Groupon.com: Internet Fairy Tale or the Next Fabulous Flameout?

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Merchants do not have to pay Groupon up-front for the privilege of being featured. The company makes its money by splitting the take from the coupons it sells with the businesses that supply the goods and services.

Erin Donahue, a faithful Groupon customer who buys a deal at least once per month, started using Groupon about a year ago. "A friend was organizing a girls' group dinner out, and she forwarded the e-mail for a sushi Groupon."

Coupons for Sky-diving in Detroit, Chemical Peels in Philadelphia

Donahue, 27, lives in New York and is a typical customer. "We find [our customers] because it's a great experience," said Mason. "[Businesses] love us because it's a great way to get new customers. And it's a type of customer that traditionally is really hard for them to reach."

Seventy percent of Groupon clients are women, age 35 and younger, living in cities, according to the company, which is privately held.

"It was free to sign up," Donahue said. "It was a place we would go anyway, and you know we saved money and it was fun."

For small businesses like Chicago's upscale Spa on Oak, Groupon's appeal is more about advertising, more about reaching new eyeballs. "I would say 60 percent of the people who come in here through the Groupon didn't even know I was here,'' said Richelle Ciluffo, owner of the spa. "It put me on the map."

Groupons have peddled zip-lining in Santa Cruz, Calif., sky-diving in Detroit, chemical peels in Philadelphia and dancing in Dallas.

Culture is a hot-seller, too. From the King Tut exhibit in New York to the Joffrey Ballet in Chicago. Last month, Groupon sold its first big national coupon: $25 for $50 worth of clothes at the Gap.

Mason said the Gap coupon got 450,000 takers -- and the volume crashed the Gap's server. Nonetheless, Groupon said the Gap promotion yielded $11 million in sales.

Dotcom Boom Reincarnate?

Like the early dotcoms, Groupon cultivates a hip, funky vibe. The average age of employees is 25. Ping-Pong is encouraged. Headshots of customer service reps -- recruited from Chicago's improv scene -- line the walls.

"They think quickly, but they also have a good sense of humility. They have a good sense of empathy,'' said Dan Jessup, the company's human resources director, of their employees. "They understand how to relate naturally and they do so with a sense of humor."

Meetings are held in a space that strongly resembled an aging teenager's bedroom, which, oddly, included a stationary bicycle that played the Sade song "Smooth Operator" when it was working properly.

Coupons for the Cool Crowd

Groupon advertising reads more like satire you'd find in The Onion, rather what you'd read in typical business copy.

For a hair treatment in Tucson: "How to feel terrible and look great doing it."

For cheap cocktails in Seattle, "A reader challenge: What's in a fireside chat?"

And, "How to order yogurt the rude way."

"The e-mails are hilarious,'' said Donahue. "I think that that's part of their voice, part of their company personality that shines through."

And with the appeal so obvious to so many, the competition is coming on strong, and not just in the United States. In Russia and China, clones have ripped off Groupon's model, right down to the color scheme of its website.

Stateside, companies like yelp.com are moving in on the market.

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