'Evolution of Ad Units' Bridges the GAP

Groupon is riding the wave of an idea that is painfully simple: Offer people one discount coupon a day that only goes into effect if enough people sign up for it, and promote the deal with an amusing description via email and a Web site. By late August, two-year-old Groupon had grown to more than 15 million subscribers around the world, mainly 18- to 34-year-old women.

The trick is to stay ahead of a swelling pack of imitators led by LivingSocial. Groupon's response was to score its first nationwide retailer. On Aug. 19, a one-day offer from Gap appeared on all 85 of its sites in the U.S. and Canada. The promotion, which sold consumers $50 worth of goods for $25, triggered so heavy a response that Groupon had to hastily divert traffic to "fall-back pages." In all, the Chicago-based company sold about 500 Gap offers per minute during peak times, totaling nearly 441,000 for the day, and bringing in a tidy $11 million. Groupon typically gets a cut of up to 50 percent on each deal. Industry reports peg Groupon's revenue at well over $300 million in revenue for 2010 - not bad for a lowly coupon-seller.

In the week after the Gap promotion, Groupon added 750,000 subscribers (the norm had been 500,000 a week). Mass-market brands got excited when they saw the numbers and the company is incorporating more national deals. For instance, immediately after Gap's success, Fandango agreed to offer its customers a $4 movie ticket if they signed up for Groupon. (Redemption rates are reportedly more than 80 percent for their average coupon.)

Andrew Mason, company founder, calls his online coupons an "evolution of the ad unit," and brags that Groupon is talking to media companies "about reinventing local advertising." Observers call it the advent of social ecommerce. In any case, the concept has caught the fancy of sociable online consumers and hungry retailers negotiating a tough economy. Soon Groupon may become as ubiquitous for shoppers as Netflix is for movie fans

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