Groupon grabs spotlight with national offers

By Alexandria Sage

SAN FRANCISCO (BestGrowthStock) – When e-commerce coupon site Groupon offered a deal on Gap clothing last week, thousands of bargain hunters seized on it, fueling a barrage of clicks that temporarily disrupted Groupon’s servers.

The offer that more than 440,000 Groupon subscribers snapped up was $50 worth of Gap (GPS.N: ) merchandise for $25. It was the site’s first “superblitz,” a national offer with a well known brand, but not its last.

“We couldn’t keep up with it for awhile,” said Groupon President and Chief Operating Officer Rob Solomon.

But Groupon is ready for the next one, Solomon said. The privately held, Chicago-based company plans more national and local offers and more subscribers, who will contribute their collective buying power so the company can secure discounts on activities, meals and goods.

The company’s marriage of social networking and e-commerce comes at an opportune time. Web-savvy consumers want bargains in a still sluggish economy, and they are sharing ways to save money with their friends online.

Solomon, like most people who run startup companies, has a big goal — getting the company recognized as a Web trailblazer alongside big names like Facebook and Google (GOOG.O: ).

“We think we can emerge in a few years as one of those,” he said.

Groupon built its popularity by tapping into local markets to offer its free subscribers one deal a day, whether a two-for-one dinner at a neighborhood restaurant or a discount at the yoga studio around the corner.

Higher-profile and higher-volume national deals do not signal a shift away from local deals, Solomon said.

“There’s a lot of room to remain hyper-local, but to introduce super-specials, like for the Gap,” Solomon told Reuters. “Gap is a testament to demand for the big guys.”

Working with big names like Gap, rather than smaller, local companies is a more cost-effective way for a site like Groupon to operate, said Thomas Harpointner, CEO of interactive marketing agency AIS Media.

“They want to do a certain volume of business which I suspect is exactly why Groupon is aiming to go after bigger companies like the Gap,” Harpointner said.

He cautioned that Groupon’s business faces competition from Scout Mob and a host of coupon sites, and said the business model would scale best if it included more offers per day and relied more on automation.

“Right now it requires a lot of physical manpower to operate the business,” he said, citing the work required by Groupon staff to find new businesses. “In order for it to scale it has to be more automated, like Facebook’s business model.”

TEST AND LEARN

Other national retailers and manufacturers want to gain from the traffic that a Groupon blitz brings while consumer spending is erratic and social networking is all the rage.

But Groupon is in “test and learn mode” as it figures out what its users want and how best to serve them, Solomon said.

Groupon, which usually shares the face value of the offer 50-50 with its partner, expects some $400 million in gross revenue this year, up from $35 million last year.

The company, which launched less than two years ago, does not disclose profit, but Solomon said the United States unit was running at a “highly profitable rate.”

Russian Internet investment group Digital Sky Technologies, which has also invested in Facebook, invested $135 million in April. Battery Ventures has invested too. In December, the company raised $30 million from venture capital firm Accel Partners.

Within three years, the international market could make up a larger percentage of revenue than North America, Solomon said.

Solomon acknowledged interest from big technology companies in Groupon, but said, “We have no plans at all right now to sell, or an IPO, the only plans are to grow.”

Localized offers are now available in 29 countries in North America, Latin America, Europe, Russia and Japan. In North America, the company will expand from 85 markets to 200 by the end of next year. Groupon’s subscriber base is expected to grow to 25 million next year from 13 million this year.

That will fuel more successful offers since Groupon relies on volume — offers only kick in after a minimum number of people click to buy it.

That means that subscribers will use social networking sites like Facebook and Twitter to spur their friends to click on Groupon’s offers, building buzz and spurring sales.

(Reporting by Alexandria Sage. Editing by Robert MacMillan)

Groupon grabs spotlight with national offers