Bad times are good for online coupons

About nine months ago, Steven Boal, founder of Coupons Inc., began to see the fabled hockey-stick-like growth that has made fortunes for so many Silicon Valley entrepreneurs.

That's when he knew a recession was coming. The last time Boal saw this kind of growth was in 2001, after the dot-com collapse. Back then, his company, which provides technology to manufacturers and supermarkets who want to offer online coupons, was still too small to take advantage of the surge in scrimping.

Seven years later, Boal believes he is in the sweetest spot: supplying more than half of all secure, bar-coded coupons on the Web. The key, he said, is that his Mountain View company can track an online coupon through every moment of its digital life.

"Yesterday we had our best month ever and we were only on the 17th day of the month," he said during an interview this month. He says the company, which employs 100 people, is profitable, but he would not disclose financial figures.

But analysts are skeptical that online coupons have finally reached their inflection point. "It's kind of a natural thing that you would have really expected to take off online, but it never did," said Greg Sterling of Sterling Market Intelligence, a consulting firm focused on the local consumer and advertiser behavior.

And according to CMS, a large coupon processor, Internet coupons made up only 0.2 percent of the 302 billion coupons distributed in the United States last year, mostly through inserts in the Sunday paper.

In that tiny fraction, Boal sees a huge opportunity.

"It took longer than I thought and really required that we spend years working with and educating retailers, manufacturers and consumers," Boal said. But he is so sure of his moment that he has begun preparing for an IPO, possibly at the end of next year.

Boal founded Coupons Inc. in May 1998, after working as head of global emerging markets derivative technology at J.P. Morgan and as a president at OptEdge, a Chicago-based real-time options, analytics and risk management business. He also did a stint at a Silicon Valley financial software company called Integral Development.

Boal, now 43, said he got the idea for the company from watching his father-in-law clip coupons and thinking about how the coupon industry hadn't changed in 25 years.

The more he learned, the more Boal believed that technology could boost redemption rates, which are about 1 percent, and reduce fraud.

Coupons Inc. developed technology for distributing online coupons marked with a unique bar code for 800 brands, including Johnson & Johnson, General Mills and Kraft Foods, and 3,500 Web sites, including Coupons.com, which it owns, Boodle, which it bought in May 2007, and Red Plum, a site owned by Valassis Communications, one of the country's biggest coupon distributors.

The digital coupons can be printed from the Web, downloaded to a supermarket loyalty card or stored on a mobile phone.

"We see Coupons Inc. as a key partner for us in trying to change the industry," said Ken Fenyo, vice president of customer loyalty for Kroger, the country's leading grocery chain.

Like Boal, Fenyo believes customers are ready for the convenience offered by online coupons. "What we hear a lot in our focus groups is people forget coupons, they don't want to spend the time to clip them," he said.

According to CMS, online coupons are redeemed at a rate that is more than 10 times greater than regular coupons. Boal said he has redemption rates soar over 30 percent when customers are required to watch a video about a product before they receive a coupon.

Another believer in online coupons is Google, which started returning them along with search results on maps.google.com.

Boal said Google's entry hasn't affected his company's market share, in part because the two companies handle coupons so differently. Boal requires consumers to browse a list of offers. Google's approach is to return a coupon if it matches a search.

A visitor to a site powered by Coupons Inc. gets exposed to three to four times as many offers as are in the Sunday paper, Boal claims.

Boal said quarterly sales are increasing at a rate of 35 percent with no slowdown in sight. Consumers looking for a solution to the country's economic woes won't find it online, but they are finding savings, and for Boal, that's good business.

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