Crowd Sourced Coupon Sites – A Look At The Business Model
By Anna Johnson on February 24th, 2010You may have noticed the emergence of a number of ‘crowd sourced coupon sites’ such as Groupon, Townhog and Bloomspot. These web businesses offer coupons or vouchers that provide steep discounts on various products and services – everything from sushi to daily gym passes to sightseeing tours – if enough consumers agree to purchase the given coupon or voucher. Let’s take a closer look at the business model and the players involved…
Basically, the business model involves the company operating the website – let’s call it the coupon site – arranging for online and/or offline businesses to offer steep discounts on their products and services if the coupon site delivers a minimum number of customers.
Essentially, the business agrees to offer the discount as long as enough customers purchase the coupon. Not enough customers – no deal. Meanwhile, depending on the remuneration model used by the coupon site, the coupon site makes its money by taking a commission on the coupons sold. The obvious next step for the coupon site is to attract consumers to its site and get them to purchase the coupon.
The coupon site may offer a deal of the day, or deals in particular cities or geographies, or deals on specific kinds of products and services, or use some other kind of unique positioning to attract both businesses and consumers. When enough consumers purchase the given coupon, they get the discount, the business gets the customers, and the coupon site gets their commission or revenue share.
In theory, at least, the crowd sourced coupon site business model makes sense because each party ‘wins’: the business wins because it gets a flood of customers it can turn into ongoing customers; the consumers win because they get a great deal on a product or service they want; and the coupon site wins because it gets to make a commission (or some other kind of remuneration) for each deal.
Getting businesses to offer big discounts is not so hard. This is really just a matter of calling and visiting businesses and convincing them to offer some great deals. That shouldn’t be too difficult, given that such businesses – especially small, local businesses in competitive categories – are typically eager for more customers. By offering discounts they have the opportunity to get a bunch of new customers without any upfront cost or effort on their part.
The real test for the coupon site, however, is to get enough traffic to its site and, as a result, enough people to purchase the coupon or coupons on offer.
Sure, there is the usual challenge of ‘conversion’: providing an attractive offer and getting consumers to buy, but the biggest problem is likely to be ‘traffic’. Not only does the coupon site need to generate enough traffic, and therefore enough customers, to generate enough coupon ‘deal flow’ (not to mention make money!), but it has to stand out from all the other crowd sourced deal sites that appear to be popping up.
At this stage, the biggest opportunities – especially for anyone starting a crowd sourced coupon business without venture capital to support them – probably lie in targeting specific niches. These could be based on location, type of business, type of product or service, type of consumer, or any combination of these. In fact, starting a business along these lines could be a great opportunity for you if you’re involved in consulting to local businesses.
In addition to the crowd sourced coupon sites themselves, a new breed of Internet company has emerged to leverage off all the coupon sites. These are ‘deal finder’ sites such as 8coupons and Yipit which aggregate the deals offered by the various coupon sites and present them all in one place. These are also evolving from just presenting all the available deals, to enabling consumers to tailor deals based on their particular location, interests and other criteria.
