E-Couponers Choose Sides

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A spate of alliances this month among online promotions firms signals they are spending less time convincing retailers that Internet coupons can boost their businesses and more time jockeying for position in a market that - at long last - is beginning to mature, according to market watchers.


"This year and next year will be a very telling time for online couponing," said Melissa Bane, director of Internet market strategy at the Yankee Group, Boston. "We've moved from a customer acquisition focus into much more of a balance of customer acquisition, conversion and retention."


The number of deals continues to swell. Promotions and loyalty program concern Netcentives Inc., San Francisco, said in early April it will make its ClickMiles online rewards program available to registered members of CoolSavings.com Inc., an Internet coupon company. Netcentives agreed to promote CoolSavings to its database of 950,000 shoppers.


The same week, online promotions firm E-centives Inc., Bethesda, MD, announced plans to provide digital coupons through the portal operated by Excite Inc., then followed that pact with an agreement to do the same with NextCard Inc., an online credit card company found at www.nextcard.com.


The deal between E-centives and Excite came after a similar partnership between leading portal Yahoo Inc., Santa Clara, CA, and Val-Pak Direct Marketing Systems Inc., Largo, FL. And no less a storied media company than the Tribune Co., Chicago, declared its confidence in the future of Internet coupons this month by making an investment in SuperMarkets Online Inc., a unit of Catalina Marketing Corp., St. Petersburg, FL.


"We definitely see that the space is heating up," said Dadi Akhavan, co-founder and executive vice president of E-centives. Akhavan said his firm has spent less time educating customers about digital coupons since the end of last summer, when Internet-commerce analysts began talking up the targetability the Web can lend to coupons.


Retail trends have contributed to the rise of electronic promotions since then. As response rates for banners wilt, virtual marketers are hungry for coupons' higher conversions. Promotion companies often charge only for sales rather than click-throughs. And the growing number of businesses selling goods at cost is spurring retailers to provide stronger price incentives, Bane said.


Signs of success for digital coupons have been long in coming, primarily because of fraud fears. Manufacturers, in particular, fret over the possibility that retailers might redeem fake coupons they claim to have received from consumers. The industry still has a long way to go to dispel those fears, said analyst Ken Cassar of Jupiter Communications' digital commerce group.


"I absolutely think that fear of fraud is holding [the coupon industry] back, but I think that's inevitable," Cassar said. "Anyone who's really looked at the space in the past should have expected that it's going to be a market that will take some time to develop. We're sort of at the beginning of that development curve."


But the industry is showing a "ton of potential," Cassar added, because the Internet is a cheap way to distribute coupons. Retailers and manufacturers can avoid paper and mail costs, and better target recipients based on their buying preferences.


As in most maturing industries, market awareness is likely to be followed by hotter competition - and consolidation.


Though all the digital promotions firms paint themselves as leaders in the category, it's difficult to gauge which couponers are really ahead. Most companies are privately held and won't discuss whether they are profitable. Discerning the industry leaders is further complicated by the fact that no two companies focus on the exact same markets, use the same technology, or promote themselves in the same places.


Analysts and company executives agreed those differences are almost certain to fuel mergers down the road. As in any industry, companies making acquisitions set their sights on firms in the same industry, but with different expertise.


"We see the potential for consolidation [within the industry] going forward," said E-centives' Akhavan. "There are a lot of companies out there that are doing different pieces of the pie."


Not all the Internet coupon and promotions firms have yet allied themselves with traffic-building Web sites, preferring to concentrate on deals with merchants. Bob Egan, executive vice president of PlanetU Inc., San Francisco, said his company currently is concerned with building retail partnerships. The e-couponer targets members of merchants' frequent shopper databases.


"As far as portal deals as traffic drivers, that's relatively easy to do as a layer on top of retail deals," he said.


PlanetU is succeeding in signing business partners. Egan said the company plans to announce several merchant agreements over the coming weeks, including at least one with American Stores Co., Salt Lake City, UT, a national food and drug retailer that had almost $20 billion in sales last year.
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