Contents ~ High-tech mindreading goes to the movies 39 ~ Apple's fast-growing share of mobile advertising 40 ••.Can Research in Motion's soon-to-debuttablet put a dent in iPad sales? 41 ~ Letting sports gamblers bet during the game 41. Edited by James Aley

Technology----

Coupon Deathmatch,Party of Two?

Groupon splitsrevenue 50-50

with merchants

Gets up to $1 perhead for every ~)

reservation

Began a Groupon­like service in

August

Open Table seats

4 million people

per month

~ Restaurant booker Open Table may be Groupon's most formidable competitor in online coupons

~ "This is like the yellow pages business. They are going to need to cover hundreds of cities"

The Essex, on Manhattan's Lower EastSide, otters creative cocktails, $1oysters,and its signature Colorado lamb chopsover ricotta gnocchi. On weekday nightsand during off-peak hours, it alsofeatures lots of empty tables.

To fillhis ISO-seatrestaurant in aneconomy that can spoil anyone's ap­petite, The Essex's owner, David Perl­man, has turned to Internet coupons.Last spring, he used one of the hotteststartups on the Web, Groupon, to sell$30 coupons at $15each to about 1,500people on the site's New Yorke-mail list.In August, Perlman went the discountroute again, this time with the just­launched coupon service of Open Table,the online restaurant-reservationbooker. Slightly fewer than 1,000 people

purchased that deal, a $50 couponfor $25. Still, Perlman says he favorsOpenTable's service because it broughtin gourmet diners who were more likelyto turn into repeat customers. "We hada positive, profitable experience withboth, but I liked OpenTable better, justbecause it is more geared toward restau­rants," he says. "The people we attract­ed with OpenTable are people we wantto add to our customer base."

Dailydeals are everywhere online.That has a lot to do with privately heldGroupon, based in Chicago, which hasemerged from nowhere to revolutionizelocal advertising and build a business re­cently valued at $1.35billion, accordingto two people familiar with the company.

Groupon works like this: It sends a

daily e-mail to more than 17million sub­scribers in over 230 cities, employingflowery prose ("Alove oflayers may evenlead your archeological side throughthe house lasagna") to otter group dis­counts on everything from pastries andspa treatments to pilot lessons and res­taurant meals. If enough people take theoffer and pay in advance, the deal is ac­tivated and Groupon splits the resultingrevenue 50-50 with the merchant. Sub­scribers get only one offer per day, whichhas left room for hundreds of copycatsto offer their own variations on the for­mula. "We stuck a pin in somethingand now there's a giant eruption," saysAndrew Mason, Groupon's 29-year-old

founder. "The demand from busi- 0ness owners is much greater than

II:To diagnose anemia, a condition that can signal the presence of diseases such as HIV,doctors need a centrifuge to separate blood samples into red blood cells and plasma.Lila Kerr and Lauren Theis modified a salad spinner to do the job in areas withoutelectricity. The Rice University undergraduates created the device as part of theircoursework in introductory bioengineering and field-tested it this summer in Ecuador,Swaziland, and Malawi. "The most frequent response" to the gadget, says Kerr, "is 'well,of course!' After all, a salad spinner is a centrifuge." - Ira Boudway

72

earnings

Ratio of

OpenTable'sstock price to

estimated 2011

The bottom line Groupon, which started the boom indaily-deal sites, faces tough competition from similarservices offered by Open Table, Yelp, and others.

On Sept. 29 it announced the GrouponDate Assistant.)

Analysts are divided on how thiscoupon contest will play out. "WhatGroupon lacks in protective competi­tive moats, I think they get in the factthat this is a scale business," says ScotWingo, CEOof e-commerce consulting-------, firm ChannelAd-

visor. He says thesize of Groupon'ssales staff is its bestcompetitive advan-tage: "This is like

------~I the yellow pagesbusiness. They aregoing to need tocover hundreds ofcities and have feeton the street in all

I of those places,"Mark Mahaney, an analyst at Citi­

group, downgraded OpenTable's stockinjune because he believed the shareswere overvalued. He reversed coursein September after the company sold16,000 Spotlight offers in the program'sfirst six weeks, bringing in an estimated$200,000 in revenue. "OpenTable cango right to its customers, all of whom areinterested in restaurants," Mahaney says.Groupon and its other imitators acquiremost customers either by word of mouthor by running targeted ads on Facebookand Google. Another formidable com­petitor is also joining the fray: Yelp,thelocal-business review site, is introducinga daily-deal service. With its 300-strongsales force focused on local ads, Yelp,too, has relationships with merchants.

One clear beneficiary of all this com­petition will be restaurants. As new en­trants undercut each other on couponcommissions, rates could be drivenbelow 50 percent. The coupons are al­ready moving into the upper echelonsof gastronomy. Metrazur, a high-end res­taurant in New York's Grand Central Ter­minal, recently sold 1,200 $50 couponstor $25 using OpenTable; Rouge Tomate,another pricey New Yorkeatery, justsold 385 $100 coupons for $50 on Yelp.Perlman, of The Essex, says discountingby the swankiest establishments helpshim. "If anything, keeping sllch com­pany on the deal sites actually enhancedour reputation," he says. -Brad Stone

down to the verbiage. ("Their menusshowcase artisanally grown, fresh farethat sings.") CEOjeffjordan says Grou­pon's deals aren't tailored to people's in­dividual interests. "Groupon is sendingme ads for hair removal. Nature is doingthat for me," he jokes. That lack of focus,he says, has created an opening for himto hone in on toodies.

Groupon believes its size and someupcoming features meant to personalizepitches will keep the competition at bay.It has raised money at a ferocious pace.In April it received a $135million infu­sion from two Facebook investors-theRussian-based investment group DSTand venture capital firm Accel Partners­and others. Groupon has used the cashto enter new cities, buy competitorsin Chile and Germany, and expand its1,600-person sales force, which makesup about halfits head count. The com­pany is beginning to tailor deals to sub­scribers' location, gender, and any in­formation they volunteer about theirbuying interests on Groupon's website.It aims to offer deals based on a sub­scriber's Groupon purchase history,Mason says. (And now it's planning touse that data to help its customers meet:

Technology

High tech and low cost

October 4 - October 10, 2010Bloomberg Businessweek

anything a single business like Grouponcan meet,"

Restaurants account for nearly halfof Groupon's deals, making OpenTablethe imitator best positioned to eat itslunch. OpenTable, started 12years agoin San Francisco, has put its reservation­management system into more than14,000 restaurants. (Restaurants eitherlease computers for a $600 installa-tion fee plus a $199monthly subscrip­tion or they use the cheaper, Web-onlyoption.) It seats about 4 million dinerseach month. Restaurants pay OpenTableup to $1dollar per head; diners makereservations for free. The company hasthe e-mail addresses of tens of millionsof gourmands, as well as a sales forcedevoted to pitching additional market­ing services to restaurants using Open­Table. And likeGroupon, OpenTable hasits own overcooked valuation: Its stock,valued at $1.56billion, is trading at 72times its estimated 2011earnings-morethan six times the S&P500 average.

OpenTable unveiled its SpotlightCOllponservice in August and has rolledit out in Boston, New York, San Fran­cisco, Chicago, Washington, and Phila­delphia. Spotlight is Groupon-like right