Groupon's Push for Revenue: Big Ticket Items, User Information

Groupon is quickly finding more ways to generate revenue. The social daily coupon network offered its first car coupon Tuesday, showing the Web-based company can peddle big-ticket items. On Monday, Groupon said it has altered its privacy policies so the company can parlay user transaction information into more money.

Tuesday Groupon offered customers in the Detroit area a $199 coupon worth $500 off the purchase or lease of a new or pre-owned vehicle at LaFontaine Auto Dealership in Detroit.

With 83 million users, Groupon, the world's largest social daily coupon network, has typically focused deals on smaller items, from yoga lessons, spa treatments and pizza discounts. Groupon's standard practice is taking 50 percent of all revenue generated from its deals, so in the case of the car coupon, Groupon would receive $99.50 and the dealership would receive $99.50. The dealership would be responsible for fulfilling the $500 discount.

Groupon has peddled other big ticket items before the this was the first time the company has offered a coupon for a car. Recently Groupon offered a coupon for $500 off closing costs for real estate purchases.

One industry observer says Groupon is wide to seek business in market areas like new and leased cars, but he questioned whether it was in the consumer's best interest -- since buying a coupon to one car dealer relegates the customer to buying a car there, unless they want to lose the discount.

To the extent (Groupon) can still take 50 percent revenue share, that's more money, says Ben Edelman, an associate professor at Harvard Business School, in an interview with Bloomberg.

Edelman has been a critic of Groupon, and he cited problems for the consumer with its car coupon.

This voucher is for a very small portion of the cost of a car or lease, he said, so it's basically an agreement to buy or lease a car from LaFontaine. That's poor negotiating because the dealer could take advantage of that by offering the same car for more money.

On Monday Groupon announced via an email sent to its 83 million users that it has altered privacy policies so that information related to transactions can be shared with other business partners.

That move is understandable, since Groupon, the world's largest social daily coupon network, must generate profits from its service approaching an anticipated $1 billion IPO. The company has shown it can grow fast, but investors will also want to see that Groupon can make money, particularly since the social daily coupon network space is fast becoming more competitive. The world's second largest social daily coupon network, LivingSocial, is also marching toward an IPO and that company has recently taken marketshare from Groupon.

Trading or selling customer personal information including data about financial transactions is a natural move that frequently goes with the territory, but in a Web world where privacy issues are quickly becoming a primary concern Chicago-based Groupon, headed by young CEO and company founder Andrew Mason, is also flirting with potential trouble.

Everybody knows that the endgame of this business is to customize offers, said Forrester Group analyst Sucharita Mulpuru, in the Boston Herald. It can be risky if they resell that data, but that's probably what this is likely leading to.

Some members of the Federal Trade Commission have pushed for do-not-track requirements from Internet-based companies but Groupon didn't wait around for any rulings. Now, Groupon users among the company's 83 million subscribers who have signed up for some services can now expect the company to share specific information on their habits, activities and locations. And, Groupon can resell that specific data if the company desires, according to its new privacy policy.

Groupon said the company is broadening its definition of personal information to include interests and habits, expanding its previous user information collection and sharing practice. Its 83 million users were notified of the changes by email.

For instance, the company said a Groupon partnership that offers travel deals to users through Internet travel site Expedia means that personal information collected can be shared with the Web site if Groupon users subscribe to get travel deals. Groupon said additional information collected and shared with Expedia, as one example, may include what data about what customers bought, how much they paid for it, and where they where at the time of purchase. The information collected and shared could also include any other names attached to the purchase -- multiple names on airline tickets, as one example.

So what people spend and how they spend it with may now be collected and shared by Groupon.

Facebook, the world's largest social network, has been under fire in the past year for how it shares information with advertisers and also about its privacy controls. Facebook has responded by working to make its privacy controls more user-friendly and also by limiting in some instances what information is shared.

Members of the FTC, in pushing for a do not track requirement, want to prevent Web companies from tracking user activity on the Web, and also selling that activity to others. Groupon's new relaxed privacy policies, which include tracking and sharing financial transaction details, the most far-reaching to date for the red-hot company, and it's sure to come under user, if not federal scrutiny.

Sen. John Jay Rockefeller (D-Mass) has introduced a version of a do not track bill, and Reps. Ed Markey (D-Mass) and Joe Barton (R-Tex.) have introduced similar measures that would prevent the tracking of children online. But anyone signed up with Groupon for specific services, including children, can now be tracked and reported and the company says that information will include relational connections and specific location.

Groupon says, however, its privacy policy changes are only about making the business better for users. The company says all will be clear for customers as to what the are signing up for with new services through privacy policy and user agreement disclosures.

All of the changes to the updated privacy statement were made to improve readability, provide greater transparency about our information handling practices, address some new types of relationships Groupon is forging and new technologies Groupon is using or may use, and let you know about the privacy choices you have, the company said in a statement, explaining changes to its privacy policy.