Greasing the Brave New Market's Skids

With the emergence of online sites like Groupon and its many clones, merchants are likely to face much stiffer competition and erosion of their brands. But, as the market becomes more efficient, that same trend is likely to affect Groupon itself.

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.

Thousands of companies have used Groupon to sell their wares, though Groupon does not disclose its rate of repeat sellers.