Patch Rolls Out Coupons: Is It Setting Its Sights on Groupon?

The fast-growing, hyper-local news company Patch -- which, like DailyFinance, is owned by Aol (AOL) -- rolled out coupons on its sites last month, adding a strong enticement to pay closer attention to the network's conglomeration of high school sports stories and city council meeting reports. In my own community in California, Patch apparently just launched this capability. At this point, the coupons appear to be of the traditional variety, with the standard "$5 off if you buy $25 worth of stuff" come-ons as the lure.

But I'd bet more than $5 that Patch has a Groupon-clone waiting in the wings, and that could be a very interesting combination indeed. Here's why: Groupon is tapping a Netflix-personalization expert to design algorithms that track its offers down to user zip codes and map them back to interest levels. But as we learned last week with Groupon's photography deal fraud problem, there are some limits to a call center-driven sales strategy -- namely, it makes quality control difficult at best.

Quality control is precisely what boots-on-the-ground Patch could bring to a Groupon-like effort. Further, making the leap from a zip code-based audience to interest groups around specific product verticals isn't rocket science like movie recommendations. It should actually be much easier. First, people are pretty good at conveying what they're interested in when the categories are more broad, like restaurants or spa treatments, versus the nuanced selection inherent in preferring Woody Harrelson over Woody Allen. Second, people will vote with their wallets. Patch should be able to figure out pretty quickly what its readers are really interested in based on their spending behavior.

Turning on the Groupon juice could be just what Patch needs to fuel serious revenues. It's "$1,000 per year for a video on Patch" model seems hollow in light of the intense competition for local directory listings -- after all, this is a directory play, right? And as the feed replaces the browser and commerce increasingly goes social, the static advertising attack model looks increasingly tenuous compared to something that can go wildly viral -- and, like Groupon, can be wildly lucrative on an upfront basis. Of course, Patch could also serve up both regional and national impressions to its user base, something Groupon is now tapping into more strongly than other group commerce services.

Naturally, Patch has carefully chosen to start in communities with attractive demographics and relatively wealthy residents, a nice position for the startup. And Patch hasn't rolled out a group-buying operation yet, so this is all speculation. But it's the logical next move for a hyper-local news company that is rapidly building an email newsletter database of interested parties tracking community events and, increasingly, shopping opportunities.