Locals cash in on coupon craze
Photo/Tim Greenway
Since launching coupon site Dealitious.com in December, Brian McLaughlin, right, with partner Bryan Smith, says deals for restaurants, including Portland's El Rayo, seem to be the most popular
Local websites fashioned after the popular coupon sites Groupon and LivingSocial are popping up in Maine as demand for daily deals surges across the nation.
In Portland, MaineToday Media, owner of the Portland Press Herald, has launched The Maine Deal, while DealsInME and Dealitious get off the ground with individual backers in Maine’s largest city. Further north, the Bangor Daily News is promoting its Maine’s Daily Deal site following a November launch, joining the ranks of those betting that this so-far remarkably successful form of Internet marketing will continue to be a lucrative way to make money online.
Brian McLaughlin and his partner, Bryan Smith, launched Dealitious.com in December by offering $15 off a $30 meal at El Rayo Taqueria, a restaurant on Portland’s York Street. Since then, the site has offered half-off at a Portland car wash and discounts for meals at several local eateries. “Those seem to be the most successful, of the deals we’ve done so far,” McLaughlin
says of the restaurant deals. According to Tod Dana, El Rayo’s owner, about 140 coupons were sold for each of two deals he offered through Dealitious.
While Groupon and Living Social could “squash him like an ant,” McLaughlin says he has the advantage of knowing Portland well. “What we bring to the table is an understanding of the local base,” he says. “They’ll do big chains, little chains. But based on our living in the area, we understand what people are looking for.” So far, the site’s subscriber list reaches into the thousands, he says.
In the past year, both traditional advertisers, such as city newspapers, and smaller entrepreneurs have jumped into the action. Marketers and merchants alike see a goldmine for new sales, while analysts are mixed about the prospects for the proliferating coupon sites.
“The reason it is exciting is that a lot of local merchants have become less and less comfortable just putting an ad in the Yellow Pages or in the newspaper, or buying a coupon and never being sure what their money is going toward,” says Peter Krasilovsky, an analyst with the BIA/Kelsey Group in Virginia. Meanwhile, these coupon sites provide “pure paying performance,” he adds.
The coupon trend has attracted an avalanche of new companies, both because of the relatively inexpensive startup costs and the possibility of big payouts. “This thing has grown so quickly,” Krasilovsky says. “The estimates I made last June — that by 2014, it could be a $2 billion-a-year industry — well, now we’re seeing reports that Groupon is getting $1 billion by itself.”
Mechanics of a deal
The way the sites work is by presenting one daily coupon — for a restaurant, salon, trip to the zoo, etc. — and if enough people agree to purchase it, the deal is on. The sites collect between 30% and 50% of the coupon sales, with the remainder given to the merchant.
“The beauty of the group-buying service [for merchants] is three things,” Krasilovsky says. “One, you don’t have to pay any money upfront, and secondly, you can control how many offers you want to make available, and a third thing is ... you are also advertising to all the people who receive the offer even if they don’t take advantage of it.” A business is promoted on the website for the duration of the deal, and its coupon is also sent via e-mail to the site’s subscribers.
Groupon and LivingSocial, which both offer deals in Portland, allow users to type in their zip code to find coupons for nearby businesses. Local businesses featured recently in deals from the sites include a restaurant, spa, indoor go-karting facility and a ski mountain.
Groupon recently made news by rejecting Google’s buyout offer of $6 billion and is, in its second year, reportedly making between $1 billion and $2 billion in revenue. Just over a month after spurning the deal, it raised $950 million in a round of financing. Its dizzying ascent has launched a myriad of clones across the nation, and the market is abuzz about the launch of a Google competitor, Google Offers.
The founders of Portland’s Dealitious and DealsinME, on the other hand, are predicting first-year revenues of between $175,000 and $500,000, expectations Krasilovsky says sound about right.
McLaughlin of Dealitious splits the revenue 60/40 with businesses to compete with Groupon and Living Social’s 50/50 split, and he’s offering another 5% to businesses if they self-promote the deal with their own Facebook, Twitter and e-mail campaigns. Meanwhile, DealsinME, started by Skowhegan native Josh Meyer and Khris Lalemand of Lewiston, is offering participating businesses more than 75%, Meyer says.
Businesses offering discounts through Maine’s Daily Deal get a 50/50 split, as well as promotion through both the print and online versions of the Bangor Daily News, says Nicole Stevens, online sales manager. “If a deal doesn’t sell, they’re still getting all this marketing and there are no out-of-pocket costs,” she says. With more than 9,200 subscribers to Maine’s Daily Deal e-mails, the site is beating projections, according to Stevens.
For the plethora of coupon sites starting up, success is not guaranteed, according to experts. A recent study by Utpal Dholakia, an associate professor at Rice University’s business school, found Groupon promotions were profitable for only 66% of the businesses surveyed, and that more than 40% of respondents indicated they would not run such a promotion again. “Because the Groupon customer base is made up of deal-seekers and bargain shoppers, they might not tip as well as an average customer or be willing to purchase beyond the deal,” Dholakia writes.
While it’s exciting to see the creation of a new local marketing space, Jim Boutin, chief operating officer of Local Thunder, an Internet marketing company in Portland, wonders if consumers will burn out on coupons. “My opinion is that people are going to get tired of deals,” he says. Portland has room for just a couple of these sites, he says, and the ones that come out on top, whether the big or little players, will “have good connectivity in the marketplace.”
Krasilovsky says the whole business model will continue to evolve. “More and more people say they get their leads not with Google but with Facebook. This is a sales-oriented approach to social media,” he says.
Jackie Farwell, Mainebiz senior writer, contributed to this report.
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