While working as a consultant to restaurants in 2010, Seth Harris had an idea for an iPad POS system that would help them organize seating, orders, and sales. By April of the next year he had created a prototype, and by March restaurants were using it. Two months later, Groupon acquired his company, Breadcrumb, for an undisclosed sum.
The three-month process from product release to acquisition might seem like a whirlwind for Breadcrumb, but scooping up young startups has become an almost monthly occurrence for Groupon (and an increasing number of others—see Twitter's recent acquisition of Vine). In 2011, Groupon acquired 11 companies. This year, it has already acquired at least eight more.
Some of these companies were acquired for their talent. Many focus on recommendations or e-commerce (Groupon launched its own e-commerce service, Groupon Goods, last year). Others are daily deals companies that have gained traction outside of the United States.
But there's another reason Groupon has been doing so much startup shopping: Its new strategy requires new products.
"Today, Groupon is a marketing tool that connects consumers and merchants," explained CEO Andrew Mason in a letter to stockholders this May. "Tomorrow, we aim to move upstream and serve as the entry point for local transactions."
Groupon’s new mission, Mason writes, is to become "the operating system for local commerce."
Instead of offering only daily deals to its clients, Groupon is arming its thousands of salespeople with an entire suite of services for local businesses. Last year, it unleashed Groupon Scheduler, a tool for booking appointments online that is based largely on a product it acquired called OpenCal. In May, it launched a Rewards program. And last month, it announced a new payment service that, like Square, allows merchants to accept credit and debit cards using a dongle attached to a mobile device. That made its March acquisition of credit card processor comparison site FeeFighters make more sense.
On Wednesday, Groupon officially brought Breadcrumb into the fold (by putting the product on its website and giving it a press push).
This time the startup and its product have remained mostly independent. It’s still called Breadcrumb, not "Groupon Restaurants." It’s kept about 30 customers it had before the acquisition and added about 70 more.
The general manager of The Smile, a NoHo restaurant at which I've met Harris to demo the admittedly very slick app, has been using Breadcrumb since Christmas. She says she didn’t really notice when the company changed hands, except that its support services improved. She’s not using Groupon’s new payment service within the app. Nor has she ever run a Groupon deal. But the $99 the restaurant pays each month to use Breadcrumb on one iPad is now ending up in Groupon’s bank account.
Groupon’s September acquisition of restaurant reservation system Savored seems to be working the same way. The site is still running the same way it was before Groupon acquired it.
Savored’s continued independent existence and Breadcrumb’s launch suggests that Groupon’s "operating system for local commerce" looks more like a patchwork of independent, startup-grown tools than one machine. Groupon won't comment on the revenue these tools are creating, but it's invested heavily in them.
"Distribution is one of the key things we needed," Harris says about why the acquisition works well for Breadcrumb (in addition to a big pile of money, of course). "Groupon could help us do that."
"It’s a for-profit company," Paul Taaffe, Groupon’s head of communications, reminds me when I ask Harris why the deal makes sense for the company that acquired him. "Standalone, it will generate profits for Groupon."
[Bread Image: Petr Jilek via Shutterstock]