Internet Fairy Tale or the Next Fabulous Flameout?

Groupon: Extreme Clipping

On a recent summer day at Chicago's "Kid's Table," manager Anastasia LaBorde found her business inundated with phone calls.

On a typical day at the store, which hosts children's cooking classes, LaBorde receives a handful of calls from curious would-be patrons and clients. But on this day, by midafternoon, she'd received more than 100 calls.

"I can't answer the phones enough," she said, laughing. "By the time I end one phone call, I get another one."

The barrage of new interest in the cooking school came after the Kids Table was featured on the sizzling-hot website Groupon, a Chicago Internet startup, offers one heavily discounted online deal every day to customers around the globe.

VIDEO: Savings in Numbers: Groupons, or Group Coupons

"Every single phone call today has been a Groupon pretty much,'' said LaBorde. "We have only been open for about 3½ years now, so we haven't done too much advertising, and this is the best possible way to go about it. [It's] completely free, and everybody's signed up for Groupon, so it's been great."

By the end of the day, when the Kids Table was showcased on Groupon, the cooking school had sold 3,470 deals through the Groupon site, which offered a class for $12, a steep discount from the regular $25 price. LaBorde said the discount would turn the deal seekers into loyal customers. "We rarely have people who come in once here and don't come back, so I'm sure we're going to have lots more people coming in now."

Not even two years old,, at this stage of its business development, is growing faster than Facebook, Amazon and Google, in terms of total revenue.

With its high-tech twist on an old medium, discount coupons, tweaked for the Twitter set, Groupon has more than 11 million active subscribers and has saved clients more than $488 million, according to the company.

Not Your Grandma's Coupon: Purchase Power Comes in Numbers

"We're launching about 200 cities in this next year,'' said Andrew Mason, the 29-year-old CEO and brains behind Groupon. "We have been called the fastest-growing company ever."

A musician by training, Mason played in a rock band and was working on some struggling websites when he came up with a "killer app" for selling coupons to groups of people.

Groupon was born in the fall of 2008, with seven employees. Barely two years later, it now has about 550 people on its payroll, Mason said, with 25 new hires training at Groupon's headquarters weekly.

The concept is simple. "Every day we e-mail millions of people around the world one deal on a great business in their city," said Mason. "It could be on a restaurant, a spa, theater tickets, a sensory deprivation tank, just about anything that's interesting to try."

Takers buy a voucher through the site, usually for half off the value of the item, and up to 70 percent off. The voucher can be used like cash at the business.

Every Groupon offer has a time limit, usually 24 hours to buy the coupon. Coupons are typically good for a year from the date of purchase.

The catch? Each offer requires a minimum number of customers, a tipping point, before the deal is on.

"If you buy more lettuce, then you get it at a better price," Mason said. "It's the same thing with Groupon -- if we can channel the entire collective buying power of a community behind one deal, then we can negotiate a better price on something than if one person was doing it alone."

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