Feature Friday: An Inside Look at Groupon Taiwan with Co-Founder Andy Kuo

This post was contributed by our friend’s at TechOrange Global and written by Jeremy Brand Yuan. Original post here.

TechOrange Global is a tech-based blog based in Taipei that aims to deliver the latest in the tech industry in Asia, offer insight through in-depth interviews with entrepreneurs and investors, and cover any major tech conferences or events occurring in Taipei. They hope to reach the English-speaking audience who are interested in the development of Asia’s Internet and technology landscape.

TechOrange Global is extremely pleased to release the first of a series of weekly features on the Taiwan startup industry. Read more about TechOrange Global and Feature Fridays here. This week, we sat down with Andy Kuo, COO and co-founder of Groupon Taiwan. Some highlights of the interview include:  —The transition of the Groupon model from the US to Asia —The role of social networking in developing a group buying business —The climate of Taiwan’s tech industry

Early in December of 2010, Google offered US $6 billion to acquire Groupon, the celebrated group-buying website. Pundits criticized Google for extending such a massive bid – nearly $3 billion more than its largest acquisition to date, Doubleclick – and expected Groupon to welcome the deal with open arms.

Instead, Groupon rejected the offer.

That very same week, Groupon announced its acquisition of three Asian group-buying websites in four countries. In one fell swoop, Groupon gained a strong Asian foothold in the form of Groupon Hong Kong, Singapore, Taiwan and Philippines. The gauntlet was thrown and tech observers were stunned: not only was Groupon refusing to sell, it had serious expansion ambitions of its own.

Those few days were similarly monumental for brothers Andy and Jerry Kuo, whose location-based social network, Atlaspost (地圖日記), was beginning the transformation into Groupon Taiwan. Founded in 2007, the social networking site that boasted millions of registered users had entered into the group buying market only five months before its acquisition. Impeccably timed, their introduction of group buying to Taiwan attracted the attention of Groupon CEO Andrew Mason who purchased the Taipei-based company for an undisclosed amount.

Earlier this week, Andy Kuo was gracious enough to sit down with us and tell us the Atlaspost story – a journey beginning in the start-up phase and continuing to Groupon and beyond. Below is an inside look at the company’s genesis, the challenges faced, and the outlooks on Taiwan’s startup climate.

THE BEGINNING: ATLASPOST’S STARTUP AND DEVELOPMENT

We were invited to Groupon Taiwan’s recently expanded office and were greeted on a newly added sales floor. The environment seemed new; new staff at new desks, new target markets scrawled on new whiteboards. The strikingly large, open office seemed to have been constructed with haste, as if in the bustle of post-acquistion, decorative touches took a back seat to the new Groupon directive: to grow, grow, grow.

Groupon Taiwan’s COO Andy Kuo, a slender, bespectacled man with a friendly smile, emerged from an office room and shook our hands. While on the elevator to the older upstairs offices, we made small talk as he explained the layout. “We just left sales, up here we have engineering, customer care, marketing, and finance.” When asked the ratio of people working on Atlaspost and Groupon, he replied, “very few still work on Atlaspost anymore.” We sat down in a nondescript meeting room and our interview began.

TO: How did Atlaspost start?

AG: It started in April 2007. At the time, we didn’t start a company, it was just my hobby. I was as a software engineer in Yahoo and when I came back to Taiwan I felt I couldn’t find a good job. So I studied for the GMAT and went to back to the US . In my spare time, I did some programming because I felt that if I didn’t, I wouldn’t be able to keep pace, so it was a side project.

TO: What was the site originally like?

AG: It took three weeks to build the website. At the time in Taiwan, blogging services were popular. We already had blogging functionality, but very few sites at the time used maps in their webpage. At the time, there was no such thing as a Google API, very few people had ever seen anything utilizing geolocation. I thought these two could be combined together, if you could see a blog post on a map, you could share content with people around your location. We thought this could be a business, so my brother joined me shortly after. The idea was very rough. We didn’t know how to make money, there was no profit model or anything. At the time though, a lot of people were thinking about web 2.0, so we attracted a lot of attention.

TO: At what point did you and Jerry decide to incorporate group buying?

AG: After about three years, in the middle of 2010, we felt that we had a pretty well-established user base and thought it would be cool to help them make purchasing decisions. We actually tried to do group buying as a separate VC, but we failed at that because there was no incentive for people. In Taiwan, when people shop, they go to Yahoo or PCHome and the interest from VC’s just wasn’t there. So, for the first three years our income was very limited, coming only from advertising and premium membership. Because of this, we decided to introduce the Groupon model to our site. On the very first day, we had an offer for Movenpick ice cream that went really well. We saw that we could successfully drive traffic from the social network to group buying. It really worked.

At the time we already faced a lot of competition. I think our advantage was we had the user base. Other companies spent a lot of advertising on Yahoo or Google to attract users, but for us attracting traffic was almost no-cost.

NEW TRAJECTORIES: GROUPON’S ACQUISITION

TO: How important is the social component in the group buying model? Do you think this was a primary factor in attracting Groupon to Atlaspost?

AG: In the very beginning, 100% of our traffic was from our social network. It really helped because there were a lot of opportunities to use the social elements to encourage users to spread the word, so it was very powerful. Additionally, we didn’t put much effort into developing the user base, but the traffic kept growing anyway. It was a big advantage.
I don’t know if it was a big selling point for Groupon, but it certainly was a selling point for the merchants.

TO: Were any adjustments to the business model required in Taiwan?

AG: The model itself worked very well, the only thing we had to change was the makeup of the deals we offered. The Taiwanese like to eat and spend a lot of money on restaurants, so we tailored most of our deals towards dining and the next most popular category, spas.

The merchants were very receptive as well. In the past, many restaurants might have liked to run internet campaigns, but didn’t know how or were hesitant to do so. If they ran a search engine marketing campaign, it wouldn’t have made sense considering how local their businesses were. Their concern with internet marketing was the uncertainty of how many new customers the money spent would get them.

I think now, the [group-buying] model has become a widely accepted form of local marketing, so the merchants are very well educated with what we can offer them. More than half know our brand. It’s also good because so many of the competition simply clone Groupon, they feel safer dealing with the original brand. Sometimes, a merchant contacted by the competition will call us to compare packages.

TO: How much flexibility did Groupon give Atlaspost in terms of vision? How has the culture changed?

AG: There is still a high degree of flexibility. We’ve kept our product team and engineering team, so we are still running our own platform. At the same time, we are able to leverage the Groupon resources as well while still maintaining our local team. The Groupon acquisition made us more powerful overall.

In terms of culture, the company has grown a lot. We used to be a much smaller company. In the past, the personnel focus used to center on product engineering and creative people to think up new features. Now, with Groupon it’s all about efficiency and how to make your customers satisfied. It’s a very different business – one year ago we didn’t have any customer service, because that’s not very important for social networking. But now we treat our merchants very well, because a happy merchant will deal with us again. So, we had to bring in a lot of people to do customer care, which doesn’t even deal with the website, to ensure that our merchants will like to be featured again.

TO: Other than capital, what was the biggest benefit of the acquisition?

AG: Branding has been key. A year ago, nobody knew what we were doing. We used to have to explain the idea, explain that Groupon was having great success with it in the US. Today, we don’t have to as much, especially now that it’s here in Taiwan. It’s a very strong brand.

TO: After the acquisition, what unexpected difficulties did you experience? Did you have to pivot your focus at all?

AG: We were already doing most of what Groupon was doing before they acquired us, so it was a really smooth transition.

The main issues didn’t come from the acquisition itself, but from Taiwan-specific conditions. There are a lot of legal limitations: because we lack the licenses, we can’t sell any medical services or travel deals. Everytime we want to feature something, we have to ask our lawyers. More and more often, they say no, no, no.

Another difficulty: in the beginning consumers were not willing to pay over the internet, especially when we were not that big. Students tend not to have credit cards, which was true then too. So we needed to improvise and develop an ATM payment method. Once we set that up things were a lot smoother.

TO: There are other players in the groupbuying space here in Taiwan like gomaji.com and 17life.com. After teaming up with Groupon, did the competitive landscape change at all?

AG: For sure. The number of competitors continues to grow, but our market share after the acquisition has been increasing every month. This market has always been very competitive, and the number of entrants continues to increase. But now, our branding is so much stronger now than when we first started, we feel less threatened than we did last year.

TO: Do you think the new entrants to the Taiwan market were more attracted by the headlines of a major acquisition, or was it a realization that the group buying market is viable?

AG: I think it’s more of the latter. Many new competitors are big companies who have thought very carefully and have come to the conclusion that the model works.

TO: Speaking of bigger companies, after Google’s failed bid, they have begun to roll out Google Offers in the US. Is the largest threat homegrown or from a large established major player like Google?

AG: [laughs] Actually, we prefer not to talk about Google. We should probably focus on the local competitors.

TO: Is the threat of the homegrown competitors very large?

AG: I think last year I felt that it was very large, but less so recently because of our growth.

LOOKING AHEAD: NEXT YEAR AND BEYOND

TO: Going forward, what are your main growth goals and targets for this year?

AG: Initially, we were only in Taipei. The nature of the business is so local, it’s unlikely that someone from Kaohsiung will come to Taipei to buy services, so our main focus is to expand to all the cities in Taiwan, of which there are many. Right now, we are in six cities and we will continue to grow and try to increase more purchases per day in these cities.

TO: What about Groupon as a whole? Have there been any mandates set for the newly acquired businesses to align to, especially with regard to Asia as a whole?

AG: I think for sure they have some goals, but I cannot disclose them! [laughs]

TO: Are you optimistic about your chances in Asia?

AG: As Groupon Taiwan, we would prefer to talk only about Taiwan. The model works well in Taiwan, group buying has existed for a while, just not online. Now we have a platform for young people to try it and they are crazy about it, it’s worked very well.

TO: If Groupon were to go public, how would that affect Groupon Taiwan?

AG: [with a purposeful, polite smile] I don’t know.

TO: Browsing the internet, I notice a lot more Chinese banner ads for Groupon. Is there a specific demographic you are targeting? Have some advertising methods been more successful than others?

AG: More than 50% of our users our female. But we aren’t specifically targeting one group more than another. Young or old, no matter what, everyone likes the products. As for advertising media, we’ve tried many different methods. We still use our social network to drive traffic and we’ve tried Google, Facebook, and Yahoo and they have worked very well. If you are seeing it now, it means it’s been working.

A NEW SUCCESS STORY FOR AN OVERLOOKED START-UP INDUSTRY

TO: One of TechOrange Global’s main focuses is on the start-up industry, especially here in Taiwan. One of the reasons we were attracted to your company was that you started small. What does the future hold for Taiwan’s startup industry?

AG: I think one challenge is that it’s so difficult to get funding here. So many young, talented people start companies with their friends or family, but the VC’s view Taiwan as too small of a market. So companies generally rely on angels, but even angels have a hardware focus.

When we started Atlaspost and looked at the industry in Taiwan, the market did seem small. There are 23 million people here, of which 15 million are internet users. If 0.1% of people are willing to pay for premium membership, it certainly looks small. But, the total dollar value of their e-commerce is very big. When evaluating group buying and other possibilities, it was evident that e-commerce companies could do very well. You don’t see the resistance to buying online and using credit cards that you did three years ago – the Taiwanese are willing to buy online.

TO: There’s been a proliferation of startup incubators, like Appworks, I.I.I., and TMI-Labs for example, that are an addition to the already established research and technology parks. Will these make any difference in fostering Taiwan’s software start-ups?

AG: We actually started under I.I.I.’s incubator! The environment is certainly better than it was three or four years ago, but I don’t know in reality how much money people are allocating to software projects. It’s challenging for software startups because Taiwanese hardware companies do global business. Therefore, the top talent is immediately attracted to the hardware companies. There are too many successful hardware cases and too few successful software cases.

TO: Maybe you can be that success story!

AG: We were very lucky that in the beginning our core team was so talented, but we got them to join us because they were young. College grads are patient. We couldn’t attract senior talent. But the young, smart people allowed us to have a very good start. In Taiwan, there are so many excellent teams and excellent resources, but we need more investment.