Coupon sites are a great deal, but not always to merchants

Like businesses across the land, the Madison Avenue spa Wellpath tried to drum up customers by running heavily discounted coupons on deal-of-the-day Web sites. But the Internet coupon fad is shrinking faster than fat from a weight-loss laser.

Coupons for the spa drew women from around the metropolitan area eager to see their bulges melt and their wrinkles removed. Once.

“Then they would get another coupon and go do it with someone else,” Wellpath’s director, Jennifer Bengel, said. “There was no loyalty.”

Just a few months ago, daily deal coupons were the new big thing. The biggest dealmaker, Groupon, was preparing to go public at a valuation as high as $30 billion, which would have been a record amount for a start-up less than three years old. Hundreds of copycat coupon sites sprung up in Groupon’s wake, including DoubleTakeDeals, YourBestDeals, DealFind, DoodleDeals, DealOn, DealSwarm and GoDailyDeals. Deal sites were widely praised as a replacement for local advertising.

Now coupon fatigue is setting in. Groupon’s public offering has repeatedly been put off amid stock market turmoil and internal missteps; the company says it is back on track, but some analysts say it may never happen. Dozens of copycats are closing, reformulating or merging, including Local Twist in San Diego, RelishNYC and Crowd Cut in Atlanta. Facebook and Yelp, two powerhouse Internet firms that had big plans for deals, quickly backed off.

Even the biggest Web retailer, Amazon. com, has had trouble gaining traction in oversaturated New York, where it started offering deals with great fanfare a month ago. There are at least 40 active coupon sites for the city, according to LocalDealSites. com.

Shopping coupons have a long history, and they will undoubtedly continue to play a significant role in local merchants’ efforts to attract customers. But what has become apparent is a basic contradiction at the heart

of the daily deals industry on the Internet.

The consumers were being told: You will never pay full price again. The merchants were hearing: You are going to get new customers who will stick around and pay full price. Disappointment was inevitable.

Some entrepreneurs are questioning the entire premise of the industry. Jasper Malcolmson, co-founder of the deal site Bloomspot, compares the basic deal offer with lenders’ marketing subprime loans during the housing boom.

“They were giving these mortgages to every consumer regardless of whether he could handle it,” Mr. Malcolmson said. “But sooner or later you find that you can’t make great offers to people if they’re not making you money.” He recently revamped Bloomspot to focus on merchant profitability.

During the first dot-com boom, entrepreneurs tried to develop group-buying sites. They never really worked. Then a group of outsiders far from Silicon Valley stumbled upon the idea and, to their amazement, it caught fire. Groupon was begun in Chicago in late 2008 by a group of musically and theatrically inclined young men and women who never seemed to have contemplated the Internet riches that quickly came their way.

“We were used to small audiences, like blogs that we were the creators and the only readers of,” said Daniel Kibblesmith, a Groupon copywriter. “Now it seems like an audience we can’t wrap our heads around.”

Last December, Google offered $6 billion for Groupon. That was astonishing enough, but then Groupon snubbed the search giant, a declaration that it was really worth much more.


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Coupon sites are a great deal, but not always to merchants