The financial services company is forging an official partnership with eBay-acquired RedLaser to offer consumers on-the-fly comparison shopping options, and to boost buying through its online rewards store, shopAmex.

RedLaser is a leading mobile bar code application, with an estimated 15 million downloads across all mobile operating systems.

All AmEx cardholders with membership rewards — whether Green, Platinum or Centurion Black Cards — that download the free app to their smartphones will be able to scan item bar codes, find out how many AmEx rewards points they’ve accumulated and potentially purchase the same item at a discount on shopAmex, a catalog of five million products from approximately 60 online retailers like Target, Saks and Apple. About four million of the listed products will be available to cardholders that use the RedLaser bar code scanner.

For American Express, the RedLaser deal is part of a growing push toward serving customers through mobile. The company’s most recent earnings report shows that AmEx has 95.8 million cards in force, including consumer, corporate and small-business cards; and according to the company, an estimated two-thirds of cardholders with membership rewards use a mobile or tablet device.

“In everything we do right now in terms of mobile and tablet, we’re trying to figure out ways to deliver value to our customers, because this is where it is right now: They’re using their phones to shop,” said Dustin Harris, director of interactive development at American Express.

For retailers — and consumers — it goes to show that it’s a brave new comparative world out there, with more shoppers having access to potentially better price points right in the palms of their hands, via smartphones. As my colleague Tricia Duryee reported recently, mobile shopping shot up during this year’s Cyber Monday record-setting sales, and mobile is expected to spur even more buying as smartphone adoption increases.

The RedLaser app for AmEx membership rewards will work only on the iPhone to start, though the company expects an optimized iPad app to become available soon.

Update: A previous version of this article suggested AmEx users could use the RedLaser bar code scanner to cash in on membership rewards and buy an Apple iPad. Cardholders will not be able to scan a bar code to buy an iPad through shopAmex.

Joseph Euteneuer, the company’s finance chief, made the remarks at a meeting to update investors on Sprint’s network strategy and financial outlook. Sprint shares, which had rallied earlier in the session, reversed course.

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The updates come after the Securities and Exchange Commission reviewed the documents and made comments, according to sources.

The latest document will likely be looked at under a magnifying lens, given that the daily deals company faced a series of negative reports following the news on June 2 that it intended to raise roughly $750 million in an initial public offering.

The day after its IPO filing, Eric P. Lefkofsky, co-founder and executive chairman of the board, told Bloomberg in an interview that Groupon will be “wildly profitable,” referencing worries about losses unveiled in its financial statements and his past record of start-ups.

In today’s filing, Groupon backpedaled, explaining that, “You should not rely on a reported statement in a June 2011 news report by our co-founder and Executive Chairman in making your investment decision.”

It goes on to say that Lefkofsky did not agree to be interviewed and that Groupon representatives had requested that the statement not be published. “The reported statement does not accurately or completely reflect Mr. Lefkofsky’s views and should not be considered by prospective investors in isolation or at all.”

Along the same lines, Groupon CEO Andrew Mason’s letter to potential shareholders, which could be construed as overly positive, was moved from one of the first pages to page 32.

Besides that, the major update to the document includes a full list of the company’s underwriters. The newest addition is J.P. Morgan, which will be joining Morgan Stanley, Credit Suisse and Goldman Sachs as the lead investment banks.

Another 11 investment banks are also joining the process in supporting roles. The full list: Allen & Co., B of A, Merrill Lynch, Barclays Capital, Citi, Deutsche Bank Securities, William Blair & Co., Loop Capital Markets, RBC Capital Markets, Citadel Securities and the Williams Capital Group.

Also new to the filing was a breakdown of the company’s international business, which is actually larger in terms of revenues than in the U.S.

Revenue from its international and domestic operations was $346.8 million and $297.9 million, respectively, in the first quarter 2011. In addition, it said that its gross profit margins (which is the amount Groupon retains after paying a percentage to the merchant) are higher internationally.

It said that overall gross margins were 41.9 percent at the end of the first quarter, dropping from 45.2 percent in the year-ago period. The decrease was primarily due to an increase in national deals in North America, which resulted in lower margins for the purpose of acquiring new subscribers and establishing its brand.

[Photo: Asa Mathat | Clip art iStockphoto/Jules Kitano]

How ironic. There’s a ton of cash being thrown around to find a better way to pay for things.

Consider the growing list of participants hitching a ride on this money train: Square is trying to create a better register, Google is attempting to build a better wallet, and then there are competing and overlapping efforts being made by the wireless carriers, handset makers, banks, financial institutions and others.

For example, here’s a company doing something as simple as creating a more high-tech credit card, one that doesn’t require customers or retailers to buy new equipment.

Pittsburgh-based Dynamics is announcing a $35 million round of financing — an amount CEO Jeff Mullen is quick to point out is bigger than Square’s last round of $27.5 million (not including a last minute addition by Visa). UPDATE: Before the ink was even dry on this one, Square announced late this evening that it has raised $100 million in a round led by Kleiner Perkins.

Dynamics’ round was led by Bain Capital Ventures with existing investors, including Adams Capital Management and a number of undisclosed angels also participating. The company’s first round raised in 2009 totaled $5.7 million.

While Dynamics isn’t a household name and doesn’t have the same visibility as Square or Google, it has received accolades for its technology. In January, Dynamics won best in show at this year’s CES in the personal electronics category.

So, what does it do?

It is making a more intelligent credit card.

Although it looks the same as the plastic cards you carry around in your wallet, it behaves much differently. Packed inside are a bunch of batteries and miniaturized electronics that can be used to program several credit card numbers and wiped clean if lost. It comes packaged in the same svelte form factor as a Visa or MasterCard, and don’t worry, it’s also waterproof.

A button on the card allows users to toggle between various cards, like a debit, credit or corporate account. Another model enables you to keep your number hidden until a security code unlocks it, and a third model retains information about your rewards points, so they can be spent at the point of purchase without having to wait for a gift card to be sent to you in the mail.

It may not sound as fancy as waiving a mobile phone in front of the register to pay, or even using an iPad as a register, but Mullen argues it’s more practical because it doesn’t require consumers to get new phones or retailers to upgrade their credit card terminals. “Our solution doesn’t require any change to the existing infrastructure,” he said.

The additional financing will be used to double the company’s staff from its current headcount of 30. It will also be investing in manufacturing to increase capacity since all three models are currently in trials, including a deployment with Citi. It is also working on developing cards for Europe, where RFID is a predominant technology.

It is also adding mobile payments to the company’s road map, even though Mullen is not a big believer in the technology. Because of the hardware limitations, he thinks it will take longer for it to be adopted widely.

He declined to say whether the solution would use near field communication chips or some other technology. “Dynamics wants to be the innovation leader for an industry that’s never had innovation. We want to innovate in all areas of tech,” he said.

Mullen said the goal is for the banks to be able to save money or generate new revenue to offset the additional costs of producing a more high-tech piece of plastic. One way is through preventing fraud, another way is by eliminating the cost of mailing gift cards to consumers who would like to redeem the points they earned on rewards cards.

The ratings firm based its decision on Nokia’s continued market-share losses and its surprise profit warning last week, when the Finland-based company shocked the market by confessing that its core mobile-handset business might not make a profit in the second quarter.

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With the mobile payments space rapidly heating up, we thought it would be a perfect time to add the person most responsible for that current disruption–Square CEO and co-founder Jack Dorsey–to the speaker roster at the ninth D: All Things Digital.

By the way, Dorsey is the same man who also invented a little thing called Twitter, the groundbreaking microblogging service–where he also now serves as Executive Chairman and now its product guru once again.

In other words, Dorsey is just the kind of person Walt Mossberg and I are thrilled to have onstage at D9–a perfect entrepreneur to talk about the innovative product vision that has made tech in Silicon Valley so powerful.

Dorsey started Square in 2009, after serving as CEO of Twitter until 2008. A software engineer by training, he previously worked as a programmer at a bike courier dispatch service.

Just this week, Square made news by launching a new cash register for merchants and a new mobile wallet for consumers to make paying for retail goods extremely easy.

This is a quick development from the start-up’s original Square dongle and app, which allows consumers to use their smartphone or Apple iPad to accept credit card payments.

Square has distributed 500,000 of these dongles, which click into the headphone jack, and has recently said it is processing $2 billion in gross payment volume per month.

The new innovations should increase that if they catch on and Square can best a plethora of competitors, including a new digital wallet entry by Google (whose Executive Chairman Eric Schmidt will also be at D9 onstage demoing it too).

As Tricia Duryee wrote about Square’s latest effort:

It starts with the user’s card case, which must be set up in advance with a user’s credit card information. From the card case, the user will be able to see the menu of the restaurant, cafe or spa they are visiting. Users can click to order. When they go up to the register to pay, the consumer doesn’t hand over anything but their name.

Consumers and retailers will have to believe that using Apple products can be as safe and secure as big enterprise-grade systems that everyone is accustomed to seeing.

Square will also have to go up against a ton of other providers coming down the pike, including solutions from [eBay's] PayPal and payment giants such as Visa, MasterCard and American Express.

The San Francisco-based start-up recently received an investment from Visa.

Given that the future of the massive, badillion-dollar industry is at stake, it should make for a great interview session at D9.

The service, called Serve, will let consumers make purchases, take cash withdrawals from ATMs and make person-to-person payments from their computer or their phone.

The card will be funded by a user’s bank account or credit or debit card–even from one of the company’s major competitors, like Visa or MasterCard.

In the beginning, Serve will be fairly traditional and be accepted anywhere that American Express is accepted, but eventually it could give way to a mobile payments solution on the phone, using such technologies as near-field communication (NFC).

“What we are trying to do is put into place a platform–not a card, or an e-wallet–that enables digital payments and commerce that allows consumers and merchants to seamlessly move between online and offline,” said Dan Schulman, Group President, Enterprise Growth at American Express.

What Schulman said he wasn’t interested in experimenting with yet was NFC, which allows users to waive their phone at the register to pay. The technology is still in its infancy.

“That’s incredibly uninteresting…That’s a form factor shift, not a value proposition change,” he said. “The distinction between online and offline is going to blur and become moot as you go out three to five years from now.”

Schulman has been thinking about these problems since joining American Express in August 2010.

Previously, he was the president of Sprint’s prepaid division, having joined the third-largest carrier when Sprint acquired prepaid provider Virgin Mobile USA, where he served as CEO.

The Serve platform evolved from American Express’s $300 million acquisition of an Internet-based payments network that was part of America Online Inc. called Revolution Money, co-founder Steve Case’s investment firm.

To be sure, the launch provides new ways for the $54 billion company to diversify its user base.

“This will enable us to break into a younger demographic for sure, or under-served demographics, and people who’ve used debit, checking or cash. It enhances our ability to address different demographics in the U.S., but also the rest of the world,” he said.

On day one, Serve will be accessible online and from applications on both Apple and Android devices, with support for BlackBerry coming soon. Initially it will be in the U.S., but will shortly expand internationally. It will also downplay its associations with the large card company.

“We are really excited about the launch, it’s really different than what people might think about American Express. It’s not AmEx-branded, it’s cross-platform and completely open,” Schulman said.

He expects the platform to be very flexible and adapt to the market in future iterations.

To help promote the platform, the company is creating a number of partnerships that are all over the map.

One is with Ticketmaster, which will let users buy tickets to an event and then get reimbursed by their friends via Serve. Others include Concur and Flipswap. The service will also be available through a Facebook widget. To promote the widget, Serve will be letting users donate to certain causes. Serve will match contributions up to $100,000 for each charity.

While these are new areas that American Express does not currently serve, Schulman believes its experience makes the company a potential leader in digital payments.

He said it helps that they have 90 million card members and have partnerships with thousands of merchants worldwide. Also, he said, there are three crucial pieces of the puzzle that a company entering the space must have: trust, security and good customer service.

Of course, eBay-owned PayPal, Visa, MasterCard and a variety of other startups–including Boku, Zong, BilltoMobile and Square–are all vying for a position in the emerging digital and physical payments market.

Schulman admits there’s a lot of overlap with what it is doing and PayPal. “Yes, there are obviously things that are similar to PayPal. In fact, there are quite a number of people thinking about this as we are making a transition from a physical plastic world to a digitally-oriented payments world.”

For instance, PayPal will be conducting several pilot programs over the next year to test how consumers will use their PayPal accounts at the register.

Visa recently purchased PlaySpan for about $190 million to enter the digital payments world. Google also is planning its next move.

With all this talk about payments, American Express indeed expects to get paid as well.

To start, most consumer fees will be waived for at least the first six months, including fees for adding money to the account and transferring funds between Serve users. The first ATM withdrawal each month is free, but after that consumers will be charged $2. After the introductory period, consumers will be charged 2.9 percent plus 30 cents each time they load money (that drops to 0 percent for cash, debit and ACH).

Merchants will also pay, but will be charged a discounted rate for transactions made in stores and online since Serve is considered a prepaid card. Typically, prepaid discount rates are less expensive than credit rates, according to a spokeswoman.

But its not just the fees that American Express wants to collect. It also wants to collect consumer data to be able to offer well-targeted offers.

“We’ll probably make the equivalent once we are at scale, depending on funding and merchant mix through payments alone. We think that’s a great business. We also think that the data we can collect with consumers, assuming they give permission, will add a number of value-added services in connection with partners.”

EMoney was given the task of moderating a panel called “Leveraging New Markets” in front of a packed room with two other competing panels.

The participants were Ted Sorom, the CEO of Rixty, Bruce Bower, the CEO of Plastic Jungle and Jeff Thomas, SVP of SecondMarket.

There’s no video, so you’ll have to endure a written recap from my perspective as chief interrogator.

First, if you aren’t familiar with these companies, the four of us can attest there’s only one thread in common: Liquidity, and creating marketplaces to make assets more fluid.

The discussion is well-timed as we push beyond e-commerce and Web 2.0 to a new reality, where reducing friction to payments is turning into a large opportunity.

One solution popping up everywhere is to create virtual currencies, which solves the problem of paying for many items at small price points because it doesn’t make economic sense to charge 50 cents to your credit card on a regular basis.

Meanwhile, there’s lots of clogs in the system, ranging from gift cards that are never redeemed, to a large population of people who don’t have credit cards, to the more extreme, like what will eventually happen to all of those unused Groupon and LivingSocial vouchers?

Here’s a look at how all three are trying to add liquidity to the system:

Rixty: The San Francisco company allows consumers to buy prepaid cards with cash to be redeemed for game credits online, such as Facebook Credits and Zynga’s CityVille.

On the panel, Sorom announced that Rixty’s distribution was increasing from 20,000 physical locations to 70,000 with the addition of Green Dot MoneyPak prepaid cards, which are sold at Walmart and 7-11. Greendot charges a $4.95 service fee, which Rixty will redeem as soon as soon as the card is spent online.

Plastic Jungle: The San Jose, Calif.-based company is a secondary market for unwanted and unused gift cards.

The company buys them for up to 92 percent of face value, and sells them at a discount. Bower says some of the highest value gift cards are for Target and Walmart because they are the closest to cash. The lowest value cards are from local retailers or seasonal items, like See’s Candy, which only sell well on Valentine’s Day and Christmas.

SecondMarket: The New York-based company is a secondary market for private stock in companies, such as Facebook and Twitter. It deals in getting liquidity to employees or shareholders, who can’t yet sell their stock on the public market.

The summary is that while cash may still be king, the trend is to enable liquidity.

Some of the high-level takeaways:

– Thomas of SecondMarket: The company is constantly in headlines for being associated with Facebook’s $70 billion-plus or minus-private valuation. He said private company stock sales have become the fastest growing part of its business with transactions increasing to $400 million in 2010, up from only $100 million in 2009.

He said an essential part to keeping the assets liquid is to keep the information flowing, which is inherently difficult with companies that aren’t required to disclose any financial information. The company will soon be partnering with researchers to produce independent reports that will be purchased by potential investors.

Sorom of Rixty: One of the big questions was how dominate Facebook will be able to become as a virtual currency platform.

Most panelists agreed that it was inevitable that it will become a powerhouse, but that it will face hurdles on two fronts. In order for it to win, it will have to appeal both to consumers and merchants. And, currently it charges a 30 percent fee, which is much too high for most physical and even some digital goods.

Sorom said regulations will also limit its activities. Just like at Rixty, they have avoided allowing users too much liquidity. The credits can only be used for pre-approved merchants and can not be swapped or traded among friends. Similarly, Sorom believes that Facebook would not have that have that ability, given current federal regulations.

Bower at Plastic Jungle: Bower saved the best for last. Whenever trying to come up for a good description of liquidity think back to your college days, especially if they were pre-Internet.

As a crafty collegiate, he learned to live off one square meal, turning in his other meal plan points for cash. He purchased brand new textbooks on his parent’s dime and then returned them for used books a day later. All of the cash allowed him to gain the most important liquid asset of all — beer.

Photo Credit: Rick Scully.

While paying by mobile phone has been around for years–with consumers charging ringtones and other mobile content to their bill–it’s been only in the past few months that it has become viable for other expenses.

In fact, over the past couple of weeks, a substantial milestone was reached and went almost completely unnoticed, said David Marcus, the CEO of Zong, a mobile payments provider.

He said Facebook stopped adding a surcharge when customers buy Facebook Credits via the mobile phone. And it’s not just Facebook–other companies have been following suit when it comes to digital and virtual goods.

What’s more, there’s an even bigger change coming very shortly.

Carriers will lower the amount it charges even more for physical goods.

It won’t be enough for everyday items that have extremely low margins, like groceries or gas, but it will open up mobile payments to e-commerce. Most notably, Marcus said, consumers of high-margin items, like group-buying vouchers from Groupon and LivingSocial, will be able to participate.

The process makes sense. Users should be able to be notified about offers via the phone, purchase the deals on the phone and then walk into a restaurant or bar to redeem them using their mobile phone–instead of logging on to a Web site from a computer and printing out paper vouchers.

“Our sales force is actively working on it right now, and by the end of the second quarter, we’ll be processing physical payments,” he said.

Zong is not the only one in this red-hot space.

In fact, it’s chock-full of competitors, including PayPal, Boku, mopay and BilltoMobile. They all want to make paying for virtual and digital goods on the phone as seamless as possible.

Additionally, another class of company is going about it in a whole other way: Using your phone to charge payments to your credit card at the grocery store, gas station or other location. Usually this entails waving the phone in front of a point-of-sales device using RFID or near-field communications.

The mobile-payment providers are not in that space, but several incumbents are, including Visa, MasterCard, PayPal and even the carriers, through a joint venture called ISIS. Another company, Square, is coming up with a way to replace the point of sales machine with a cellphone.

But Marcus said the really exciting stuff is right around the corner.

And, right now, most of the momentum is from the carriers dropping the revenue splits to closer to 10 percent, from 40 percent more than a year ago. “The carriers won’t go below 10 percent for digital or virtual goods, but they will lower their rates for physical,” he said.

Removing these sky-high surcharges has sent payment volumes skyrocketing.

In fact, after Facebook and others were able to lower the rates, Zong got a nice lift.

Marcus said across their its network, its daily payments volume jumped by more than 50 percent in the first week of January, compared with the same week last December.

Marcus keeps track of the company’s payments volume from a flat screen on the wall of the company’s Menlo Park, Calif., offices. When countries turn red, it’s a good sign.

He expects more good signs in the future as it prepares for another bump from physical goods coming in the next few weeks.

“If you want to liberate a society, just give them the Internet,” Ghonim said in an interview with CNN.

Ghonim gives credit to the young Egyptians who organized themselves on Facebook, dating back to last June when activist Khaled Said was killed. Ghonim commented on how a video posted on Facebook (where he is administrator of a page commemorating Said) would be quickly shared by 50,000 people, calling Facebook CEO Mark Zuckerberg a personal hero.

Ghonim said he plans to write a book on the topic called “Revolution 2.0.”

Mubarak’s government had shut down much of Egyptian Internet access and SMS service for nearly a week during the protests, then made concessions to not run for another term, but protests only intensified until he finally agreed to step down today.

For starters, it’s getting everyone–or at least everyone I pay attention to on Twitter*–to talk about LivingSocial. (Groupon who?) And given that Amazon has already handed over a big chunk of money to the daily deals start-up, this sort of seems like the two sides are just swapping dollars, anyway.

Still, this gives us an excellent opportunity to rerun the classic “Saturday Night Live” Bubble 1.0 ad, which didn’t even run during the first bubble. It dates way, way back to 1988. And technically, it’s not about a money-losing operation, but one that doesn’t make any money (at least on a per-transaction basis).

Still, the “the answer is simple: volume” catchphrase became one of the signature lines of the Kozmo.com, Pets.com, etc. era a decade later. And it seems like we may have to revive it again.

Bonus clip! Here’s the first one of the ads. Catchphrase-free, but still awesome.

*An admittedly small subset of the world. But still.

Despite new reports of the funding today, the line of credit from TriplePoint Capital is months-old, and we’ve learned it was used primarily for building out a new warehouse in Louisville, Ky.

According to our sources, who declined to be named, only $5 million of the $15 million has been drawn down from the facility, and it’s one of three lines of credit the company has. The company spokeswoman declined to comment.

The Gilt Groupe is a members-only online retailer focused on luxury brands. It has seen huge success in offering deep discounts on items for short periods of time. More recently, it has set its sights on the local deals business, similar to the businesses being built by Groupon and LivingSocial. It has also expanded into offering luxury travel deals.

Gilt’s local deals site, called “Gilt City,” offers bargains on items ranging from massages to frozen yogurt. So far, it’s launched in Boston, Chicago, Los Angeles, Miami, New York and San Francisco. It’s going up against two feisty and well-funded competitors: LivingSocial, which just raised $175 million in capital from Amazon, and Groupon, which turned down Google’s $6 billion acquisition bid.

A round of funding raised this summer supported those product rollouts. In total, the company has raised upward of $50 million from investors, including General Atlantic and Matrix Partners.

The line of credit shows that the emerging company still needs additional financing for one-off capital projects as resources are pulled in other directions. A big focus is likely on hiring a local salesforce, which is considered a specialty of Groupon. Still, Gilt Groupe is considered one of the more likely IPO candidates, and has said in the past that it expects to achieve gross revenues of $400 million to $500 million by the end of this calendar year.

Demand Media, which posted its S-1 regulatory filing August, filed an amended version today that is likely to allow it to move quickly to an initial public offering.

The new version for the online content company has updated financial information for the third quarter.

Demand now must now wait for the Securities and Exchange Commission to approve the filing, after which the execs of the Santa Monica, Calif.-based Demand will immediately to go on a road show for several weeks to try to convince investors to jump on board.

Then, if there’s enough interest, the IPO is likely to come before the holidays.

Demand’s initial filing was to raise $125 million at a reported $1.5 billion valuation.

You can read the whole filing here, which shows an improved performance from Demand.

In its latest filing, Demand said it had generated revenue–from advertising and a domain business–of $179.4 million for the first nine months this year and had a net loss of $6.4 million.

In the same period a year ago, revenue was $102.3 with a net loss of $5.6 million.

Losses in the third quarter itself narrowed, to $305,000 from $4.2 million in the previous quarter and $1.9 million a year ago.

But Demand points in its filing to its “Adjusted OIBDA,” using less stringent non-GAAP financial rules, which shows a much improved $41.9 million profit compared to $18.9 million last year.

As MediaMemo’s Peter Kafka wrote:

Some investors may balk at these non-GAAP numbers, but Demand, Goldman Sachs and its other underwriters clearly think there’s a market for them. And there’s certainly a hunger in the tech world for a big, brand-name IPO to break the dry spell. You can feel people willing this thing to work.

If Demand did, say, $55 million in OIBDA this year, it would need a multiple of 18 times trailing 12 months earnings to get to a $1 billion valuation. It would need 27x to get the $1.5 billion number that people are whispering to reporters.

Another way to get to $1.5 billion: Project OIBDA of $100 million for 2011, and ask for 15x on that number.

Demand is definitely growing smartly from $170.3 million in annual revenue in 2008 to $198.5 in 2009 to possibly reaching–based on six months of 2010 results–well above $230 million in 2010.

That’s due to its increasing growth in traffic, largely via Demand’s popular eHow site and a network of others.

Almost all of the money is coming from traffic, and advertising, that it generates from Yahoo and Google–Google in particular.

Demand has done this using $355 million in funding it has raised since its founding in 2006. The company said it has only $29.2 million in cash and cash equivalents left, but there is also a $100 million untouched line of credit.

Hence, the IPO, which will give it both cash and stock to use to grow its content business, either organically or via acquisition, all while keeping the costs of content creation increasingly lower via innovative technology.

From Demand’s filings, it is clear such an effort is slow going, as it seeks to carve out any entirely new business model for content.

Now, it must find Wall Street investors who agree.

In its filing, Demand said it will sell 4.5 million shares in the IPO and current shareholders will sell another three million. It hopes to have DMD as its ticker symbol on the New York Stock Exchange.

But there is no price range yet for the offering, which is being led by Goldman Sachs and Morgan Stanley.

After news of the Demand Media IPO filing came out late last week, I was not that surprised to get an email from someone deeply involved in building an online content business.

“If they are worth over a billion with those financials, I can’t wait to find out what we are worth. What am I missing?”

Well, nothing actually, as Demand’s filing to raise $125 million in an initial public offering at a reported $1.5 billion valuation showed that making it big in the online content business was still slow going.

That said, Demand is surely going and, in fact, growing smartly from $170.3 million in revenue in 2008 to $198.5 in 2009 to possibly reaching–based on six months of 2010 results–well above $230 million in 2010.

That’s due to its increasing growth in traffic, largely via Demand’s popular eHow site and a network of others. According to the most recent numbers from comScore (SCOR), Demand’s properties make it the 17th-largest in the U.S., with 54.6 million unique monthly visitors.

But the media business at Demand is still small, relatively speaking to other big content companies, with the content and media part of the revenue representing almost 60 percent of the business (a domain registrar business makes up for the rest).

And, most importantly, it is still unprofitable.

The Santa Monica, Calif.-based start-up said that, for the six months ended June 30, the company posted a loss of $22.3 million on revenue of $114 million. It was an improvement over a loss of $28.9 million on revenue of $91.3 million in the same period of 2009.

Using less strict accounting, on an operating basis, the picture is better, with the company’s loss cut to $4.7 million from $12.3 million in the same six months.

And using even less stringent non-GAAP financial rules, called, “Adjusted OIBDA,” Demand said in its regulatory filing with the Securities and Exchange Commission Friday that it made $25.6 million in profits.

As MediaMemo’s Peter Kafka wrote over the weekend:

Some investors may balk at these non-GAAP numbers, but Demand, Goldman Sachs (GS) and its other underwriters clearly think there’s a market for them. And there’s certainly a hunger in the tech world for a big, brand-name IPO to break the dry spell. You can feel people willing this thing to work.

If Demand did, say, $55 million in OIBDA this year, it would need a multiple of 18 times trailing 12 months earnings to get to a $1 billion valuation. It would need 27x to get the $1.5 billion number that people are whispering to reporters.

Another way to get to $1.5 billion: Project OIBDA of $100 million for 2011, and ask for 15x on that number.

That’s a good thing since Demand, which has raised $355 million in funding since its founding in 2006, has only $33.6 million in cash left in its kitty–probably plenty to keep going–but it’s likely to need more investment to crossover to where it would not need any more money. (There is a $100 million untouched line of credit, but Demand is unlikely to want to dip into that right now.)

Hence, the IPO, which will give it both cash and stock to use to grow itself, either organically or via acquisition, all while keeping the costs of content creation lower and lower via innovative technology.

For Demand CEO Richard Rosenblatt–who has a series of notable financial wins so far, selling such Internet properties such as iMall and MySpace for big windfalls–it will be interesting to see if he can build the business for the long term, which he has said is his intent.

He might want to pay attention to the travails of AOL (AOL) CEO Tim Armstrong, who has plotted a very similar course in the content arena in order to turn around the long-suffering Internet icon.

The former Google (GOOG) exec is facing strong headwinds in doing so, with his legacy subscription access business dying faster than expected, while his advertising revenue remains frustratingly flat.

Armstrong has his hands full building up that content business while also fixing all the various maladies of AOL’s past.

Last week, in AOL’s most recent quarterly report, that was eminently clear, with revenue and earnings below already low Wall Street expectations.

“Nobody likes to show up to these calls and report down numbers in an up market,” said Armstrong in the investor call after the results were released, noting that AOL was in the midst of a long turnaround and “eventually” investors would be able to see results.

Eventually is a good way to put it.

Waxman’s volley comes via a cease-and-desist note her site sent to Newser today, embedded below. It comes after a series of back and forths between the two sites, which you can follow here, here and here. Very short version: Waxman says Wolff’s site steals her stuff without attribution; Wolff says his company does attribute the stuff, in some form.

The bigger picture is that the debate about “content creation” and “aggregation,” both of which are pretty ugly and imprecise terms, is just getting started. Even though we’re either 15 years or 40 years into the Internet era, depending on how you want to count. (Probably best to go with 15).

This isn’t the first time Wolff has gotten legal notes from publishers. In February 2009, the New York Times (NYT) complained about Newser’s use of the Times’s iconic “T,” as well as the use of its photos.

Waxman’s argument with Wolff is that Newser either doesn’t link to her site or does it in a way that makes it unlikely that a reader will end up on one of her pages. She’s fine with aggregation in practice, she says, noting that her site repurposes other people’s stories. And it’s worth noting that she’s not firing off an angry letter at the Huffington Post, an aggregator that also uses her stuff extensively.

“There’s a principle here,” she says. “And if everybody who aggregated aggregated the way they do it, we’d all be in a bunch of trouble.”

So what does she expect Wolff and company to do now? “I don’t know,” she says. But “we’re serious… I hope they take it seriously.”

Wolff’s response, via email: “This is a joke letter about a joke allegation based on a joke premise from a joke law firm (in Cleveland at that). Waxman is just looking for press to help her raise a new round of financing. Nothing here is serious.”

Cease and Desist letter from TheWrap to Newser

[Image credit: barnabus]

The financing strategy is showing promise. Its small-and-medium-business division posted a 10 percent gain in revenue in the company’s fiscal fourth quarter ended Jan. 29 from the same period last year, versus an 11 percent gain for the company as a whole. Operating-profit rose 17 percent from the same quarter last year to $282 million, surpassing the $281 million in operating profit from Dell’s large-business unit, which posted an 8.4 percent rise from last year.

The Round Rock, Texas, PC maker has spent the past year trying to stimulate spending by its small business customers. It has offered new financing arrangements to small businesses, including interest-free deals for some purchases of $25,000 or more. It even has offered free computers to some small-businesses that purchase other products. In some cases, Dell has offered discounted computers and services to companies that agree to appear in its advertisements.

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Last week, I went to my hair salon and paid half of what I usually spend because of a deal that I—and more than 2,000 other people—bought online two months earlier. When I bought the deal, I suggested it (via email) to two friends, who each bought it and I was rewarded with two $10 credits. I used those to buy a deal at a local restaurant that gave me $40 toward food and drink for just $20. And the cycle continues.

Welcome to the world of group buying, Internet style, where the power of the Web can be utilized to offer surprisingly large discounts to a sizable number of people for things they actually want to buy.

Many of the group-buying sites work by negotiating deals with local merchants and promising to deliver crowds in exchange for discounts. The sites differ from other buying sites in how they work and what they do to reward users who share deals.

Several of these group-buying sites are available nationwide, mostly in big cities. I focused on Groupon.com, which is available in 42 cities, and LivingSocial.com, which works in 13 cities. Both are popular in Washington, D.C., where I live, though others may be more well-known in your area. If group-buying sites aren’t popular near you yet, they may soon start working there thanks to business models that allow them to work in all sorts of locations.

Other sites offer similar or slightly different selling techniques. Woot.com, a pioneer of group buying on the Web, started in 2004 by specializing in flash sales, selling a different item each day for just 24 hours or until it sells out. The site evolved from a wholesale distribution company and is known for its focus on selling technology gadgets. Another site called Tippr.com works in Seattle (not D.C., where I live, so I can’t yet use it) and uses a patented technology that makes discounts bigger as more people join a deal. New York-based Gilt.com and Ideeli.com focus on selling high fashion items at less expensive prices and can offer deals that last longer than a day.

Here’s how sites like Groupon and LivingSocial work: They ask retailers in a city to offer steep discounts ranging from around 50% to 90% off on things that would appeal to locals. Examples include 79% off spa services, 54% off at paintball, 57% off at a restaurant with Malaysian cuisine and half off for doggie day care. The site lists one retailer a day and takes a portion of the revenue generated by a deal. (Groupon usually takes half while LivingSocial takes between 30% to 50% depending on the arrangement with the merchant.)

Some sites, like Groupon, will only make the deal official if a certain number of people purchase it, while LivingSocial and others offer the deal regardless of how many people buy it.

People can be notified of these deals by signing up for daily emails from the site or by checking social networks like Twitter and Facebook. They may then purchase deals by logging onto the group-buying site and printing vouchers from the site. With most sites, you’re buying a deal for at least half off the real cost (i.e. paying $20 for $40 at a restaurant).

Both Groupon and LivingSocial will work with iPhone apps. Once downloaded, users can enter their login credentials into these apps so they can access that account’s purchased deals, allowing them to show the coupon on the iPhone at the establishment to get the deal.

Each deal comes with restrictions. For example, most of them expire within about six months or so (the date is printed on the coupon voucher and saved in your online account so you don’t forget). Some deals restrict the number of coupons per person, like the way my salon’s deal restricted people from buying more than three coupons; if three were purchased, they all had to be used in the same visit.

Since these sites work best when many people use them, they use a rewards system to motivate people to tell their friends about the deals they’ve bought. If someone shares Groupon with a friend using a special referral Web link, that friend must sign up for the site within 72 hours of clicking on the link. Then, when that person makes a purchase, the original sharer gets a kickback of $10 in Groupon credit to use toward future deals. This won’t work if the invitee isn’t a first-time Groupon customer.

LivingSocial’s rewards system works a little differently. If you buy a deal and share it with friends using a special Web link, you can get the deal free of charge if three friends use that link to sign up for the site and buy the deal. Separate from that, LivingSocial encourages users to invite friends to simply sign up for the site. If the invitee signs up, he or she gets $5 toward deals. If he or she purchases a deal, the original inviter also gets $5 toward deals.

Both Groupon and LivingSocial put a lot of emphasis on choosing deals that will serve as city guides to the hip and fun activities going on around town. Groupon divides some of its 42 cities into areas: For example, Washington, D.C., is divided into The District, Northern Virginia and Montgomery County—three unique zones that locals will appreciate seeing listed separately.

Not every deal is successful on group-buying sites. Groupon’s idea of selling tours of Gary, Ind., shortly after Michael Jackson’s death didn’t convince enough buyers to want to visit the King of Pop’s hometown. LivingSocial admits that some of its deals were too specific to be popular, like a dog-training class that didn’t fetch enough buyers. The site’s CEO Tim O’Shaughnessy says there might not have been enough people with new dogs at the time of the deal.

If you haven’t tried one of the many group-buying Web sites and you live in an area where they’re available, you’ll want to check them out—or find someone who already uses them to invite you so you can both get rewarded.

Edited by Walter S. Mossberg.

Write to Katherine Boehret at mossbergsolution@wsj.com

Buying in Numbers

With most group-buying Web sites, getting more people to buy into the deal gets you a better discount.

Just six or so hours after offering a $100 service credit to new subscribers who purchase a Palm (PALM) Pre and port their numbers over from another carrier, Sprint canceled it. Here’s the company’s official statement on the matter:

“After further internal review today, the offer of a port-in service credit of $100 to new customers who buy the Palm Pre has been pulled, because it was put into the system in error.”

 
The company tells me it will honor its obligation to anyone who purchased a Pre during the brief window in which this offer was open.

Remarkably, the offer page is still live on Sprint’s site as I write this. Unbelievable. What a Keystone Kops-style marketing blunder.