At a recent seminar a VC listed the three main areas that he sees investment flowing into over the next few months. High up on the list was couponing. If recent market figures are to be believed, by the end of the year, there would be over 100 million mobile coupon users with a redeemed mobile coupon value of over $3.2B. Having seen quite a few companies active in that space over the last few months the immediate question in my mind was where exactly is the opportunity for a startup? and for an investor?

If the main conundrum being addressed is how to increase the efficiency of coupons as a marketing channel, the key solutions being provided by the various start-ups are:

For Merchants:

• Better redemption rates for their coupon marketing programs
• Access to new subscribers particularly at the time of purchase
• Efficient monitoring of the marketing campaigns

For Customers:

• Availability of coupons and discounts from known outlets at the time of purchase
• Easy access to valid new deals and vouchers
• Introduction to reviewed new venues, stores, restaurants and the like

A few of the companies that I have seen addressing these problems:

Push model

MoQpon: A text based mobile coupon distribution platform where businesses can distribute their coupons to end users based on location and other demographics provided by MoQpon. The firm charges one cent for texts sent to new users not part of the original list of subscribers provide by the business. As for the users, they opt to register with the service and may agree to receive 1-14 text vouchers. While it partly addresses the issues raised above, not sure I would opt to receive continuous texts on my phone even if they do get me a free gooey brownie with my coffee at the neighbourhood cafe. Plus I would imagine the model is very dependent on the pick-up from merchants requiring a very strong sales push from the firm and strong analytics.

Groupon: One interesting deal a day with the activation of the deal in the hands of the community. It’s a slightly different proposition from the coupon aggregators and delivery channels but the end proposition is the same - to increase sales of merchants. The advertised social mission is also to help people discover the interesting events currently on in their cities. And what is Groupon’s model? A chargeable fee on every deal advertised - 30-50% of the total price paid for the service! That doesn’t sound too bad at all! Just not sure what stops businesses from marking up their service prices and then offering a ‘discount’? Paying Groupon 30% of the total fee will certainly not hurt in that case.

Google and Yelp: They are extending the couponing option from their web listings to the mobile handset. Businesses can now add a coupon to their listing which will then show up when a user is searching for a local business through their internet enabled phone.

Pull model

BView: An online voucher search engine focused on local businesses. The key players in this case are the local businesses who register their vouchers and advertise their services – for free. End users will register on the website to get access to these vouchers which they can then download or send to friends and family – for free. People can earn money by reviewing businesses, which I suppose is one way to get people to use your service – pay them.

And how does BView make money – by redirecting business to national merchants and by allowing businesses to advertise on the profiles of their competitors. A company which is certainly very dependent on viral pickup but with all the partnerships in place, they do seem on the right track.

Coupon Sherpa: A mobile application which has agreements with several retail stores allowing it to offer special Sherpa coupons. It also searches the internet for redeemable coupons based on the store name entered by the user. I don’t have visibility to their business model but would assume that their revenues would be based on coupon redemption and advertising. And while it does take an extra effort to win exclusive partnerships with the hyper-stores, it can also serve as an interesting barrier to entry for the next kid on the block.

8Coupons: Mobile and online application aggregating coupons registered by local businesses as well as users. The end user would register to receive updates either ‘a best of the day’ deal or from preferred outlets. And where does 8Coupon make its money – advertising charges from the various registering businesses.

Cellfire: An online and mobile solution which enables users to store coupons either directly on to their store savings cards or else as a voucher on mobile phones which can be redeemed at the point of sale. Cellfire claims that redemption rates are as high as 15-20% compared to the traditional 1-2% of the paper coupons. The constraint of lack of access to mobile internet is solved by the ability to store the coupons on the handset to be redeemed later.

Yowza: A location based iPhone application which searched for coupons from registered businesses based on the location of the user. The network of stores and businesses is being increased based on user references. How are they making money? – transaction fee per coupon/ advertising?

Coupious: Location based mobile application which searches for coupons and deals based on the geographics of the user. The business model includes a monthly fee for merchants with integrated analytics to measure effectiveness.

After briefly looking at these companies, the main thought which came to mind was that this is another market space which is seeing a huge pickup riding on the whole buzz around app stores and the new-found ability of vendors to directly deliver content to the end user without the middle-man aka the operator or the handset vendor. Previously, when evaluating the market opportunity in mobile payments, mobile couponing was always a key line in the excel models developed. The questions which arose were:

• How do you gain access to businesses who wish to distribute their coupons and vouchers? – bar code scanning machines, advanced card swipe machines?
• Who will control the application? – Banks who have the largest distribution of card machines at outlets, mobile operators and can enable the discount to be captured on mobile bills and redistribute it to registered businesses, handset and SIM card vendors who are also expanding control into the application stack.

But this is another area where the entire value chain has been turned on its head by the app store phenomenon.

The start-ups have certainly enabled a new channel for coupon delivery to the end customer and easy redemption of vouchers by end-users, with all of this leading to increased efficiency of the coupon as a marketing exercise. However the hitch remains around getting the largest number of local businesses to sign on. BView and 8Coupon have addressed it with a self service coupon sign-on for local and national businesses.

Still I do wonder as a larger store would I want to run a blanket campaign on an aggregated platform or license a white label platform which can be branded and integrated with an in-house CRM?

And for those platforms who do manage to integrate a sizeable number of localised merchants (how do we define sizeable) - Is the eventual consolidation with the amazons and the ebays? Or perhaps an extension to the product portfolio of SAAS based CRM vendors.