Greasing the Brave New Market's Skids

NEW YORK – Internet firms are supposed to be all about the cutting edge, but reality and buzz sometimes conflict. Consider Groupon: its focus is the power of groups, but its actual business is the old standby of direct-mail marketing and coupons. But Groupon is spreading that model to a much wider audience – not so much to coupon users, but instead to merchants offering coupons. In fact, Groupon is doing for e-mail marketing what other Internet companies are doing for the Yellow Pages or classified ads: encouraging merchants to use modern technology to reach their customers.

The model clearly makes sense for a lot of customers: Groupon now has more than 50 million subscribers and aims for 150 million by year-end. Its revenues – about half the value of total transactions – were an estimated $760 million last year, and should hit $2 billion or more this year. Unlike most Internet companies, it has a lot of employees relative to its revenues – about 5,000.