The Media Oxpecker: Why Groupon Will Collapse Upon Itself

Every Friday we round up media & tech industry news you may have missed.

Groupon and the daily deal peddlers were front and center most of this week, starting with a Monday TechCrunch post under the click-inducing title, “Why Groupon Is Poised For Collapse,” in which Rocky Agrawal lays out his case for why “Groupon usually wins and merchants usually lose”:

Businesses are being sold incredibly expensive advertising campaigns that are disguised as “no risk” ways to acquire new customers. In reality, there’s a lot of risk. With a newspaper ad, the maximum you can lose is the amount you paid for the ad. With Groupon, your potential losses can increase with every Groupon customer who walks through the door and put the existence of your business at risk.

Groupon is not an Internet marketing business so much as it is the equivalent of a loan sharking business. The $21,000 that the business in this example gets for running a Groupon is essentially a very, very expensive loan. They get the cash up front, but pay for it with deep discounts over time.

Running a Groupon isn’t always a losing proposition for business owners, but figuring out its worth comes down to two key components, according to Agrawal: 1) How many Groupon customers were already customers and 2) How many new customers actually return and pay full price.

Oh, and for those thinking about investing in the recently-IPOed Groupon? Consider the following:

Groupon is essentially holding a portfolio of loans backed by the receivables of small businesses. If a business goes under, consumers will come back to Groupon for their money back. Unless Groupon is actually doing credit assessments on businesses that it chooses to feature, this is a big risk for Groupon.

Do read the full piece here, which includes a section on how merchants can exploit Groupon’s system.

Meanwhile, our pals at the Colorado Springs Independent and San Francisco Bay Guardian published Groupon pieces of their own this week.

A CS Indy interviewee crunched some numbers and determined that, “Coupons can help if food costs are low and margins high, and hurt if their users displace regular, full-price-paying customers.”

And the Bay Guardian‘s Sarah Phelan reports on a lawsuit being brought by a Northern California tour company, which claims Groupon gamed Google’s AdWords algorithm and advertised discounts that didn’t exist, in effect pulling a bait and switch on customers to the detriment of companies that are actually offering the product people were searching for:

In its suit, [San Francisco Comprehensive Tours] claims it successfully bid on keywords such as “San Francisco tours,” “Alcatraz tours” and “Napa wine tours” for years. Then, in September 2010, Groupon started bidding on these terms as well — and though it rarely offered any discounted Alcatraz tours, it began to rank high in search results, driving up SFCT’s ad costs.

The suit notes that one time, in response to the keyword “Alcatraz tickets,” Groupon’s ad copy read “Alcatraz tickets — one ridiculously huge coupon a day: Do Alcatraz CA at 50 to 90 percent off.” Groupon’s actual ad that day was for discounted acting lessons.

  • Microsoft’s Bing is becoming the preferred search engine of Gen Y, in large part due to contextual search, which alters search results based on what pages users’ Facebook friends have “liked”:

    For example, a Bing search for “travel” brings up a link to a product page on STA Travel’s (my employer) website based on the Like of one of my Facebook friends. It’s in the fourth spot right behind Travelocity, Expedia and Yahoo Travel.

    If I log out of Facebook, head to Bing and search for “travel,” the first link to STA Travel appears on the eighth page at position 72.

    With younger consumers showing a strong preference for brands that have been recommended by friends or family, building a social media presence — especially on Facebook, where connections tend to be stronger — is crucial to reaching the audience of Youngs.

  • But will display overtake search? Maybe!
  • Google purchased the supply side platform Admeld, saying that “it can make display advertising simpler and more attractive to reluctant publishers.” And hyperlocal tech company Fwix rolled out a tool for publishers to use to tie ads closer to local content.
  • AOL’s advertising platforms, which are grouped under, is now a $500 million business.
  • Slate media columnist and former alt-weekly editor Jack Shafer says of Twitter:

    What I like most about Twitter is how it connects me to some of the smartest and funniest people in the world. For me, Twitter is a personalized RSS feed. When working on a breaking story, I always reserve a corner of my two screens for the pertinent tweets of people who follow the news even more closely than I do.

  • Poynter has a post on four ways content management systems are evolving and why it matters to journalists.

    Related: the BBC has developed an iPhone app so that its reporters in the field can “file video, photos and audio directly to the network’s production system from an iPhone or iPad.”

  • Newsweek has four “dark weeks” planned for this summer, cutting back the number of issues it will publish in an effort to hold down costs:

    The original editorial calendar showed only one dark week, surrounding the July 4 weekend.
    Staffers now have been told that they will not have to work the week of July 18-22 since no issue will appear on July 25. They also can spend a little extra time at the beach the week of Aug. 15-19, since there will now be no issue on Aug. 22.


  • “The days of, ‘Do we publish on Facebook? Do we tweet?’ are over,” Buddy Media CEO Michael Lazerow told Betabeat. “Either you do it, or you’re crushed. Do it or go out of business.”
  • Regarding the Sarah Palin email trove, social media whiz Mandy Jenkins asks, “Why couldn’t the nation’s largest news sources put aside their shared need to own information and just combine their efforts to quickly get these documents online in searchable form?”
  • Much has been made of recent news that Facebook lost users in the U.S. last month, but Business Insider‘s Henry Blodget calls the hubbub “a bunch of crap,” saying that stats such as the average time spent on the site per user are more important than the flat number of users.
  • Understatement of the week: As with many stories about the Israeli-Palestinian conflict, the comments had moved far beyond the news report and had devolved into personal attacks and hateful speech.
  • Here’s Journal Register Company CEO John Paton on how a newspaper company becomes a digital first company.
  • Last week, we mentioned a recent FCC report which cited a dearth of local news. But Joshua Benton at the Nieman Journalism Lab says that there are reasons for hope.
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