Groupon and clones face unknowns

With 'deal fatigue' setting in already, can anyone actually win the web coupon war?

You have to wonder how many customers responded to social coupon site SwarmJam’s offer, one day earlier this month, of 62% off an “H2O colon cleansing” in Vancouver. Scarcely a year ago, the market for volume-activated web coupons didn’t exist in Canada, and already the question has become how much competition it can support./p>

Market pioneer Groupon, which turned down a US$6-billion takeover offer from Google last December and has annualized revenues approaching $1 billion, remains the dominant player, but its up-front model is easily copied. Moreover, its brand only takes it as far as it offers the best deals from the most sought-after local retailers, restaurants and service providers — the kind of businesses that used to reside in the Yellow Pages and $10 coupon books. Dozens of rivals, from local (Grooster, WebPiggy) to national (SwarmJam, WagJag, Stealthedeal) to international (LivingSocial) now crowd the Canadian marketplace. Analysts are divided as to whether the web coupon market will lend itself to monopoly, like social networking, or give room to multiple variations on the theme, like the dating and classified spaces./p>

“The challenge now for Groupon and its competitors becomes relevancy,” says Mitch Joel, a digital marketing commentator and partner with Montreal-based Twist Image. “The winner of the game is going to be the one that delivers the most context.” Groupon retains a lock hold on its hometown of Chicago, New York and San Francisco, where its offers are unique and lure consumers into new neighbourhoods and experiences, Joel says. That’s less true in second- and third-tier cities (essentially all of Canada) where Groupon relies on merchants to come to it. The offers can be bland — or as with the colon cleansing, of less-than-universal appeal — opening the door to rivals with a local sales team to solicit better deals from A-list merchants./p>

The fact that there are now aggregator sites and apps such as designed to rope together all the deals offered by all the sites in any one city or neighbourhood illustrates the commodification of the business. Some analysts suspect the deal fatigue consumers are already feeling will spread to merchants who find the rush of customers at 50% off does not translate into repeat business at full price.

Groupon can still distinguish itself by harnessing its wealth of data to show what discounts work in what markets, Joel says. That could give it the edge with merchants, and point it to the ripest categories for its sales pitch. Still, rivals could counter by lowering the cut they take from each transaction. That would quickly run the pretenders out of business, but at the expense of Groupon’s massive valuation. There might remain adjunct daily group-buying deals connected to giants such as Microsoft or Google, but as for dedicated coupon sites in any one city, Joel says, “I think in the end you wind up having one or two.”