How Daily Deal Marketing Changed Digital Marketing in 2011

Daily deal marketing entered 2011 fresh off Groupon’s decision to turn down a reported six-billion-dollar acquisition offer from Google, a rejection made public in December 2010 and still being debated by the industry as the new year began. Whatever else happened to the category in 2011, that single decision set the tone: it told every investor and competitor watching that the daily deal business believed it was worth far more on its own than as part of Google.

The year’s first major event undercut some of that confidence almost immediately. Groupon spent an estimated portion of its marketing budget on a Super Bowl XLV ad campaign in February, and one spot, framed as raising awareness for causes while poking fun at celebrity activism, referenced the situation in Tibet in a way that landed as deeply tone-deaf rather than clever. The backlash was fast and loud enough that Groupon pulled the ad and issued a public apology within days, a rare moment of a marketing stunt actively damaging the brand it was meant to build, right as Groupon was preparing to court public investors.

Competition intensified through the spring and summer. Amazon invested 175 million dollars in LivingSocial in early 2011, giving Groupon’s closest rival both capital and a distribution partner with enormous reach. Facebook launched its own local deals product, Facebook Deals, in early 2011, betting that its social graph gave it an edge over standalone deal sites. Google, having failed to buy Groupon, launched Google Offers later in the year as its own answer to the category. Neither of the platform giants’ efforts stuck. Facebook shut Facebook Deals down by August, having failed to generate meaningful merchant or customer adoption, a notable admission that the daily deal mechanic wasn’t as easy to bolt onto an existing platform as it looked from the outside.

Underneath the headline-grabbing moves, the industry’s economics were starting to show strain. Merchants who’d rushed to run deals in 2009 and 2010 were increasingly public about a problem that took a full sales cycle to become visible: deep discounts brought a flood of one-time bargain hunters rather than loyal repeat customers, and after splitting revenue with the deal site, some merchants said they’d lost money on their own promotions. That criticism followed Groupon directly into its IPO process, which began with a confidential S-1 filing in June 2011 and drew scrutiny over an unusual non-GAAP metric the company had used to describe its profitability, a metric it had to walk back under pressure from regulators and the financial press before the offering could proceed.

Groupon went public anyway, on November 4, 2011, pricing at twenty dollars a share and raising roughly 700 million dollars, a striking outcome for a company that had spent the year absorbing a PR crisis, a stalled competitor invasion from two of the biggest platforms in tech and public doubts about its own accounting. By the end of 2011, daily deal marketing had proven two things simultaneously: the underlying appetite from both merchants and customers was real enough to support a public company, and the model’s weaknesses, thin merchant economics and a business built on one-time bargain hunters, were now impossible for the industry to ignore.