Is the Coupon Business Model Valid?

When a website that merely provides you with coupons that get you discounts on e-commerce websites has a valuation of hundreds of millions of dollars, you may feel that they are on to something. But is the coupon business model valid? Is it at that end of the e-commerce spectrum where entrepreneurs can still come in and salivate at great returns?

How a Couponing Website Works

The idea is very simple. If you want to buy something specific or buy from a specific e-commerce website, you can first visit a coupon website to check for the presence of a discount coupon for the same. After clicking the coupon code, you are redirected to the specific product page, and a discount is applied to your purchase.

What Is the Rationale Behind the Couponing Website Model?

Whether we like it or not, customers have started expecting discounts when they shop online. Year-round discounts, membership-based and registration-based discounts, discount codes, and coupon codes are prominent mechanisms of passing on discounts to customers. So, in principle, a coupon website is well in sync with the paradigm that e-commerce operates in.

What Draws a Customer to a Couponing Website?

The biggest draw for coupons is that e-commerce businesses seem to strongly encourage couponing. At almost every e-commerce website, you are provided with the option to enter coupon codes during checkout. So, even if it had not occurred to you that you could use a coupon code, you are reminded of it. All you need to do is open up another browser window and search for a coupon. Usually, it is quite easy to locate a valid coupon and an instant discount.

How Does a Coupon Website Earn Money?

There could be several revenue streams for a coupon website. But the primary revenue comes from affiliate sales, and secondary revenue is from advertising. This means that not just does the e-commerce website pass on money to the customer in the form of a coupon discount, it also passes on money to the coupon website in the form of an affiliate commission. In most cases, the advertising revenue for coupon websites is minimal.

The Problem With Coupon Websites

Some people doubt the coupon website business model for several reasons. Here are some of them:

Some conjecture that as e-commerce businesses mature—and start focusing on the bottom line as opposed to being maniacally focused on the top line—there will be pressure to get rid of incessant discounting. If this is the case, couponing could be the first casualty.

For availing themselves of the many joys that coupon offering websites give, an e-commerce business needs to give up two chunks of money as mentioned earlier. The first is to the customer and the second is to the coupon website. This might soon be regarded as unattractive, and coupon websites could be cut out of the picture.

Social marketing, content marketing, affiliate marketing (without coupon codes), referral marketing, and the like seem to be far more attractive to the e-commerce merchant than couponing. This might soon eliminate couponing as a tool in the e-commerce marketer's arsenal.

The Verdict

The jury is hung. But we are inclined to believe that couponing is too strong a tool to disappear from the face of e-commerce. Especially when couponing businesses are sensible enough to get deeply integrated into the social networks of their users and offer deals that actually work, we think that customers will prefer to buy from sites where they can apply coupon codes. And that will encourage e-commerce businesses to keep offering coupon codes to remain an attractive destination.

If nothing else, we need to see a couple of strong couponing players emerge and change the shape of the couponing landscape. If you are thinking about setting up a couponing website, focus on ensuring that you have a differentiator.