Expanding beyond its home city, Chicago, Groupon has notified its email lists in New York and San Francisco of the launch of Groupon Now!, a new mobile phone based daily deals service. This suggests that Groupon is satisfied with how the service works and is willing to field it in urban America.

Groupon Now! is different than their regular daily deals service as customers may only redeem the deal that day. Similarly, Groupon Now is less lucrative (20% to 50% off) and more specific (buffalo wings) than its precursor. In contrast to its original model, with Groupon Now!, customers access deals through their mobile phones (currently iPhones and Android mobiles phones) rather than through email updates, allowing many more restaurants to participate in Groupon at a time. They can purchase these deals immediately with a credit card they already have stored with Groupon.

The deals that appear on Groupon Now! are valid only during a certain time frame on the day in which they appear, which enables restaurants to establish deals that compensate for the specific needs of the restaurant on that day. After customers buy the deal, they bring in their phone and show the bar codes that Groupon provides which the vendor then scans and gives the customer the deal. A few weeks later Groupon mails a check to the restaurant.

Groupon refunds the customers who do not redeem the deal, so scanning the bar code cannot be overstressed. If the deal works the way its supposed to, restaurants can increase business, gain new customers and unload inventory.

For mobile daily deals, Groupon Now! will definitely be the favorite, starting a step ahead of other similar services. Indeed Groupon is not being tentative this time realizing what’s at stake. With a snappy video (maybe a little too slick), Groupon explains the nearly instantaneous deals customers who participate in GrouponNow can receive. Customers need either an iPhone or a mobile phone running on Android, so likely users will be young and urban.

In addition to the threat of other competitors in the deals market, Groupon had to come up with a response to the backlog of merchants who wanted to participate in the original daily deals service. Since there will be many more merchants vying for the same business, restaurants should expect results much less dramatic than the original Groupon service.

It’s important to note that Groupon Now! eliminates the social media function of the deals as people do not have to encourage their friends to buy the deal so that it goes into effect, but then again how would you be able to do that when the deal is that day (people have a lot of trouble changing plans).  Instead, you go with who you are with or the people you already have plans with. This means less large groups for restaurants.

The expansion from a single email-based daily deal to a mobile app reflects the changing realities of Internet use. People are on the move and still hook into the web. Our opinion is that soon Groupon Now! and its equivalents (run by Google, Yelp, Living Social, etc.) will eclipse the original Groupon model as more businesses can participate. More of the customers who take advantage of the deal will be return customers.

Thankfully, it appeals to a customer that isn’t only out for a bargain. Their mindset is different because although they want a deal, they are probably also looking for a new experience as they don’t the chance for much forethought. This suggests the impulsivity that bargain hunters don’t have. To add to that, Groupon Now! is that the deals can be less than half off,  but that of course doesn’t count Groupon’s chunk (still better than $.25 of a $1).

To a degree, Groupon will keep its harsh terms and that is where its competitors will aim to attract restaurants and other vendors to their service. It could mean that a pricing war will develop, perhaps opening up online discounting to more restaurants. Still, Groupon has a lot of emails to get out of the blocks. Google probably will develop as Groupon’s strongest competitor as they have an immense ability to cross-promote (search, AdWords, email, Android operating system). It gives them both an edge with getting merchants and signing customers up for the service even though they have to start from scratch. The balance between how many restaurants participate and how many customers actually use the service is uncertain, especially as customers will be approached from many different services (perhaps diluting its appeal).

I expect, however, that in a few years this model will have saturated the urban markets of the United States, creating targeted opportunities for restaurants with less risk than the original Groupon Daily Deals service.