photo portraiture, obscure ethnic food, hot air balloon rides. More precisely, what we buy at Groupon—the two-year-old startup that, with projected revenue of more than $500 million this year, was called the “fastest growing company ever” in a recent Forbes cover story—is the right to buy all that stuff at a huge discount, so long as we all act fast. In other words, what Groupon sells (as its clever name indicates) is coupons, but with a social twist. It’s been such a huge moneymaker that scores of copycats have emerged, including other startups like LivingSocial and 8coupons. Established online presences like Yelp and OpenTable have also jumped in; the biggest and most recent entrant is AOL, which in October announced its own Groupon clone, Wow.com.

Like its competitors, Groupon makes money by turning its audience into bargain junkies. Every day, customers check their email or the Groupon website to find out about the daily deal in their city. (Groupon already operates in more than 100 cities nationwide.) For the coupon to become valid, a certain number of users must agree to buy it. But then, after the offer “tips,” they have just 24 hours—or less, if it sells out—to pay their money and lock in the markdown. As Andrew Mason, Groupon’s 30-year-old founder and CEO, sees it, this tantalizing window of opportunity gives people the license to indulge in experiences they wouldn’t otherwise pursue. “That’s the beauty of the model,” he says. “We’re using these game mechanisms to trick people into getting out of the house and doing the things they always wanted to do.”

Take a step back, though, and what Groupon represents is something far bigger. It’s the mainstreaming of a new current in American consumerism, an attitude born of the Internet’s DIY ethos and nurtured by the hard economic times. One might call it retail hacking: the reconception of shopping as not just a full-time job but a contact sport, a scrum in which consumers increasingly refuse to buy on the terms dictated to them. A whole network of so-called deal-hunting sites, each with a large and devoted community, has sprung up for users to trade inside tips about little-known bargains; the largest of these sites, SlickDeals, has more than 700,000 registered members.

In this passionate consumer underground, techniques for chiseling a few percentage points (or more) off a sticker price can quickly spread to millions of shoppers. The process of selling a DVD player or even a new razor to the growing ranks of self-educated buyers is becoming as tortuous as selling them a new car. GetHuman.com, a continuously updated list of direct customer service lines and telephone-prompt guides, is undermining the ability of companies to resolve calls with automated systems. Consumers who have learned to haggle on prices at large chain stores—Target, Home Depot, Best Buy, and more—share their stories and methods on sites like the Consumerist, a blog that has become a hub for retail hackers. When Ely Rosenstock, a 29-year-old social media consultant from New York, wanted to cancel his Verizon service and buy the new iPhone, he found a loophole that let him leave his two-year contract with no termination fee; after he made this argument stick with Verizon customer service, he posted a detailed how-to video on YouTube that has been viewed more than 180,000 times.

As recently as five years ago, it would have taken years of dedicated trial and error for consumers to develop these techniques on their own. Now, thanks to forums that aggregate the collective urge to save money, novice deal hunters have access to FAQs and tutorials addressing everything from the inventory cycle at Target to methods of handling hostile cashiers. For those who know where to look, these sites form a sort of WikiLeaks of secret deals, a searchable directory of rock-bottom prices and money-saving techniques as labyrinthine and cunning as the retail universe it seeks to map.

In this world, each product has two prices. First there’s the suggested retail price—”a blatant lie,” as Jeffrey Tan, a top-ranking SlickDeals user, calls it—paid by everyone else. Then there’s the real price, available only to the deal-hunting elite.

Most retail hackers try to get their edge by manipulating one of the oldest promotional tools around—the coupon. The origin of the coupon is usually traced to the late 19th century, when a former drugstore owner named Asa Candler distributed small certificates entitling the bearer to a free glass of his new tonic, called Coca-Cola.* Ration books distributed during World War II established an indelible link in the American mind between the act of clipping and the virtue of thrift. By the 1960s, coupons were a fixture on the retail scene; one industry leader, S&H Green Stamps, claimed to print three times as many stamps as the US Postal Service. Shoppers could accumulate the stamps from participating stores and then redeem them for such rewards as toasters, clocks, and insurance policies.

At the turn of the millennium, coupon use began to slide, from 4.6 billion coupons redeemed in 1999 to 2.6 billion in 2008. Then the recession hit, triggering a coupon resurgence, driven in large part by the Internet, before anybody had even heard of Groupon. Millions of unemployed consumers rediscovered the coupon as a way to generate money—or at least cut household costs—during their idle hours. And retailers responded to flagging sales by invigorating their offers. The value of the average coupon has risen from $1.09 to $1.37 since 2005. Redemptions grew by 27 percent in 2009 alone, with Internet coupons leading the way, rising more than threefold. Online coupons have proven stickier than their paper counterparts, accounting for around 1 percent of all coupons issued but nearly 10 percent of those redeemed. According to Nielsen, the “enthusiast” couponers who use online offers most are likely to be relatively young and high-income, with 60 percent making more than $50,000 a year.

To see this ur-coupon and read its backstory, check out “First Coupon Ever” in issue 18.11, online.

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Authors: Matt Schwartz

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