NEW YORK (AdAge.com) -- While coupon mailers clutter the recycling bins of digital-oriented millennials, one startup has revived couponing for the Facebook and Twitter generation.
Chicago-based Groupon has amassed 2 million subscribers to its website, and begun adding big brands such as Zipcar, the NBA and Blockbuster to its regular stable of local businesses. Only one year after launch, it has sold 1 million coupons and received $30 million in second-round financing from Accel Partners. According to a counter on its site, that's translated to more than $45 million in savings since November 2008.
Groupon e-mails a daily deal per city and consumers opt-in to buy a restaurant gift certificate, a health and beauty service, or entertainment offer at typically 50% off face value -- say $30 voucher for $60 dinner or $50 for a spa package. Once the deal has hooked a predetermined number of people, everyone who has opted in then "buys" the deal, and the marketer gets the money minus Groupon's cut, which is usually 30%-50%, according to Groupon founder Andrew Mason. It only works if the deal attracts critical mass, however -- if the offer doesn't reach its threshold, the deal is canceled and no one pays, not even the provider. (The threshold varies by advertiser; some deals require only 50 people to buy in, others need 500.)
Since launching in Chicago, Groupon has expanded to 28 cities -- most recently San Antonio -- and has built an audience primarily of affluent 18- to 35-year-olds, 70% of whom are female. Mr. Mason claims Groupon was profitable in June and anticipates $100 million in revenue for 2010, though he did not share projections for this year.
Small businesses use Groupon to attract new customers, drive product trial and cross-sell. For Endeavor Personal Concierge in Chicago, 25% of Groupon users became repeat customers. For MindBody Fitness in Washington, 85% of Groupon users purchased additional services. Other local businesses have reported spikes in website traffic on the day Groupon offers go out.
By using Groupon during the last six months, Zipcar gained about 1,500 new members in seven cities. (By comparison, the car-sharing service reported 325,000 members through September.) "They're a great local partner in many of our cities," Stephanie Shore, Zipcar VP-marketing, said via e-mail. "The viral nature of their community plays to our strength as a word-of-mouth brand."
The buy-in-bulk online concept is not exactly new. Pittsburgh-based OnlineChoice launched a group-buying site in the late 1990s, struggled through the dot-com bust and failed to break through. But social networks such as Facebook and Twitter provide a vehicle for consumer incentive to share deals to make quota, and today's web climate -- not to mention economic climate -- is more favorable for group buying.
"I think what's different today is that the communication mechanisms are so much greater than they were with mobile, Facebook and Twitter," said Scott Silverman, executive director of Shop.org, the digital division of the National Retail Federation. "You have a population that is comfortable with participating in the internet, not just reading things. It seems like the perfect time for this idea."
Mr. Mason calls Groupon, like flash online-sales sites Gilt Groupe and RueLaLa, part of the emerging "social commerce" field. "It's commerce layered on top of the social graph," he said. "It's a method of buying things that's propagated over sharing tools like Facebook or Twitter, without which it couldn't exist."
"If you're a local business it could be a great way to get exposure," said Andy Macey, Sapient Interactive's VP for North American digital commerce. "That's a different proposition than for a big brand, though." But Mr. Mason imagines big marketers can use Groupons for customers to rediscover a brand they already know, such as a national restaurant chain using the service to promote a new dish.
But not every deal works out as expected. Back in August, Groupon users criticized the site for running a Blockbuster deal. The site provides a comment section for each deal and users are vocal about which offers they do and don't like. In August, Groupon offered a free six-week trail for Blockbuster's mail service but consumers reacted badly to the offer, which stipulated that they would have to opt-out on their own to not get billed. Commenters called the deal the "worst that I have seen on the site" and criticized Groupon for even putting it up: "Groupon, you lost some credibility with me on this one."
"If I'm Coca-Cola, do I want to deal with this just yet?" said Sapient's Mr. Macey about the Blockbuster backlash. "Maybe, maybe not. I think big brands will test this out, but you need to get past the bumpiness of real-time feedback and open community."
There's no use hiding from Groupon's comments board, adds Shop.org's Mr. Silverman, as brands can get pummeled anywhere on the internet. "As a brand, you don't have a choice," he said. "You can go on Yelp and a number of other sites where people can post reviews whether brands wants them to or not."
Mr. Mason admits that Blockbuster provided a lesson for his company. "What we featured was the issue there," he said. "The reason people didn't like that deal was because you had to opt out." With a user base that looks to his site more like a city guide than a deals site, Groupon has been tasked with maintaining a standard for featured business. "We are vouching for deals we run," Mr. Mason said. "We're indirect advocates for that brand."
To date, Groupon is not the only group-buying platform, but it's definitely the highest profile with mentions on "Good Morning America" and "Today" surrounding holiday shopping. BuyWithMe.com offers a similar service in Boston, Washington. and San Diego, while Grouposity serves Tampa Bay, Fla., and CoupMe works in Boston.