Groupon fights for its life

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SummaryGroupon and its compatriots in the much-hyped daily deals business were supposed to change the very nature of small- business advertising.

in North America, according to Yipit, a New York City-based daily deal industry tracking firm.

I don't think the industry it is completely going away, though it will settle, said Arvind Bhatia, analyst with Sterne, Agee & Leach. There may be some market share shift to the benefit of Groupon.

The margin pressure, though, could be here to stay. Groupon laid off 80 employees last week, mostly in sales, as it seeks to bring more automation to the sale process and control costs. But a big sales force is central to the company's strategy.

It's a business that scales with bodies, with humans, said Karim Faris of Google Ventures, which invests in online coupon company WhaleShark Media. I'm a technology investor, and I like businesses that scale with technology.

WhaleShark and other competitors such as have focused on bringing traditional coupons into the digital era. Such companies typically get a small percentage of revenue for each sale generated by their coupons.

Groupon is working with small retailers to give big discounts, irregularly, said WhaleShark Chief Executive Cotter Cunningham. We work with big retailers, to give small discounts, every day.

Dholakia of Rice University said executives at new startups have told him they plan to make daily deals more attractive to merchants by offering them a bigger cut. He also cites interest in new models around perishable inventory, such as restaurants and spa services, for which big discounts might make more sense for the merchants.

As such competition builds even as the original deals business flattens, there are no easy answers for Groupon.

The heyday for the daily deals are behind us, said Bhatia.

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