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International Business Machines Corp
Polly Chung is hooked on daily deals. Before she wakes in the morning, Chung, a self-described unemployed, middle-aged New Yorker, gets up to 50 e-mails touting steep discounts on everything from restaurants to rock climbing. She buys three to five coupons each week—more than she has use for. “I’ve gotten kind of carried away,” she says. Over the past few months, though, Chung has been able to alleviate her buyer’s remorse by tapping into a growing number of websites that help people sell the online daily deals they can’t use or suddenly don’t want.
Groupon, the online coupon leader, has filed paperwork for a $750 million initial public offering, while several prominent Internet companies, including Google (GOOG), Facebook, and Foursquare, have expanded into the business. The popularity of daily deals has given rise to a new malady—Groupon regret—and new sites ready to make money off the condition. Startups including Lifesta and DealsGoRound allow addicts such as Chung to sell their unused coupons and buy the ones they missed or just want to amass. The new sites don’t have the explicit endorsement of Groupon or its main rival, LivingSocial, but they are growing rapidly. “Now I can sell my coupons, and I don’t have to give them away [to friends] and lose my money,” says Chung, who recently used Lifesta to sell a coupon for $5 off on cream puffs at a Japanese confectioner. Industry tracker Yipit reports that 20 percent of the daily deals people buy online go unredeemed.
DealsGoRound, which launched in March 2010 in Chicago, shares a pedigree with Groupon. Kris Petersen, a former consultant for IBM (IBM), conceived of the site while working as an entrepreneur-in-residence at Lightbank, a startup incubator created by two of Groupon’s co-founders. “All my friends were buying Groupons, and we were all having similar issues using them,” says Petersen, who left Lightbank in February to devote himself full-time to his startup. “I realized there has got to be some sort of solution for the community.” The company began by connecting buyers and sellers and letting them complete their transactions offline—à la CraigsList—and then in January, evolved to more closely resemble ticket reseller StubHub (EBAY). Coupons are now transferred digitally from buyer to purchaser with DealsGoRound processing the payment. The firm, which charges a 10 percent commission, has pages on its site for 128 cities in the U.S. and Canada.
Lifesta, based in San Francisco, is the creation of two former engineers at Sun MicroSystems, who took Petersen’s idea a step forward. In July of last year, when DealsGoRound was still a bulletin board, Lifesta pioneered the full-service marketplace and the completely digital transaction. Lifesta’s founders say traffic is growing by 50 percent each month. The site charges 99¢ for each transaction and an 8 percent commission. Sellers rarely log a profit from unloading their coupons. “On average, we see people selling deals for about the same price they bought them for, or even less because they want to get rid of the deal quickly or the expiration date is approaching,” says co-founder Eran Davidov.
Since Lifesta and DealsGoRound emerged, similar sites have sprouted up, including Takemycoupons.com and Sellmydeal.com. Groupon and Living Social don’t exactly seem thrilled with this booming new secondary market for Web coupons. Spokesmen for both companies point to language in their terms of service that prohibit the resale of vouchers. “We discourage people from using reseller sites because we can’t guarantee the authenticity of Groupons people may attempt to sell,” says Brad Williams, a Groupon spokesman.
Lifesta and DealsGoRound promise to refund users’ money if a transaction goes awry and stress that their services are making the deal sites more attractive by giving people a fallback plan if they cannot use a coupon. Petersen of DealsGoRound says that in a year and a half “we have never once been contacted by a deal provider who had a negative thing to say about it.” His biggest challenge, he says, is not cultivating Groupon but “just getting consumers to know this option exists.”
The bottom line: Aided by a host of startups, a secondary market for discount coupons issued by daily deal sites has emerged.