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What sunk the daily deals giant Groupon and its band of merry copycats? You’re likely to say it was low levels of merchant satisfaction, or consumer fatigue, yet none of that has prevented the company from generating billions of dollars in revenue. The real issue is that the company can’t generate any material profit despite its (one time) torrid growth. Last quarter it lost $3 million on $586 million in sales, and its shares are trading at $5.95 today, down 70 percent from its November 2011 IPO price of $20. The block and tackle sales required to build and sustain a daily deals platform is just inordinately expensive.

But what if you could build a deals platform without the expense of a sales force?

ForkFly, which describes itself as a social engagement and advertising platform, has found a way to do just that. The Portland-based startup allows merchants to offer digital deals through its newspaper publisher partners. The wrinkle is that while ForkFly builds and maintains the technology platform it relies on its partners’ existing sales forces to sell merchants – with whom they likely have long-standing advertising relationships.

Today, ForkFly announced its largest partnership to date, signing an exclusive distribution agreement with The Seattle Times. Since launching in beta in April 2011, ForkFly has signed dozens of smaller distribution partnerships in what it calls second and third tier media markets across the Northwestern US. Let your finger wander across a map, and there’s a good chance that a publisher in any city or small town you encounter in Washington, Oregon, Idaho, Montana, and the Dakotas relies on the company’s technology.

Merchants using ForkFly get access to a self-service platform for delivering custom advertisements, offers, and geo-targeted messaging to consumers on the Web and via the ForkFly iOS and Android mobile apps. They also get access to real-time analytics, as well as an audience segmenting and targeting platform. Merchants pay the publisher a $79 to $250 monthly subscription for use of the platform, and a percentage of all daily deal sales, which it splits with ForkFly.

Consumers using ForkFly can search for nearby offers, or receive push notifications when merchants that they favorite publish new offers or when they are in close proximity to their location. Further, consumers can explore content and offers outside their local region through the ForkFly mobile app and website. While this may seem counterintuitive at first, ForkFly founder and CEO Paul Wagner points out that in many of its small markets, residents travel up to several hours to find stores and restaurants not otherwise available. In this way, ForkFly becomes extremely useful as a discovery and savings engine.

In one seven-month case study touted by the company, The Red Door Lounge in Billings, Montana, generated 68,470 ad impressions, 80 percent of which came from mobile devices, and the merchant, in turn, got 2,205 clicks. Of those who viewed the deal, 54 purchased. The total cost of the campaign was $455 ($65 per month), which represents savings of $7,262 over a comparable Google AdWords campaign with an average CPC (cost per click) of $3.50. Over on Facebook, a local advertising campaign with a $1.08 average CPC would cost the merchant $1926 more than ForkFly.

The magic of this platform is that newspapers are already selling print advertising space to local merchants. Now, as part of the same conversation they can sell an intelligent mobile and Web advertising daily deals platform. The incremental cost of adding this product to the existing sales process is nearly zero. As a result, ForkFly has dramatically different economics than do Groupon or its dozens of me too competitors.

The glaring risk inherent in the model is that the newspaper business may not be long for this world. At least that’s the prevailing wisdom. Not so fast, says ForkFly’s Wagner. He claims the small town publications the startup works with are thriving while it’s the mid-size papers that have taken the brunt of the recent trauma. Major metropolitan and nationwide publications like the Seattle Times are stable, if you believe Wagner, and are turning to progressive ideas like ForkFly to inject new revenue streams into their business.

It’s difficult to find data to back up Wagner’s claim, although he’s not the only one making it. Regardless of how you view the industry, if ForkFly can add a material revenue stream to the coffers of these struggling publications, then it could be a significant part of rewriting the industry narrative.

The next step for the startup, beyond signing additional partnerships like today’s, is to supercharge its location-based targeting efforts with the roll out of a hardware product currently in early testing. ForkFly plans to give local merchants a small radio device that will immediately identify passing ForkFly-enabled mobile devices and deliver offers instant push notifications.

The concept sounds appealing to merchants, but could quickly become overwhelming for consumers. The good news is that users have access to granular privacy and notification controls. ForkFly and its partners will need to strike a healthy balance between value delivered and the interruptions that accompany it, otherwise they’ll be quickly silenced.

ForkFly is backed by “significant, but undisclosed” funding from Cowles Company, a Spokane, Washington-based media holding company that owns and operates The Spokesman-Review newspaper among other assets. The investment closed in May 2012.

The daily deals model may have been dead before it arrived. But a technology platform that enables merchants to self-serve digital advertising and offers is another animal entirely. The fact that ForkFly has created a model where it can leverage the existing sales forces of publisher partners brings the whole concept together in a web of efficiency.

It’s impossible to predict the future of this intriguing startup, and its reliance on the battered newspaper industry gives pause for concern. But advertising has existed for thousands of years, and today’s ubiquitous, location-aware, always connected mobile devices demand new solutions for reaching consumers. ForkFly may have done the previously unthinkable by finding a model that works for publishers, merchants, and consumers.