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Online coupon market fills out

Google launches new discount site; but overcrowding fears are raised

By D.C. Denison
Globe Staff / September 8, 2011

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Boston shoppers who looked online yesterday for local daily deals from discount websites had at least 84 to choose from, including 14 from restaurants, 5 from salons, and 2 from yoga studios.

The 22 companies providing these deals ranged from Groupon, the online coupon service that invented the genre three years ago, to a new discount site from search giant Google Inc., which launched yesterday in Boston.

Also new to the local online coupon market is RapidBuyr, a Concord company that debuted a Boston site in August that targets its deals to owners of small- and medium-sized businesses.

The launch of so many online coupon sites - one analyst’s estimate is that there are more than 400 nationwide - is giving rise to concerns that the hot sector is now overcrowded with start-ups, all competing to cut deals with merchants and attract subscribers.

“The market for daily deals has actually been saturated for awhile,’’ said Sucharita Mulpuru, an analyst at Forrester Research in Cambridge. “The challenge of getting new customers, and new merchants and brands that are willing to sell at half price - that’s only going to get harder and harder.’’

Already there are signs that the daily deal herd is thinning, although not necessarily because of saturation. Last month, the social networks Facebook and Yelp retreated from efforts to enter the field. Facebook shut down its deal site, and Yelp reduced its online coupon staff by half.

Those moves by established online companies demonstrated that adding a daily deal site to an existing Internet business “is not as easy as it looks,’’ said David Sinsky, the data product manager at Yipit, a daily deal aggregator that also offers research on the sector for investors.

The typical daily deal site works with merchants to create a discounted offer, usually 50 percent off a product or service. The site then markets that offer to its subscribers. The discount service makes money by taking a percentage of the merchant’s revenue from the deal, usually around 40 percent.

Yesterday, a number of financial sites reported that Groupon, which was planning an initial public offering for late September, was postponing the IPO indefinitely, although that may be due more to market conditions than increasing competition. Less than a year ago, it was widely reported that the company refused a buyout offer from Google, which offered $6 billion.

And there may yet be room for new players. Raymond Boggs, vice president of small and medium business research at IDC, a Framingham research firm, said that although the market is crowded, the demand for online discount services is still growing.

Boggs said that last June, when IDC surveyed small business owners about their use of online media, only 7 percent of the surveyed companies had used a social couponing site like Groupon. But when asked if they intended to use these kinds of services in the next 12 months, 14 percent responded positively.

“That’s a big jump, basically double,’’ Boggs said, “which tells me that that it’s a rapidly growing market with a lot of room for growth. At this point, it’s still a wide open business.’’

Tom Aley, president and chief executive of RapidBuyr, acknowledged that “there are probably too many entrants’’ in the daily deal sector, but said that his firm is seeking opportunity in the business-to-business market.

RapidBuyr, which has 35 employees, is also partnering with publications to reach their subscribers, Aley said. The company has cut a deal with American City Business Journals Inc., publisher of Boston Business Journal, Mass High Tech, and 39 other local business publications.

Aley said companies are still piling into the sector as they chase the success of early discount sites. “First of all, Groupon was the fastest growing Web company, ever,’’ he said. Forbes magazine estimated Groupon’s value at $1.35 billion after just 17 months of existence.

But Aley said he expects the general online daily deal sector to ultimately shake out, not unlike the way Web retailer Amazon.com emerged as an e-commerce powerhouse.

“I remember when Amazon got started in the 1990s, many people were saying what they are saying now about Groupon: There were no barriers to entry, they weren’t profitable, they had no secret sauce,’’ he said. “But Amazon was able to build a very big audience before anyone else did, and they got extremely good at infrastructure. Then all those other e-commerce sites had to either get out, or go niche.’’

Even with the proliferation of new deal sites, the market isn’t yet saturated, said Yipit’s Sinsky. “We are seeing a tremendous number of new entrants,’’ he said, but “what is significant is that many of the new daily deal players are already established companies. Every newspaper is launching a site, for example. But they already have advertising staffs, and subscribers. They aren’t starting from zero. Same with radio and television stations.’’

The Boston Globe’s website, Boston.com, launched its own online coupon service called Boston Deals last May.

Sinsky said Yipit is also tracking new daily deal offerings from MasterCard and AT&T.

“At this point it’s really an interesting mix of brand new companies and older established firms that have decided that they should get in the game,’’ Sinsky said.

Many consumers, even active shoppers, have yet to try a daily deal site, which will create opportunities for both the established players like Groupon, and new daily deal sites, he said.

“Eventually, those active shoppers will be using these sites or some future version of these sites,’’ he said. “That’s going to benefit the most innovative companies that can attract them.’’

D.C. Denison can be reached at denison@globe.com.