MR. KOJO NNAMDIFrom WAMU 88.5, at American University in Washington, welcome to "The Kojo Nnamdi Show," connecting your neighborhood with the world. It's Tech Tuesday. Would you pay $20 for $40 worth of bar fare and brews at Duffy's Irish Pub here in D.C.? That's today's featured deal on the online coupon site Groupon. And by 7:07 this morning, the requisite 50 people had bought the deal, making it a go.

MR. KOJO NNAMDIOnline coupon sites like Groupon and LivingSocial that offer half-off deals at local restaurants, spas and other businesses are enjoying huge popularity on the Internet. And companies like Facebook and Google are getting into the act themselves. New location-based technology is expected to give coupon companies a boost with the ability to send coupons to subscribers to use on the spot.

MR. KOJO NNAMDIAs Groupon prepares to go public and imitators proliferate, how will online coupons reshape our retail behavior? And will they find an enduring spot in the Internet landscape? Joining us for this Tech Tuesday conversation on the online coupon craze is John Long, retail specialist at consulting firm Kurt Salmon. He joins us from NPR's Bryant Park studios in New York. John, thank you for joining us.

MR. JOHN LONGThank you for having me.

NNAMDIAlso joining us from studios in San Francisco is Ryan Singel, staff writer with Wired.com. Ryan, thank you for joining us.

MR. RYAN SINGELMy pleasure.

NNAMDIRyan, for those of us who are not avid online shoppers, explain how companies like Groupon and LivingSocial work. How does the deal of the day blend high-tech social networking with old-fashioned bargain hunting?

SINGELIt's an interesting mix. Basically, it's an email list. So if you want to, you sign up for Groupon or LivingSocial or one of the, you know, hundreds of clones. And every day, they send you an email with a deal from your local -- you know, somewhere local or some -- you know, if it's a wine-focused site, it's about wine. And generally, you get some sort of -- you know, they'll do -- it's like sort of a mini gift certificate.

SINGELYou'll get, you know, $20 off of $50 of food at the -- you know, at the local sushi restaurant. And then they'll give you -- generally, these sites would give you some sort of incentive to share the deal with your friends. So, you know, put it on Facebook, put it on Twitter, send it to people by email and if they sign up for the site, then you get some credit, so it's just -- what is called a viral loop. And this is how Groupon spread incredibly quickly. You know, this is a company that didn't exist until about 2009 -- late 2009.

NNAMDIBut is it the general rule of thumb that the deal only goes through if enough people sign up?

SINGELThey do that, but these days, they're so popular that that's almost a gimmick. You know, if Groupon is going to put out a deal, it's almost guaranteed. You know, when you've got, you know, a couple of hundred thousand subscribers that at least 50 are going to jump in. It's really more about sort of a little bit of a game for the first people and then, you know, and giving it a feel of exclusivity.

SINGELBut I think it was more of a hook early on in their lives. But, you know, these days, I haven't seen a deal that doesn't meet its, you know -- at least from Groupon, that doesn't meet that low threshold.

NNAMDIWell, we'll see how much of a craze it is. You can join this Tech Tuesday conversation on the online coupon craze by calling 800-433-8850. Have you bought coupons on Groupon or LivingSocial? And what was your experience? Share with us at 800-433-8850 or go to our website, kojoshow.org. Join the conversation there. Send us a tweet, @kojoshow or email to kojo@wamu.org.

NNAMDIJohn Long, what's in it for the merchants? How do they benefit from offering deep discounts through online coupons?

LONGWell, Kojo, how they benefit is by getting customers that they ordinarily wouldn't have had. So this is a way for them to get footsteps into their stores and traffic that is just another form, frankly, of advertising their wares. And, you know, one of the things that all the merchants are doing, who participate in any number of these programs, is measuring the response rates and understanding how much discount they have to get for what level of traffic and participation.

LONGAnd, over time, they will learn what the most efficient spending pattern is. And, clearly, that's what appeals to the merchants, is this is yet another channel and way for them to reach new potential customers.

NNAMDIBut we've heard horror stories from merchants who were unprepared for the crush of customers who bought their coupons. Have those problems been ironed out?

LONGWell, to some degree, over time, the merchants do understand what the level of traffic is going to be. I think, certainly, early on, you're absolutely right. Many merchants didn't know the power that some of these deal-based coupon groups were going to have. And so they were not prepared. But over time, they've learned what level of discount to offer in order to get what level of traffic and so they've been able to moderate that, as well as if they wanted that similar cavalcade of travel -- of traffic, rather, how to prepare for that in the stores.

LONGSo how to get, you know, enough people under the registers or in the case of a service business, how to get enough people there to service the customers that were coming in and asking to redeem their coupons.

NNAMDIFor the merchants in our audience, are you a small business owner? Have you ever offered a discount through an online coupon company? How well did it work for you? You too can call us at 800-433-8850. John, these online coupons seem to appeal to Americans' penchant for shopping and for getting good deals. What's the consumer psychology behind the success of Groupon and LivingSocial?

LONGWell, gosh, Kojo, you're absolutely right. Consumers have, for decades here in the U.S. -- love to find a bargain. We are treasure hunters by nature. And you'll recall, I'm sure, on the East coast, anyway, Filene's Basement, which was a popular place for people to go in Boston to find one of a kind items that were being cleared out of some of the top department stores and luxury stores across the country and customers have loved that type of experience.

LONGAnd, you know, we're talking a lot about these online coupon services, but there's also flash sales sites, like Gilt Groupe and others, that are doing something very similar by offering these time-based deals of one of a kind or limited quantity items to customers. And they've had a tremendous response rate and have grown their businesses exponentially over the last number of years. In fact, it's one of the fastest growing segments of online shopping today.

NNAMDIWell, there's a comment that was posted on our website by a local small business owner. It's kind of long, so bear with me. It says, "As a business owner, I run a deal of the day and was very excited about the possibility of increasing my client base through the deal. But I found the expectations of most Groupon purchasers did not match those of other normal clients who found us through other online sources like Yelp, Angie's List or Google.

NNAMDII'm not certain the new online companies will survive unless they find a way of setting real expectations for consumers while offering better terms to businesses. For example, if a company offers a regular service for $100 and offer a deal for $50, the company is only receiving $25 for that $100 service because the other $25 stays with the online company. This information should be openly shared with the consumers, so they fully understand what is being offered and at what cost to the business.

NNAMDIIt would help to also encourage coupon users to actually tip for the discounted service they receive. Lastly, as a consumer, I stopped buying deals after my experience offering a deal for my company because I feel the current process is unfair to businesses." Have you been hearing anything along those lines, Ryan Singel?

SINGELYou know, we're getting to a point that there's so many -- you know, Groupon came on like a storm and it was exciting and this was, like, at a time when the economy was terrible and it was really exciting. Let's go out and have a sushi dinner. You know, it will only cost us $20 up front. And you kind of have that fun thing, too, where you bought it and then you get -- if you can hold onto it for, you know, a couple of weeks, you know, or a month, you kind of get that nice feeling of you could use it at any point, right?

SINGELSo you get that sort of other pleasure from the coupon, not just from getting the deal. But, you know, increasingly, we're hearing complaints that, you know, the kinds of people that are coming in now, when they get $20 worth of sushi, you know, they pay for $20, but they're actually getting $50 worth of sushi, in the end, they just tip on $20, you know, instead of the $50 and they're not buying more than that.

SINGELAnd so, you know, I think part of that has to do with just that, you know, as it grows, you really just -- you're starting to get to people that are just kind of bargain shoppers. And so that's not necessarily who, you know, companies want to deal with. You know, those people aren't, you know, going to come back and that's really the point of -- you know, for merchants is that they want to, you know, offer you a discount so you come in the door, try out their sushi and say, wow, this is great.

SINGELI'm going to make this a regular place. And it's -- you know, it's hard for offline businesses, like a restaurant or a nail salon, to really know if those customers are coming back or not. It's much easier to do that kind of thing online.

NNAMDICare to comment, John?

LONGYeah, I think certainly the point that you will be -- obviously, in the case of Groupon or LivingSocial or others, reaching customers, some of whom are going to be likely cherry pickers, they're going to be looking for the lowest bargain and they're only going to buy it at that bargain price is absolutely true. And every business needs to look at the alignment of their offer, so the alignment of their deal, with their core and best customers and make sure that it can grow and make sure that it jibes.

LONGBecause if you're offering a better deal online and attracting customers that will only sample it once but will never come back because your restaurant is too expensive for them on a frequent basis, then really, you have to question why you would offer that deal to attract those types of customers. Now, one of the things you might do is you might offer a deal like that on what you know to be a notoriously slow night or a season when frequency of shop may be down and you may want any customers because you've got overhead to pay and that may be a strategy that you'll employ.

LONGBut certainly, making sure that your deal is aligned with your best and core customer group is critically important to whether or not this thing has legs over time. I would add that one of the flaws that we believe exists within Groupon specifically is that a lot of what you find on their sites are service oriented, so require the customer to go in and be interacted with a person in a store or a given place of business.

LONGWell, that offers you an opportunity as the owner of that business to get that person's email directly. And the next time you want to offer something to your customers, not have to go through Groupon and pay that upcharge for access to their consumer files.

NNAMDIOn to the telephones. Here is Amy in Ashburn, Va. Amy, you're on the air. Go ahead, please.

AMYHi, Kojo, I'm a mom of two and I just have to say I haven't used the Groupon for restaurants, per se, but I've used them for great activities for my kids and my family and I. We've used a couple for, like, D.C. cruise, we've used them for Wolf Trap tickets, we've used them for golf, so it has been a great service. You know, when my kid was sick, they were able to change my date for me for the cruise, for example.

AMYSo we have really been able to go out and do some things that normally we wouldn't go out and do, but has kind of opened our eyes to some of the services out there that are fun for families. So that's my comment.

NNAMDIAmy, I'm really interested because this was what we were discussing earlier, whether, in fact, after you've used those services and benefited from them, you went back to those businesses because obviously, a lot of those businesses are looking for repeat customers.

AMYDefinitely, definitely. For example, Wolf Trap is a place that we frequent a lot of times in the summer. We happen to find Groupon tickets there, but we would go there anyway, so it's a great deal for us to be able to take my whole family to something at a little bit discounted price. But I would still go back. The D.C. cruise, same thing. We would definitely go and do that. It was a lot of fun for the kids. You know, it was something we would do anyway, so...

NNAMDIHow about -- was there any place you found for the first time that you have gone back to deal or no deal?

AMYThe -- yep. The D.C. cruise was a first time for us and also, two places that my husband had never golfed at. They were first-time places that -- he definitely loved the courses and would definitely go back, I think, so absolutely.

NNAMDIOkay, Amy. Thank you very much for your call. Ryan Singel, there are so many online coupon companies that they've spawned a subcategory of coupon aggregators that look at the sites for you and filter them. What are those companies and how well are they doing?

SINGELThe aggregators haven't taken off the way that, you know, sites like LivingSocial and Groupon have. You know, there's a lot of them online. I mean, Yahoo is one, so you can go to yahoo.com and you will start to see them. Yahoo's aggregating. There's an email service called Yipit and that's Y-I-P-I-T. And mainly, you know, what they're trying to do is, you know, they're saying there's all these deals out there and you tell us a little bit about what you're interested in and we'll make sure that, you know, if, you know, you're a guy who is into golf, you're not going see the mani-pedi deal.

SINGELSo -- but it just -- like, none of them have really captured people's attention. And I think part of that has to do with, you know, Groupon's done an incredibly good job at making their offers really funny and interesting. You know, they have a 20-page writing guide to, like, how do you, you know, write up the deal, so that it sounds really fun and interesting. And, you know, with aggregators, it's, you know, there's a small category of people that like to use them. But they just haven't captured people's attention.

NNAMDIGot to take a short break. When we come back, we will continue this Tech Tuesday conversation on online coupons and half-off deals and the like. Inviting your calls at 800-433-8850. Have you bought coupons or -- on Groupon or LivingSocial? Tell us about your experience, 800-433-8850 or send us a tweet, @kojoshow. Go to our website, kojoshow.org. Ask a question, make a comment there. I'm Kojo Nnamdi.

NNAMDIWelcome back to our Tech Tuesday conversation on the online coupon craze. We're talking with Ryan Singel. He is a staff writer with wired.com who joins us from studios in San Francisco. And John Long is a retail specialist at the consulting firm Kurt Salmon. He joins us from NPR's Bryant Park studios in New York. We're taking your calls at 800-433-8850. Directly to the telephones, here is Alan in Bethesda, Md. Alan, you're on the air. Go ahead, please.

ALANYeah, hi, Kojo. Thanks for having me on. As these companies are really, as you say, gift card providers, online gift card providers with a discount, how do they get around the CARD Act, specifically because they have expiration dates on their offerings, so wouldn't that be a violation of CARD Act? And if not, how is it that that they get around that?

NNAMDIRyan Singel?

SINGELSome of them are skirting the law. I've run into a problem with that myself. Others like Groupon who -- they're being sued currently for whether or not they violated the law, which requires that, you know, that gift certificates, you know, hold their value. In California, they can't actually expire, but what they've done is mostly if your coupon expires and you bought, you know, $50 worth of sushi and, you know, but you only paid $20, they will go back and say that that coupon is now worth $20 so that if you don't use it within a year, then you go in and you go to use it, you don't get $50 worth of things, you get $20.

SINGELOther sites haven't really figured out how to comply with this, so if, you know, you bought something and it's --it expires, they just say, it's done. And, you know, I've written -- I had to write one side about it and, you know, they basically said, tough luck. And I said, I think you're violating the law. And then a couple of days later they just refunded money to me, which wasn't even what I was asking, I just wanted to be able to use the face value. So -- but it is a complicated question, you know. Can these deals actually expire? Is it okay that they fall back to the, you know, the $20 that you pay? We haven't seen a ruling from a court yet.

NNAMDIWhich brings us to this, John Long, and you, Ryan, "I've read that about 20 percent of coupons are never used and now there's a secondary marketplace for those languishing coupons, thanks to a string of resale companies like CoupRecoup, Lifest, if that's pronounced properly, and DealsGoRound. Is this an inevitable result of impulse buying?" First you, John.

LONGSure, it is. It's a natural outcropping when you've got deals that close and expire. So these are secondary markets where buyers and sellers can trade these local coupons, obviously helping sellers who no longer wish to use the coupon and buyers who may have missed a local deal sale window. So these are natural.

LONGThey're going to be there, probably very similar to these coupon sites, though. There's been a tremendous proliferation of them similar to the dot-com era back 10 years or so ago. And so we should expect, at some point, to be a consolidation once clear winners emerge.

NNAMDIRyan?

SINGELI think that's true. I also think that one of the reasons they're not going to do so well is that -- maybe I'm just -- I'm extrapolating from my own personal experience is that you buy the coupons, they generally -- you know, they have six months to a year expiration. You know, say, you know, you really were going to go and do yoga for a month and you got all the yoga you can do in a month. And then as it gets to sort of like two months left in the deal, you know, you know, you say you're going to do it and then you don't and then you sort of -- and then you got to get to the point where you have to know when to sell it.

SINGELAnd so that actually sort of takes this effort to like, say, you know what? I failed. I didn't -- this thing I bought that, you know, I was going to use, you know, I just didn't get around to it. And then I'm going to go and try and get some of the money back. You know, I think, well, a lot of people are just going to let the deals expire. I like the idea of it.

SINGELI -- maybe you'd like to see -- you can, you know, go and pick up some fun stuff that you missed and you can do it on a whim, but I think they're not gonna be huge business, they're going to be a nice kind of like small niche. And perhaps, I think they're also going to run in some trouble when we start to see deals that are offered -- you know, merchants are going to be able to offer sort of deals not just one time, but sort of ongoing so that, you know, if someone is near their store, they might be able to offer that person a deal so there's gonna be less these sort of like long-term deals and more of these kind of like short-term immediate things.

NNAMDIYou can go to our website kojoshow.org to answer the question, have you ever bought online coupons that you didn't end up using? What did you end up doing with them? Go to our website, kojoshow.org. Send us a tweet, @kojoshow or email to kojo@wamu.org. Here is Ralph in Washington, D.C. Ralph, you're on the air. Go ahead, please.

RALPHWell, you know what? I recently had an experience where my daughter sent me a Groupon, you know, reminding me I need to clean my car. And I went into it and I checked into it and I explored it a little bit further and found out that these people who are issuing a Groupon had a very bad reputation. Not only that, but they would issue a full positive praise and the services weren't available because they have a two-week expiration.

RALPHThe services weren't available on time or the services -- or they have to reschedule accounts without notification. And basically, they just didn't service the people and the Groupon will expire and the people have no recourse. Everything…

NNAMDILet me -- you got to be a little clear for my benefit, Ralph. This was so that you could get your car clean, some kind of auto detailing deal?

RALPHYeah, right. It's an auto detailing deal and (unintelligible)...

NNAMDIOkay. So what happened when you got the coupon? When you got the coupon, what do you with it?

RALPHI didn't bother. I didn't get the coupon after reading the reviews about this company, they were so horrendous.

NNAMDIOkay.

RALPHAnd there was one nightmare story after another. I've backed away. And then, you know, I have bought a coupon for meal at 50 percent off and, you know, when I took it in there and showed it to the waitress, she looked like I, you know, I defecated on her table or something. And she wasn't too happy to me after -- to see me, so, you know, I -- you know, they got to be careful. They got to filter these things, otherwise the consumers are gonna get a sour taste in their mouth and then gonna destroy the market.

NNAMDIJohn Long, can you care to comment on what Ralph said? Is -- did Ralph have a one or, in his case, two of a kind experience or have there been a lot of complaints about that?

LONGI think it would be fairly exceptional, but, you know, remember, one of the challenges for these companies that are offering these coupons is that they have a sales force that's out there in each of these local markets, working with each of these different companies, health and beauty companies, retails, services companies, event companies, you know, restaurants, et cetera. And clearly, the challenge is, on an ongoing daily basis, to come up with deals.

LONGAnd so almost inevitably, because you're going to constantly be looking for new services and new businesses to offer, you're going to stumble across some that won't be able to deliver the quality of services that you would like to as a Groupon stand for in the market place. And so that certainly is going to be a challenge.

LONGAnd it's interesting that, you know, geographically, Groupon's user base tends to skew more of the Midwest and Pacific, where they're headquartered actually in Chicago. And LivingSocial, which is headquartered in D.C., is much stronger on the East coast. And so that may speak to how successful or how high quality the deals are, based on their own corporate headquarter locations and their ability to control the quality.

NNAMDIRyan Singel, I've noticed, or I've begun to notice, that some of our callers are using Groupon as a synonym for online coupons in much the same way that we used to use Xerox as the synonym for copying. Is that a good thing or a bad thing?

SINGELOh, I don't know. I won't pass judgment on it, but I think that's definitely true. You know, they are the market leaders. They came out and they were a phenomenal splash, you know? And they were lucky early on. They had such demand for these deals, both from merchants and consumers, that they were able to pick the best companies, so, you know, they had a backlog of 120 companies, you know, for a while in San Francisco.

SINGELSo at that point, you can go in Yelp and you can make sure that, you know, the companies you're offering deals from are, you know, are all four stars or more, but that gets -- as John was saying, it gets much harder when, you know, you've got a lot of competition out there and you've got this daily quota, so it's going to be -- these days, it's -- you know, there's a lot of work that, sort of, Groupon can't do for you anymore, that you have to do yourself.

SINGELSo as the caller did, you need to go and look at the Yelp reviews, go and see what people say online. You know, even go and look at their website because we've had instances where companies will jack up the price a couple of days before they do the Groupon so it looks like you're getting a great deal, but it's actually, you know, this happened with a national florist, offering some flowers, I think, at Valentine's Day. They actually changed the price.

SINGELSo it looks like you're getting a great deal, but, you know, you actually weren't. So there is now a little work that consumers have to do to make sure that the deal is as good as they think it is.

NNAMDIGot an example of that. We got an email from Mike in D.C. "Overall," Mike says, "I'm a satisfied customer, having used online coupon several times. But just last week, I got a coupon for the Taco Box Restaurant's after checking the menu online to see what I'm actually getting. The next day, we went to one of them and found out that they, guess what, have just raised their prices by about 20 percent. In my book, that is bait and switch."

NNAMDIDoes that happen often or that's just what Ryan was speaking to? Mike, so thank you very much for your email. I want to move on now to Steve in Silver Spring, Md. Steve, you're on the air. Go ahead, please.

STEVEThanks, Kojo. I've just wanted to chime in here. I do online marketing for various restaurants and some salons. And as part of that, the Groupon and LivingSocial and all the other ones are a fantastic marketing thing, but it really depends on if the business owners and the employees know what's going on. And the reason I say that is sometimes, the employees are worried about tips and all that stuff.

STEVEAnd it's the folks that are doing the, you know, using the Groupons are not thinking about tipping on the full amounts and all that, then the employees get tweaked. And then they don't do a really good job they're supposed to do for anybody coming in with a Groupon and that turns people away. And I guess from the online marketing perspective, the best thing about Groupon really is that they have returned customers pay for it, you know, more and more.

STEVESo a business might have to spend $10 per -- or more per incoming Groupon customer, but if they get that person to be treated, you know, perfectly and wonderfully, they will be back and they'll make a good profit and hopefully, come back over time. And it turns out that a value of a restaurant customer is like $6,000 over five years.

STEVESo it's a really good opportunity for a lot of restaurants, but a lot of the staffs don't get it and feel like -- if there's any business owners out there, think about the fact that you just got to do better than perfect job to get those folks to return and that's about the only way you make money off a Groupon.

NNAMDIJohn Long, the normal tip I get for serving a crab cake dinner and a beer is about $10, but when one of these online coupon customers come in, I served that dinner, I get a tip of maybe two or $3. In the short run, it doesn't work out well for me, our caller, Steve, says. But in terms of the business, it works out well in the long run. How do you acclimate the staff to that reality?

LONGWell, I think what he was saying, which is 100 percent aligned with, is the fact that a number of these businesses that they have not engaged in regular promotions before really need to think through that final mile of delivering it. So said a different way, can you imagine a retailer that runs a sale, 50 percent off everything in a store and when you get to the store, it doesn't have signage to tell you if there is, you know, some part of the store that might not be on sale and doesn't have enough people ringing the registers?

LONGSo you don't really have the sales help that you need and, by the way, doesn't have any bags, you know, ready for that type of onslaught. And so in a similar way, the thing that the Groupon sales folks need to do is to help those businesses that may not be used to this type of response to think through all the aspects of their business that are going to be impacted by this increased traffic level and certainly, in the case of a restaurant, try to bridge or try to help some of the wait staff understand what they're trying to accomplish.

LONGBecause it may not be about that tip that day, it may be about a longer term need or frankly, as the restaurant, you may want to somehow provide, you know, a stop-gap for that particular day, at least as it regards tips, because your expectation is that you're going to be getting some percentage of very valuable long-term customers into the business and that's really worth it to you as a business. And you may need to offset that for your hourly staff to make sure that everybody has the best experience possible. And that's going to be key, obviously, to maintaining those longer term customers.

NNAMDISteve, thank you very much for your call. But as to the business of online coupon users not tipping well, Barbara in Herndon, Va., I think, begs to differ. Barbara, you're on the air. Go ahead, please.

BARBARAThank you, Kojo. Yes. I would like to take you back from both the consumer and a marketing standpoint. It's basically -- what I would tell you is that as a Groupon user, if I go to a restaurant with a $50 coupon that I bought for $25, generally, I will order more wine, I will order desserts, I'll order an appetizer. I will make it up in somehow to, you know, to make sure that, you know, basically, I feel like I've got 25 bucks for free, I will spend that in the restaurant, just because I, you know, that's generally my mind sense, is that it gives me a little bit more of a budget to play with for, like, the last weeks.

BARBARASecond of all, I would like to take you back on that and say that, I think, that if these restaurant owners understand that the staffs are basically, you know, that they are surviving on the tip and provide some form of incentive. You know, give them a, you know, $10 tip if they sell -- if they upsell that customer. If they do something to incentivize the staff, then the staff will see that the Groupon is (word?), is something that's good and will see that it is -- you know, they obviously, certainly, have a vested interest to make sure that person comes back.

BARBARAThe restaurants that I have gone to with the Groupons that I've had a positive experience, I've gone back time and time again. And the reason why I've gone back time and time again is that if I have consistently had a good experience in that restaurant, the ones that I walked into and, you know, I didn't really feel like I was getting a good experience, I didn't go back to. So it's really up to the restaurant's owner. It's up to the business owner to make sure -- you have to understand that you are paying money to get people in the door, and it's up to you after that to keep them.

BARBARANot only that, it's also up to you after that to track where your returning customers are coming from because if you're tracking just on the basis of the first-time visits, you're not doing a good job and you're not going to (unintelligible) return on the investments.

NNAMDIGot it, Barbara, with some good advice for business owners. Speaking of staff, Ryan Singel, it's apparently fairly easy to start an online coupon company, but it's my understanding that it's very labor-intensive and expensive to run one. Why is that?

SINGELWell, the software is really simple. You know, an email list these days is, you know, you hire a company to do it and you can -- the first thousand you send that a month, they're free. There's a lot of, you know, the people have made, kind of a -- they're sort of Groupon clone websites, so you can -- there's an open source one you can get for free. There's this some, you know, easy ones you can just pay. The hard thing is, is that, you know, you've got to do customer service.

SINGELWhat are you going to do when one of the businesses that runs a deal goes out of business a month later? You know, what do you when a merchant has a problem with somebody trying to use a coupon more than once? You know, so you've got to have that sort of support and then you've got to have somebody out there pounding the pavement, you know, trying to find these deals. You know, this is -- most of Groupon staff and...

NNAMDIOf 7,000 employees, yeah.

SINGELYeah, 7,000 employees. Most of those are salespeople. Excuse me. So, you know, this is just like a human, you know, intensive business, you know? And they're trying to cannibalize themselves a little bit. Groupon is starting to move in this -- move into a self-serve model where, you know, Groupon takes a smaller percentage, but the -- you know, the companies can -- and this tend to be the little side deals you see on the side, and, you know, we're going to see more of that.

SINGELBut, you know, it's not -- it's not as easy a business to replicate as you think it is. You know, you've got to execute really well. And this what -- sort of what is, you know, made LivingSocial really successful is that they purely copy Groupon's, you know, model. They didn't do anything innovative except they went out and they made sure that, you know, the way they dealt with merchants and the way they did customer service are to make people really happy and that's sort of generally been what's, you know, propelled LivingSocial.

NNAMDIGot to take a short break. When we come back, if you've called, stay on the line. We'll try our best to get to your calls. But if the lines are busy, go to our website, kojoshow.org. Join the conversation there. Do you think Groupon or LivingSocial has the potential to become as big an Internet phenomenon as, say, oh, Facebook or Google? Go to our website, kojoshow.org. Send us a tweet, @kojoshow, or email to kojo@wamu.org. I'm Kojo Nnamdi.

NNAMDITech Tuesday, the online coupon craze. We're having a conversation with Ryan Singel, he is a staff writer with Wired.com who joins us from studios in San Francisco and John Long, retail specialist at the consulting firm, Kurt Salmon, for he joins us from NPR's Bryant Park Studios in New York.

NNAMDIRyan, the new technology that's powering some of this growth in the online coupon arena is called location-based service, which allows companies to see where individuals are located and then send them coupons for nearby businesses. The new players in this realm are companies like Foursquare, Gowalla, if that's the name it's pronounced, and Shopkick. How do they work?

SINGELThese are mostly apps on smart phones. So the way they work is they use the GPS and another location-finding things on your smart phone and generally, they want you to check in somewhere. So it's just an app when you're at a place, say you're at your favorite coffee shop. You just open the app and you press a little button and you check in. And so, what, you know, these are -- mostly in the beginning, sort of, started as a game.

SINGELYou know, you could become the king of your local coffee shop and then eventually, you might get some rewards from the coffee shop. And now, these companies are starting to move into being able to let merchants offer deals at a specific time. And so you can do things, like John was speaking about earlier, where when you've got a slow period, you know, if you know -- if you're on a popular deli, but your traffic falls off between, you know, two o'clock and, you know, and four o'clock or five o'clock, you can now offer a deal that would, you know, that makes sense, you know?

SINGELYou might lose a little bit on the sandwich, but you get somebody in the door that you didn't before and you're paying for those employees anyway, so you might as well have them be working. So this is the sort of the dream of getting local commerce and local advertising, which has been incredibly hard to get to move online, but sort of bringing online to them, right? You see, you've got people with their smart phones.

SINGELSo if you're walking down the street and, you know, you could also -- if you have a certain app running, you might get a little, you know, a little ad that, you know, says here, come into my boutique, you get, you know, 20 percent off today. And so...

NNAMDIJohn Long -- go ahead, please.

SINGELYeah, go ahead.

NNAMDIJohn Long, Shopkick is a company with a mobile phone app that tells a store when a customer has entered and then rewards that customer with points or kicks to use in that store. Shopkick launched that service last summer in partnership with two big-named traditional retailers, Best Buy and Macy's. How did those stores use Shopkick to engage customers?

LONGWell, the interesting thing about Shopkick is the application really reminds you more of a game than of anything complicated like shopping online. So said a different way, you collect points based on where you are for merchants in your immediate area -- in Manhattan, it can be up to two miles away, so it's almost the entire island in that case, right? But -- who are offering you percentages off or deals and, you know, you simply click on that and it will tell you what the particular deal is in the store.

LONGIt may be a particular item, it may be a particular category or it may, in fact, be some things that you need to go in and self-identify that you're using Shopkick to get. And certainly, last holiday season, we saw a number of retailers, not only Best Buy and Macy's, but also Target, American Eagle, Sports Authority, Crate & Barrel and others who are offering daily deals on Shopkick and giving you an opportunity to collect points even if you didn't get deals that day and the points are redeemable later on for discounts.

LONGAnd it was a great experiment and I'm sure that the retailers that participated last holiday season are trying to assess the degree to which they would continue to offer deals on Shopkick. But one of the most interesting reasons that this whole location-based phenomenon is so appealing to retailers is that 10 percent of retail traffic to specific sites of the retailers is typically coming from mobile applications, typically coming from telephones, specifically.

LONGAnd what retailers have realized is, geez, if 10 percent or thereabouts of our traffic is coming from folks who are not PC-based, but are actually walking around or on a phone, then we better come up with ways to do things uniquely for them. And, you know, one of the most interesting parts of it are being able to identify customers as they come into your store and say, hey, you know what? We know you might be here to browse.

LONGWe know that you might be here to get ideas of what you want to buy the next time or doing some price comparisons, but let's give you an incentive to buy something here today. And it's trying to turn every footstep into a sale and increase what we call in the business the conversion rate of your customer base.

NNAMDIOn to the telephones again. Here is Chris in Baltimore, Md. Chris, your turn.

CHRISHi. I wanted to call just to comment on Groupon and an experience I had as a small business owner. We -- just an online business. We didn't know much about Groupon last year, but tried them out and had a successful campaign in the D.C. area. We went back to them, so this was great. We wanted to do a larger market and they agreed to do a five-city emailing for us, quadrupling the number of emails they had sent out for our first campaign.

CHRISAnd then that was it. They actually never came back. And after a few emails back and forth about when they're going to run the campaign, they never did. And what this caused me as a small business owner was I ramped up all my inventory to prepare for, you know, the onslaught of customers and they never came because the ad was never run. And if you read the fine print in the contract, it appears as if they don't even have to run your ad if they don't want to.

NNAMDIWell, John Long, it's my understanding that your firm has helped traditional retailers -- like, presumably, Chris -- look at online options like Groupon and decide whether they want to participate. Chris actually participated, had a good experience and then, apparently, got and felt rejected. What would you say about that?

LONGIt's not unsurprising. And a lot of the reason for that is that Groupon typically focuses on locally owned businesses and they are trying to manage what they perceive anyway to be the quality of the deals that they have and the types of customers that they have coming through. It is an unfortunate experience, obviously, and, you know, the retailers that we typically work with are more nationwide retailers who actually wouldn't use a Groupon, but would use, for example, a Shopkick.

LONGBut in that case, you know, one of the things you may want to do when you're talking with Groupon about offering a deal is understanding what deals have been most successful on Groupon in your category. So if you're a restaurant, what types of restaurants have been most successful in offering deals? What types of deals have they offered? You know, what types of customers do they have? Typically, is it more affluent customer base or not?

LONGAnd try to get an understanding for, as best you can, the market that exists and is represented by Groupon because, clearly, every deal that's offered on Groupon -- if Groupon wants to stay in business, has got to be a really good one. And so any guidance that that sales force can provide you in what types of deals resonate best is something that's going to be key in terms of figuring out whether or not you wanna participate or not in that opportunity.

NNAMDIChris, before I ask Ryan Singel about the same thing, did you try to attempt to get in touch with Groupon after this and got no response?

CHRISYeah, multiple times, actually. It was -- the last email response I got was -- after waiting about three months before we had actually -- since -- from the time we signed the deal to when we thought it was going to be run was, you know, sit tight, you're in the queue. You know, we're going to run the ad. And after that, I have never gotten any response back from any email, voicemail or letter that I've sent in.

NNAMDIRyan Singel, Chris talks about building up his inventory. I noticed he's calling from Baltimore, but my assumption is that if he were in Washington, his lawyer would be who would be calling Groupon.

SINGELYou know what? I think it's hard. You know, at this point, you're kind of you've got a contract, that they've got a loophole. You're running on an oral contract. It's a very unfortunate situation, but not unexpected. You have Groupon that's growing at a tremendous pace. You know, the incentives for each salesperson is to, you know, maximize as many deals as they can land. You know, it's very possible there's, you know, five other sales people that, like, promised the same thing to other people.

SINGELAnd then, you know, somebody, some manager made a decision, you know, and that manager had been there for two months 'cause Groupon is growing so fast, you know? So it's not unexpected in an organization that's, you know, grown from, you know, basically, you know, five people, you know, to six or 7,000 in two years. It's unfortunate, but, you know, these days, I guess I would say that, you know, at least there's a lot of other competitors you can turn to. And, you know, LivingSocial is trying to make its name as being the ones that treats merchants a little bit better, so maybe that would work for the caller.

NNAMDIChris, thank you very much for your call and good luck to you. Here's another Chris, this time in Arlington, Va. Chris in Arlington, you're on the air. Go ahead, please.

CHRISYeah, Kobo -- Kobe. Excuse me. I'm so nervous now. I was listening to NPR last night and they were talking about how banks are starting to do this. As you swipe your card at, let's say, Starbucks, you'll get a notification on your cell phone saying, hey, guess what? We have a huge sale going on next door on pastries. Why don't you check it out? Once again, using your card for a bank Visa, you get his app on your phone saying, we have a sale next door, which is another type of, I guess, Groupon situation going on. Have you heard about that?

NNAMDIJohn Long?

LONGWell, certainly, the couponing in the way you described has been going on. The location-based one that you described, the more specific example, no, I haven't seen that as yet. I certainly have seen stores offering coupons for future visits and the like, as you leave the store or even as you enter the store and scan a card, but that's certainly something that I would fully expect would be easy for merchants to enable.

LONGAnd, you know, where you've got people who are willing to co-participate, in the case of Starbucks, I'm not sure they'd be so happy going to a pastry store next door, but certainly other goods and services, they might be. And if there's a way for the bank to figure out how to marry those deals up, then that could conceivably work.

NNAMDIOkay. Thank you very much for your call, Chris. Lucia in Olney, Md. Lucia, I'd like to read your email because we're running out of time. Is that -- will that work for you?

LUCIAWonderful.

NNAMDILucia said, "Recently, I purchased a voucher for $15 to use at a fine Portuguese restaurant where I would get $30 worth of food. When I dined at that restaurant with my husband, the service and food were so amazingly wonderful that I did not have the heart to use my $15 voucher. Now, knowing what I learned in today's show, I'm even less inclined to ever use it to purchase more vouchers.

NNAMDIIf the restaurateur will receive over -- only $7.50 for $30 worth of a gorgeous meal, what a shame this is." I am sure your sentiments would be approved by a lot of people, not necessarily by the restaurateur, because what he really wants, Lucia, is for you to come back. Would you be going back to that restaurant?

LUCIAOh, yes, I am.

NNAMDIOh.

LUCIABut I think it's a very expensive marketing tool to this poor restaurateur (laugh).

NNAMDIWell, it seemed to work in a way because he's getting not only more money, but your business also. I'm afraid that's all the time we have. This is a conversation, gentlemen, that we'll have to continue as we see how this all evolves. Ryan Singel, thank you for joining us.

SINGELMy pleasure. Thanks for having me on.

NNAMDIRyan Singel is a staff writer with wired.com. John Long, thank you for joining us.

LONGYou bet.

NNAMDIJohn is a retail specialist at consulting firm Kurt Salmon. Thank you all for listening. I'm Kojo Nnamdi.