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I Don’t Wax, So Groupon Wanes – How Groupon Got Targeting Wrong and Lost $11 Billion

Posted By Alex Campbell On November 19, 2012 @ 10:00 am In Featured,News | No Comments

Groupon did rather well for a while didn’t they? Launched in Chicago just four short years ago, they’d reached over 35 million registered users by the end of 2010 and were serving deal-of-the-day coupons to hundreds of markets across the US and Europe. These are the kind of figures that demand attention. And, indeed, Groupon got plenty of attention, with a rumoured $3 billion acquisition offer from Yahoo! in October 2010 and another from Google of $5.3 billion, with a $700 million earnout, later that year. And yet Groupon turned Larry and Sergey’s $6 billion down and went on to go public themselves, with an IPO in November 2011 that raised $700 million and valued the business at about $13 billion. Now, the next time someone offers you a briefcase (or possibly a shipping container) stuffed with $6 billion and another stuffed with $13 billion I won’t blame you for wanting the latter, but if the teeny tiny $6 billion briefcase comes with Google support behind it I’d suggest you think twice. That’s because at the time of writing this article, Groupon’s stock price is around $2.90, down from around $20 at IPO, but up from a low of around $2.60 earlier this month. To put it another way, Groupon is now worth less than $2 billion and its future, and that of the daily deals market, is uncertain. Most analysts are pointing to fundamental issues with the daily deal model to explain the decline of Groupon. In an article from Reuters [2], Utpal Dholakia, Professor of Management in Rice University’s Jones Graduate School of Business, noted “a lot of people made the mistake of overlooking the price-promotion part of this model. Normal advertising, yellow pages advertising, it really doesn’t have a price promotion, it doesn’t have a discounting component. That’s what makes this difficult to do again and again.” Indeed, the difficulty of making a Groupon deal pay from the advertiser’s point of view is well documented and there have been various reported stories of businesses being virtually bankrupted by overly generous deals [3]. But my issue with Groupon, and the reason I’m convinced Google could have steered them better, is not from the advertiser’s side, but from the consumer’s. I unsubscribed from Groupon a long time ago, but a search through my Gmail account still brings up plenty to illustrate my point. Here are just a few snippets from the subject fields of still unopened Groupon emails:   Three Strapless Bras £19

No!No! Hair Removal Device 60% Off

63% Off Women’s Swimwear

I will stress this since the name Alex can go either way – I am a man. I’m a man who buys a decent amount of gadgety junk online, the occasional power tool and maybe the odd bit of furniture. I have never bought a strapless bra. I don’t worry about unsightly hair (except perhaps right now, thanks to Movember [4]). I don’t, to put it bluntly, want any of this crap. My point here is that as far as I’m aware Groupon never got targeting right. I mentioned above that these emails had never been opened and certainly whenever I did open a Groupon email I didn’t click on any links for bikini waxing, chemical peels or laser lipo. As a digital marketer I know that Groupon can know this, so either they’re not looking or they simply don’t care. My guess is the latter. Just as their pushy sales agents [5] barrack naïve business owners into risky loss-leading offers, so their incessant email bombardment ignores careful targeting and simply stacks the offers high and shotguns them out. This must surely have pushed vast numbers of registered users into either ignoring the emails altogether or, like me, pulling the ‘unsubscribe’ plug. So would Google have done a better job? The relatively unremarkable growth of Google Offers suggests maybe not – maybe the business model just isn’t sustainable for anyone – but I’m convinced they’d have spent a lot more time identifying what users actually liked and making sure that they got offers relevant to them. With years of experience under their belt with the thoroughbred cash-cow that is AdWords, Google knows exactly how important precise user targeting is. They also know that if the price of advertising is too high for businesses to make a profit, the advertising revenue quickly dries up. The beauty of the market auction model behind AdWords is that prices get set by market forces and (to a greater or lesser extent that we could argue all day about [6]) Quality Score ensures that user experience is central to the process – keep showing the wrong people ads about personal grooming on AdWords and you’ll be bust before you can say “Brazilian”. If Google had been able to bring this experience to the table with the established business of Groupon in late 2010 then I imagine I’d have gradually started seeing offers that actually appealed to me and would still be receiving those daily deal emails today. Without paying attention to user experience, as well as advertiser ROI, my guess is the next thing Groupon will be offering for 90% off its original value… is Groupon.Rich Text AreaToolbarBold (Ctrl + B)Italic (Ctrl + I)Strikethrough (Alt + Shift + D)Unordered list (Alt + Shift + U)Ordered list (Alt + Shift + O)Blockquote (Alt + Shift + Q)Align Left (Alt + Shift + L)Align Center (Alt + Shift + C)Align Right (Alt + Shift + R)Insert/edit link (Alt + Shift + A)Unlink (Alt + Shift + S)Insert More Tag (Alt + Shift + T)Toggle spellchecker (Alt + Shift + N)▼ Toggle fullscreen mode (Alt + Shift + G)Show/Hide Kitchen Sink (Alt + Shift + Z) FormatFormat▼ UnderlineAlign Full (Alt + Shift + J)Select text color▼ Paste as Plain TextPaste from WordRemove formattingInsert custom characterOutdentIndentUndo (Ctrl + Z)Redo (Ctrl + Y)Help (Alt + Shift + H) Groupon did rather well for a while didn’t they? Launched in Chicago just four short years ago, they’d reached over 35 million registered users by the end of 2010 and were serving deal-of-the-day coupons to hundreds of markets across the US and Europe. These are the kind of figures that demand attention. And, indeed, Groupon got plenty of attention, with a rumoured $3 billion acquisition offer from Yahoo! in October 2010 and another from Google of $5.3 billion, with a $700 million earnout, later that year. And yet Groupon turned Larry and Sergey’s $6 billion down and went on to go public themselves, with an IPO in November 2011 that raised $700 million and valued the business at about $13 billion. Now, the next time someone offers you a briefcase (or possibly a shipping container) stuffed with $6 billion and another stuffed with $13 billion I won’t blame you for wanting the latter, but if the teeny tiny $6 billion briefcase comes with Google support behind it I’d suggest you think twice. That’s because at the time of writing this article, Groupon’s stock price is around $2.90, down from around $20 at IPO, but up from a low of around $2.60 earlier this month. To put it another way, Groupon is now worth less than $2 billion and its future, and that of the daily deals market, is uncertain. Most analysts are pointing to fundamental issues with the daily deal model to explain the decline of Groupon. In an article from Reuters, Utpal Dholakia, Professor of Management in Rice University’s Jones Graduate School of Business, noted “a lot of people made the mistake of overlooking the price-promotion part of this model. Normal advertising, yellow pages advertising, it really doesn’t have a price promotion, it doesn’t have a discounting component. That’s what makes this difficult to do again and again.” Indeed, the difficulty of making a Groupon deal pay from the advertiser’s point of view is well documented and there have been various reported stories of businesses being virtually bankrupted by overly generous deals. But my issue with Groupon, and the reason I’m convinced Google could have steered them better, is not from the advertiser’s side, but from the consumer’s. I unsubscribed from Groupon a long time ago, but a search through my Gmail account still brings up plenty to illustrate my point. Here are just a few snippets from the subject fields of still unopened Groupon emails: Three Strapless Bras £19 No!No! Hair Removal Device 60% Off 63% Off Women’s Swimwear I will stress this since the name Alex can go either way – I am a man. I’m a man who buys a decent amount of gadgety junk online, the occasional power tool and maybe the odd bit of furniture. I have never bought a strapless bra. I don’t worry about unsightly hair (except perhaps right now, thanks to Movember). I don’t, to put it bluntly, want any of this crap. My point here is that as far as I’m aware Groupon never got targeting right. I mentioned above that these emails had never been opened and certainly whenever I did open a Groupon email I didn’t click on any links for bikini waxing, chemical peels or laser lipo. As a digital marketer I know that Groupon can know this, so either they’re not looking or they simply don’t care. My guess is the latter. Just as their pushy sales agents barrack naïve business owners into risky loss-leading offers, so their incessant email bombardment ignores careful targeting and simply stacks the offers high and shotguns them out. This must surely have pushed vast numbers of registered users into either ignoring the emails altogether or, like me, pulling the ‘unsubscribe’ plug. So would Google have done a better job? The relatively unremarkable growth of Google Offers suggests maybe not – maybe the business model just isn’t sustainable for anyone – but I’m convinced they’d have spent a lot more time identifying what users actually liked and making sure that they got offers relevant to them. With years of experience under their belt with the thoroughbred cash-cow that is AdWords, Google knows exactly how important precise user targeting is. They also know that if the price of advertising is too high for businesses to make a profit, the advertising revenue quickly dries up. The beauty of the market auction model behind AdWords is that prices get set by market forces and (to a greater or lesser extent that we could argue all day about) Quality Score ensures that user experience is central to the process – keep showing the wrong people ads about personal grooming on AdWords and you’ll be bust before you can say “Brazilian”. If Google had been able to bring this experience to the table with the established business of Groupon in late 2010 then I imagine I’d have gradually started seeing offers that actually appealed to me and would still be receiving those daily deal emails today. Without paying attention to user experience, as well as advertiser ROI, my guess is the next thing Groupon will be offering for 90% off its original value… is Groupon. Path:

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URL to article: http://www.thesearchagents.com/2012/11/i-dont-wax-so-groupon-wanes-how-groupon-got-targeting-wrong-and-lost-11-billion/

URLs in this post:

[1] Image: http://www.thesearchagents.com/wp-content/uploads/2012/11/groupon-social-business-500x224.png

[2] article from Reuters: http://www.reuters.com/article/2012/11/12/us-groupon-dailydeals-idUSBRE8AB05120121112

[3] virtually bankrupted by overly generous deals: http://www.bbc.co.uk/news/uk-england-berkshire-15791507

[4] Movember: http://uk.movember.com/mospace/3175169

[5] pushy sales agents: http://techcrunch.com/2011/06/09/groupon-single-worst-decision/

[6] we could argue all day about: http://www.thesearchagents.com/2009/12/quality-score-vs-quality/

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