Is it time to discount the kings of coupons?

After a meteoric rise, the money-saving site Groupon is facing some serious competition
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The Independent Online

Big discounts on a lavish caviar brunch for four people. A cooking and wine pairing class at a knock-down price. Customised bouquets for Mother's Day (it's this weekend in the US, you know) from one of Manhattan's most exclusive florists. For New Yorkers who signed up to a deal-of-the-day email, these are the cut-price offers that have landed in their inbox over the past week.

Yes, the craze for email coupons, popularised by Groupon, has reached the upper echelons of Manhattan society, thanks to a copycat service from The New York Times which the newspaper calls TimesLimited.

In fact, newspapers and other firms across the US are piling in to this marketing opportunity, lured by the rich revenues on offer. Almost every week brings a new arrival to the business of discounts-by-email. The Chicago-based company Groupon stunned the tech world by turning down a $6bn (£4bn) bid from Google last year, and now hopes to float on the stock market in the next few months with a valuation of $20bn or more. But the longer it waits, the more rival services there seem to be for potential investors to fret over.

Groupon's first deal was a two-for-one offer on pizzas at the Italian restaurant on the ground floor of its offices in October 2008, and in less than two and a half years, it has sold more than 43 million "groupons" – its name for money-off coupons – in 500 cities in 44 countries. Its founder, Andrew Mason, who is still only 30, now oversees about 6,000 employees. Small businesses are falling over themselves for access to some of his list of 50 million-plus email addresses. By taking a cut of up to 50 per cent on many of the deals, Groupon had revenues of $760m last year and is into the billions this year. Groupon users have saved $1.8bn by using its coupons, according to the running total on its website. That figure was $1.2bn just three months ago.

So Groupon is the firm to beat. Its nearest rival, LivingSocial, is far behind in terms of subscribers, though it raised $400m from private investors last month and hopes to be in 400 cities by the end of this year.

The New York Times launched TimesLimited at the end of March. Yesterday, it was the turn of AT&T, the phone company that publishes the Yellow Pages in the US. It is trialling its new service in Los Angeles, Atlanta and Dallas, but has promised to roll out the service quickly.

The New York Times? The Yellow Pages? Surely executives from the "dead trees" business aren't going to beat the hungry young entrepreneurs behind Groupon?

"Groupon and LivingSocial have entered a lot of markets, but they are not everywhere," says Mark Fratrik, vice-president at BIA/Kelsey, a research firm tracking the explosive growth of consumer spending on deal-of-the-day coupons. The Yellow Pages, newspapers and, for that matter, other local media businesses such as radio and television stations, already have the sales infrastructure in place to go hunting for deals to offer email subscribers, he said. In a labour-intensive business, this is a big advantage over a start-up such as Groupon, and it is not their only one, Mr Fratrik says. "They already have the boots on the ground. They have the sales staff. They know the local advertisers, the retailers and small businesses. And they can work out a deal-of-the-day opportunity that can be combined with advertising on the newspaper website or television or radio, or even with the store owner coming on a broadcast to talk about the offer."

McClatchy, one of the biggest publishers of local newspapers in the US, partnered with Groupon last year, but earlier this spring it decided it did not need the middleman for its deal-of-the-day service. The San Francisco Chronicle, the radio network WABC, and even the magazine Playboy are now getting in on the act.

Groupon faces numerous online rivals, too. A new business called Thrupon – whose aggressive pitch to local businesses is "Groupon works for Groupon, Thrupon works for you" – has just started, offering to take less of a cut for itself and to reach new users via social-networking sites as well as just by email.

Other potent challengers cater to particular industries. Restaurants can offer discounts via the booking service OpenTable's Spotlight and designer-label clothing and accessories are being offered on discounted sale to subscribers of

And last – but certainly not least – here come the giants. Spurned in its takeover attempt, in March Google began quietly soliciting subscribers to Google Offers, first in the city of Portland, Oregon. Facebook Deals launched last month. Both companies, and especially Google, already have large ad salesforces selling advertising space on their websites. Signing up businesses to a daily-deal service will require greater localised knowledge than they have shown to date, but both companies are convinced there are still big revenues to be tapped.

No one thinks that the craze for deals is going to go away. As long as business owners are willing to offer big savings to win a new generation of young, internet-savvy customers, there will be money to be made from bringing the two together. The only question is, how much?

"With three or four services in all these local markets offering to publicise your deal of the day, that competition has to lead to a lower percentage cut for Groupon and others," BIA's Mr Fratrik said. He predicts the typical percentage will fall from 50 per cent now to 30 per cent or less. It is the question that will be top of investors' lists when Groupon comes to them later this year with its plans for an initial public offering. And the answer will determine whether its shares float – or sink.