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In New York City this fall, some 60,000 Palm users clipped coupons without cutting any paper. For 10 weeks, Vindigo subscribers downloaded the digital coupons from a dozen big-name retailers like mega-music store HMV. As a Palm-based destination guide with the latest info on restaurants and entertainment, Vindigo automatically updates users' personal digital assistants (PDAs) whenever they sync handhelds with their desktops.
And along with those weekly updates, Vindigo slipped convenient e-coupons into the PDAs so that shoppers could present them at the checkout by simply showing their Palm to cashiers and displaying the digital coupons with a simple press of a button. Bingo! A nifty 15% discount on the spot for DVDs at HMV -- and a total of 300 registered sales worth more than $6,000 for all the participating participating merchants.
That may sound like chump change, but it was good enough for Vindigo to begin talks with its advertisers about a nationwide trial next year. Says Jason Devitt, the company's CEO and co-founder, "Handhelds are with people all over the city all the time -- and people hate paper coupons."
BIG BROTHER? Of course, handheld devices have cramped interfaces and limited memory, while cell phones' screens provide room for only a few lines of text. Furthermore, delivering even insignificant chunks of data over Web-enabled cell phones has proven maddeningly slow and unreliable. Privacy advocates especially hate the idea of advertisers tracking shoppers' use of digital coupons and then entering the information into databases. But despite the tech and privacy problems, Vindigo isn't alone. Though the technology remains rudimentary, at least six companies are experimenting with digital coupons.
E-coupon advocates see concerns being swept aside by sheer ease and convenience: No more clipping coupons and remembering to take them along on the next shopping expedition. And if handheld devices take off, as many digital mavens are certain they will, a huge potential market might emerge that could prove far more lucrative than existing Internet advertising on desktop and laptop computers.
How huge? According to technology consultancy Forrester Research, between 5% and 6% of adults in the U.S. now own a handheld device, such as a Palm or Handspring. Mostly professionals with college degrees and average incomes of $75,000, they make a tempting demographic target. Cell-phone users represent more than half the adult population. And the lack of physical limitations on bit-based advertising means it could eventually eclipse the 256 billion paper coupons that flood American mailboxes each year, according to coupon-processing and promotional-information firm NCH.
The chance to lure passers-by into stores with an offer they can't refuse has marketers drooling. "Ability to deliver [an] advertisement and a coupon is a pretty powerful concept," says Michael Aufricht, general manager for mobile Internet provider AvantGo, one of Vindigo's competitor. "You deliver that while they are out and about and likely to shop. As a marketer, your biggest challenge is to get someone off the couch."
SLICE OF THE ACTION. AvantGo, which delivers news, stock quotes, and destination-guide info to PDAs and cell phones, also has been experimenting with digital bar codes that could be scanned off a Palm at the point of sale. SkyGo, an interactive-marketing provider for wireless, and NextCard, which issues credit cards over the Internet, are including digital coupons in a four-month trial of new marketing strategies that started on Sept. 29.
In Boulder, Colo., for example, cell-phone users will have a coupon for pizza displayed on their Ericsson Web-enabled phones courtesy of SkyGo and NextCard. Meanwhile, Gamut is pushing a wallet-size device that scans television, Web, and specially marked newspaper coupons onto a plastic card that consumers can later swipe for discounts at participating stores.
Still, most shoppers eager for digital coupons will probably have to wait a few more years. Download speeds for today's handheld devices are not yet fast enough for marketers to make a sleek presentation to customers. The so-called third-generation wireless systems with markedly improved speeds are still two years away, says Bill Belt, director of the wireless communication division at the Telecommunications Industry Assn. (TIA). Today's wireless phones also remain cumbersome to use for anything but making and receiving calls and sending short text messages. With postage-stamp screens, cell phones' can accept only up to 120 characters of text.
Privacy concerns about location-based advertising and spam will have to be addressed as well. "The problem is that the legal protections are not keeping up with technology," warns David Sobel, general counsel for the Electronic Privacy Information Center, a civil-liberties advocacy group based in Washington, D.C. The Wireless Communications & Public Safety Act, which passed Congress last year, established that companies can use technology to locate cell phones only in case of emergency or if users grant them the right to do so. No rules apply to wireless devices yet, Sobel says.
FAST-TRACK POTENTIAL. Conceivably, a company could follow the owner of a PDA that is equipped with a wireless modem and compile databases of an individual's whereabouts for marketing purposes. That information could be turned over to government officials or parties to lawsuits, Sobel warns. PDA companies have not yet begun installing that sort of tracking technology, according to TIA's Belt. All the same, such a development does seem a logical extension of the ongoing push to put all PDAs online.
More than privacy concerns, consumer habits are likely to hold digital coupons back for a while, says David Krebs of technology market research firm Venture Development, a technology-market research firm. For advertisers to buy into these new schemes en masse, they will want to see results more conclusive than a few hundred cutting-edge technophiles redeeming digital coupons.
By Olga Kharif in New York Edited by Alex Salkever
Copyright 2000, by The McGraw-Hill Companies Inc. All rights reserved.
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