Bargain hunters find a new way to save

I never thought it would happen, but your frugal columnist is suffering from coupon fatigue. Coupons are everywhere in this economic downturn -- in your newspaper and your in-box, on Facebook and on your cell phone. So when I learned that Groupon.com was a coupon site, I thought "Another one?"

But Groupon.com puts a new spin on saving that's caught the attention of venture capitalists and users alike. Since its October launch in the Twin Cities market, 43,000 Minnesotans have signed up to receive an alert about its deal of the day, including yours truly. It boasts nearly 2 million subscribers nationwide.

Here's how it works: Groupon.com offers up a single deal per day that becomes valid only when enough people decide to buy in. Consumers drum up support for the deals using Facebook and Twitter to make sure the magic number is met. If the deal goes through, and the vast majority do, your credit card is charged, and you're e-mailed a print-out coupon to use. If the deal fails, as about one in 50 do, your card is not charged.

Since its launch 15 months ago, the company has sold 1.2 million Groupons, saving users more than $60 million. Daily deals are now featured in 30 U.S. cities, with plans to add 20 additional U.S. cities and locations in Canada and Europe before the end of 2010.

Most of the businesses featured are small and locally owned. Offers tend to have a social component -- dining with friends, working out, trying a new activity such as roller blading or singing lessons.

And if you're planning a trip, you can head to Groupon for discounts as well as research on where to eat and hang out in your destination city.

Founder Andrew Mason, who dropped out of graduate school at the University of Chicago to nurture the company, says Groupon is about more than saving money. "The idea for Groupon came as a way to cut through all the noise, focus on one really interesting thing to do every day and then using a great deal through the power of collective buying to nudge consumers toward trying something," he said.

Still, there are some restrictions. I was planning to use part of a Groupon for a brow wax and save the rest for a facial, but learned that the entire Groupon must be used on one visit. Taxes and gratuity aren't typically included and you usually can't buy an unlimited amount of one deal for yourself. Merchants work with Groupon to design unique deals, so details vary, and reading the fine print, as usual, is recommended.

Vanden Oever's only complaint: "I would like more offers."

But Mason is convinced that the limited nature of the deals cinch Groupon's success. Too many options, he reasons, and finding discounts "almost becomes work." Make it too hard and when the economy takes off, so will coupon users.

Groupon takes 30 to 50 percent of each deal sold. Merchants get the rest of the cash earned from the deal, new customers and a whole lot of exposure.

The company is on track to make more than $100 million in revenue this year. It's been profitable since June. Groupon caught the eye of venture capitalists; much of the $35 million the company has raised comes from Facebook angel investor Accel Partners.

Katie Greeman, owner of Spill the Wine, sold 860 Groupons on Dec. 30 for her restaurant two blocks from the Guthrie Theater in Minneapolis. For merchants, Groupons have the same appeal as gift cards -- she gets the cash right away and some people never redeem them.

"For me it was just a really quick way to spread the word about who we are in a really short amount of time with no upfront cost," Greeman said. Think about it: E-mails go out to 43,000 people announcing the deal, friends share it on Facebook, followers retweet it on Twitter. Even if people didn't buy the Groupon, "there was potentially 100,000 people inside of one day that had Spill the Wine come across their in-box," Greeman said. And the restaurant received a $12,000 cut on top of that free advertising.

The downside? She's comping a lot of food. The deal was to spend $30 for $65 worth of food and wine. The restaurant has already given $4,550 worth of food away with only a fraction of the Groupons redeemed. But the average check has been higher. "People are ordering up ... ordering maybe a nicer bottle of wine that they would normally or saying 'I'm going to get the tenderloin instead of the chicken,'" she said. She's been on the other side of the transaction too, having recently purchased dental exams for herself and her husband.

Jodi Garber of Minneapolis has Groupon to thank for a massage, a girls' night out at Moto-i and a spray tan for her work Christmas party. Splurges like these had been sidelined after Garber, 32, became a mom, but Groupons have "made some of the perks in life a little more affordable," she said.

Garber takes advantage of a deal two to three times a week. "I would hate to see that total bill, but I love getting that bargain."