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Groupon (a play on “group coupon”) is a company that offers high-discount coupons to people in a particular geographic area — typically to local companies like restaurants, dry cleaners, clothing stores, or salons. The coupon becomes valid only if a predetermined number of people purchase it on a given day.
Groupon has been lauded for its particular twist to local online advertising, leading to hundreds of new Groupon competitors. Some are tied to news companies, which have traditionally been dominant players in the local advertising market.
Groupon was launched in 2008 in Chicago and spread quickly to more than 150 markets in the United States and Canada and more than 100 in Europe. A Groupon study claimed the company was on pace, as of 2010, to be the fastest company to reach $1 billion in annual sales in history.
For a local business, Groupon offers a deal different from traditional media outlets. Companies offering the coupon do not pay upfront; instead, Groupon takes about half of the revenue generated by coupon purchases. Since those coupons are often for roughly 50 percent off the normal price, companies often end up generating about one-fourth the revenue that traditional sales would. That has led some businesses to report a negative experience when Groupon sent them more customers than they could profitably handle. But many companies consider Groupon’s ability to put their product in front of so many customers — in particular, so many new customers — that they’re willing to accept the lower revenue per sale.
In 2010, search giant Google reportedly offered $6 billion to purchase Groupon, hoping to tie its advertising strength to Groupon’s local emphasis. Groupon reportedly rebuffed the offer, believing it could make more money as an independent company.
One analysis of Groupon’s revenues estimated 2010 revenues in the United States of $460 million. But that same analysis showed a significant decline in revenues for February 2011, coupled with a decline in traffic to the site.
In May 2011, Groupon launched Groupon Now, the instant, location-based version of its service. The pilot program is taking place in Chicago, but the company plans to extend the service to other cities.
A number of news companies have started or partnered with Groupon competitors in an effort to halt Groupon’s domination of the space. The Washington Post Co. has allied itself with LivingSocial, whose chief executive Tim O’Shaughnessy is the son-in-law of Post Co. chairman Don Graham. The New York Times launched TimesLimited in early 2011, and McClatchy was planning its own coupon service as of May 2011.
The San Francisco Chronicle is a daily newspaper owned by Hearst Corp. The Chronicle was founded in 1865 by the de Young family, which owned it until 2000, when it was bought for $660 million by Hearst, which owned the San Francisco Examiner and had run a joint operating agency between the two papers since 1965. Hearst…