New Data: Groupon Slashing Online Ad Spending in Q3

This post is the first in our AdWatch series. At MixRank, we’ve built the world’s largest database of display and contextual ads, tracking over 600,000 advertisers advertising on 100,000 publishers. We’ll be bringing you interesting insights into advertisers’ strategies and industry trends based on this data through MixRank AdWatch posts.

Is Groupon pivoting away from daily deals?

New ad data from MixRank shows that Groupon, Inc is dramatically slashing US online ad spending for its flagship daily deals product.

For every advertiser we monitor, we compute an Ad Performance score based on sampling ad impressions and other metrics. Our Ad Performance Score is an internal metric we use to estimate how much traffic an advertiser’s ads are getting. The actual number is arbitrary, but can be used to compare advertisers and correlates very strongly with impressions, clicks, and spend. A higher performance score means an advertiser’s ads are getting more traffic (generally because the advertiser is spending more).

Our ad performance data shows that Groupon (NASDAQ:GRPN) has cut spending on US-targeted display and contextual ads more than 80% in the past few months- a staggering cut for a company spending $100 million a month on advertising.

Here’s a chart of the MixRank Ad Performance Score for groupon.com’s contextual and display ads for the past two quarters of 2012. This data only reflects ads geotargeted at consumers in the United States.

Groupon ad performance

View more detailed data about Groupon’s ads.

The massive, rapid drop occurs on July 1, the first day of the third quarter, and Groupon’s ad spend has not recovered since. The fact that this drop occurred exactly at the start of Q3 implies this was a major strategic decision with budgeting for the third quarter rather than a tactical tweak in allocating spend.

Much has been written about Groupon’s mounting customer acquisition costs standing in the way of profitability, and as data from their latest quarterly report shows, Groupon has been making deep cuts to marketing spending for a while.

Groupon ad performance

But Q3 2012 marks the biggest drop by far in Groupon’s online advertising spending for daily deals since we’ve started tracking their ads over a year ago.

This data is just one signal, and it could have several explanations. Maybe Groupon has saturated the daily deals market in the United States and is shifting spending overseas. Or maybe Groupon’s revenues for the next quarter are lower than the market’s expectations, and executives made the decision to cut marketing spending further to reach profitability.

Or maybe Groupon just isn’t that interested in daily deals anymore.

So what does this change mean? Groupon has just announced that they’re taking on Square and offering a payments and credit card processing solution to its merchants. Groupon CEO Andrew Mason has defined the company’s vision as an “operating system for small business”.

Is the shift in marketing strategy a sign Groupon is on its way to abandoning the maturing daily deals industry it created and transitioning to a B2B company? 

Such a rapid, dramatic pivot would be unprecedented for a multi billion dollar publicly traded company. Then again, Groupon has never been one for convention.

 

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