing spend 250 million Industry eCPL’s : 5 – 10 $ range Industry CAC : 10 – 45$ range Industry LTV : 30 - 60$ range [annualized] Industry Buyer/Subscriber ratios ~ 20% Creative themes – general service value prop & business category based (Hungry, Bored), deal specific DMCNY Breakfast Series

15. Consumers – Challenges 6/13/2011 13 Over 50% of all revenue producing Daily Deal transactions are the direct result of an email. Can email remain the primary driver of engagement? Inbox collisions and email fatigue seem likely Little product and user experience differentiation Archaic redemption methods Adoption of mobile services remains under 20% across industry DMCNY Breakfast Series

16. Merchants – Basic experience 6/13/2011 14 consumer & merchant merchant merchant merchant merchant consumer Signs-up Co-creates deal Consumers redeem Retrieves $$ & statistics Deal is scheduled Deal runs Merchant identity & attributes stored Deal created & editorial and image assets stored Deal inserted into production schedule Redemption processed [real-time mobile, bulk voucher] Campaign stats in merchant portal. Check sent Deal merchandized to consumers & vouchers sold Daily Deal Systems DMCNY Breakfast Series

17. Merchants – Benefits 6/13/2011 15 DMCNY Breakfast Series

18. Merchants – Acquisition 6/13/2011 16 Local businesses are “sold” deals, they don’t “buy” them. Effective merchant acquisition and retention require investment in specific organizational structures - Merchandising, Sales, & Account Management teams Deal /campaign creation requires significant hand-holding. Groupon’s self-service initiative not very successful to date. 250-750$ eCPL for small businesses with assisted model Large, trained, inside/outside sales force requirement for performance at scale. DMCNY Breakfast Series

19. Merchants – Profitability 6/13/2011 17 DMCNY Breakfast Series [source: Yipit]

20. Merchant – Challenges 6/13/2011 18 Daily deals are an effective customer acquisition vehicle, but are less useful for retention and win back The only basis of platform differentiation from a merchant perspective are volume and quality of consumer’s delivered Return on marketing investment a hotly debated topic. Repeat visitor percentages sufficient for positive ROI not always met. Fractured technologies for managing redemption - vouchers & smartphones. Beginning to see innovation around POS and payment systems integration. DMCNY Breakfast Series

21. Deals – Categories 6/13/2011 19 DMCNY Breakfast Series [source: Yipit]

22. Deals – Revenue/Volume 6/13/2011 20 DMCNY Breakfast Series [source: Yipit]

24. Run Rate Revenue: $2.6B (Q1 2011 annualized)

25. Revenue Growth: 2241% YoY (2010 vs 2009), 1357% YOY (Q1 2011 vs Q1 2010)

26. 2010 Gross Profit: $280M

27. Run Rate Gross Profit: $1.1B (Q1 2011 annualized)

28. Gross Profit Margins: 42% (Q1 2011), 39% (2010), 36% (2009) --> i.e. for every $1 of Groupons sold, the company currently keeps $0.42 in net revenue and passes $0.58 to the merchant

30. Cumulative customers (unique buyers of Groupons): 15.8M (Q1 2011), 9.0M (2010), 0.4M (2009)

31. Featured merchants (may not have tipped): 56.8K (Q1 2011), 66.3K (2010), 2.7K (2009)

32. Groupons sold: 28.1M (Q1 2011), 30.3M (2010), 1.2M (2009)DMCNY Breakfast Series

35. Are margins sustainable

36. Will businesses still need to mortgage profits in the name of cash flow

37. What percentage of merchants repeat

38. Fraudulent merchants

39. Dependence on lengthy merchant payment cyclesNot all press is negative– Yipit - “The Reports of Groupon’s Death Are Greatly Exaggerated” DMCNY Breakfast Series

40. The Future - Questions 6/13/2011 23 How many competitors can the market support at scale? How will Facebook and Google fair? When will the competition for qualified consumer’s abate? Will email remain king? What kinds of product innovations and partnerships will occur in the mobile, location based services arena? What kind of product innovations will occur to simplify redemption and create real track-ability? Will the capital markets continue to fund “less than profitable” growth? How will deal types evolve? DMCNY Breakfast Series

41. Thank You David Wolfe – COO – BuyWithMe david@buywithme.com 6/13/2011 24 DMCNY Breakfast Series