How to Fix Groupon

In my last post, I exposed a few flaws in the Groupon system that allow you to reuse Groupons endlessly until they are expired. After Andrew Mason, founder of Groupon, took the time to comment, I now feel obligated to write this follow-up. The problem - how can businesses verify the validity of a Groupon at the time of transaction without it being a pain for customers? First, a little background on their current process as I understand it. When a merchant has their Groupon sale, they set the number of Groupons that must be purchased in order for the deal to go live. After Groupon has sold all of the coupons, they mail the proceeds minus their fee along with a list of valid Groupon numbers to the merchant. It is then the merchant's responsibility to accept and validate Groupons that customers present whether they are printed or displayed on a device such as through Groupon's iPhone app. The problem, as I pointed out in my last post, is that many, if not all, merchants don't verify the Groupon number at the time of sale. If they were presented with a fake Groupon number or a number that has already been used, they won't know until the transaction is completed and the customer is out of site. Groupon's stance is that they do not want to burden the 99.9% of people who follow the rules just to protect against a few rotten apples. There are two main sides to consider when approaching this problem. First, it can't affect the customer's experience. Waiting longer to checkout, jumping through more hoops, or creating a situation where the merchant is distrustful towards customers is not going to work. The other side is the merchants. They don't want to invest in hardware or software, or teach their employees some advanced procedure just to verify a Groupon. Keeping these restraints in mind, I've come up with three ideas for merchants to plug Groupon's loopholes.

1. API

Everyone has an API these days. It's how things get done on the internet. Groupon could develop a simple API that accepts the venue and coupon number and return valid, expired, used. Give this API to developers and let them integrate it into existing apps or allow them to build their own. Existing services such as could allow people to indicate they plan on using a Groupon and enter their coupon number (having it validated in the process) when they make a reservation. Salons and spas who have online scheduling tools like ScheduleThing could accept and verify Groupon numbers as well. Merchants with PCs, smart phones, or tablets could run the code through a simple URL in a browser like

2. SMS

Cell phones and text messaging are ubiquitous so an SMS verification option would be extremely easy to implement for a merchant with a budget. You would text the Groupon number to an SMS shortcode and receive a verification back if the number is valid, expired, or used. Think of My Coke Rewards only simpler. Scenerio: waitress comes to drop off the bill, you present your Groupon, she whips out her cell phone and texts in your code, she gets a response almost instanstly (it's going to space give it a minute), and the bill can be adjusted accordingly. Simple, easy, almost frictionless.

3. POS

Point of Sale systems are typically proprietary, closed, and expensive. They are the last option for integration with simplicity as a goal. This doesn't mean they can't play a part in validating Groupon numbers. Perhaps the POS would work with another solution to create a papertrail for management. When the waitress who texted in the code in my earlier example, she has to adjust the bill for a new amount. Her boss needs to know why, and the POS could report this. Tracking the use of Groupons with a POS would also expose to management how many of the Groupons they sold have been used. With Groupon's recent $30 million funding, perhaps they would be able to approach POS vendors to include a custom software piece for validation. It could be built direclty into the interface so a waitress or bartender or salon stylist or other generic register operator wouldn't need to do anything differently than they do to add a milkshake or bloody mary or boy's haircut or widget to the bill. Those are just some quick but realistic ideas for making Groupon better and more secure for merchants. Groupon has a great and trustworthy community, but as it grows more people will test the boundaries of the system at the expense of the merchant. For a company projected to have $100 million in revenue this year, I would think they'd look into fixing some of their security issues.


Forget $100 million in revenue. Groupon has now been valued at $1.35 billion.

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