As The Economy Goes, So Goes Advertising. And Inevitably, Groupon Too.

Blame it on the mortgage crisis.  Or the iPhone introduction. Or Barry Bonds’ steroid use. Whatever tripped the market stumble back in 2007, crushed the advertising industry in terms of spend. And according to analyses by four research companies, five years later, the recovery doesn’t look to be hard charging toward recovery. It’s more of a lope. Or a saunter. Maybe an amble.  But certainly no hard charge.

Dennis Ryan, Olson, AdvertisingWe’re definitely doing better than the all-time low of 2009, but at predictions of 2-4% growth, our business can only make the passbook savings sector envious. The real problem is that in tough times, many advertisers abandon proven advertising investments and instead ramp up a snipe-hunt like search for IROI (Immediate Returns On Investment). As recently as a year ago, that dream of new advertising platforms led to the ludicrous–and potentially scandalous–overvaluation of Groupon. Remember those halcyon days when this exciting new platform was going to reinvent advertising? When banks like Goldman publicly agreed with its eighteen billion dollar valuation after the IPO, despite the fact that the company was still not profitable when they filed with the SEC five months earlier? Remember how these daily dealers were going to change the paradigm?

Yeah, no one else does either. Funny how distance and the cold light of day kind of put a dimmer on hyperbole.

Sure, 83.1 million people once subscribed to Groupon’s daily deals. But price promotions, even if wildly successful, are entirely unsustainable. They are the crack cocaine of marketing–fast, intense, and ultimately incredibly unhealthy. Yes, Groupon provided small businesses with a new platform, but that platform was only about discounting, not brand building. Giveaways aren’t something any business can afford to do week in and week out. It definitely attracts an audience of users, but don’t confuse those users with fans. Or god forbid, a brand community.

Not surprisingly, Groupon is nowhere near an eighteen billion dollar valuation today. Not surprisingly, a Raymond James survey of merchants that used daily deal services during the Fall found that nearly forty percent were not likely to run another Groupon promotion over the next couple of years. And not surprisingly, Groupon’s founders have long since cashed out. Because the problem with any IROI is that it is a mirage–a sop to marketers desperate to find returns without the discipline of investment. Yes, there are new ways to go to market. But much like losing that extra Holiday weight, they still require long term commitment to see results.

By Dennis Ryan, CCO, Olson