Groupon made updates to its terms of service and privacy statement last weekend to reflect new ways the company collects and shares user data.Daily deals service
The biggest change that Groupon made to its privacy statement was in how it tracks and uses the mobile location data it collects when consumers are using Groupon Now, a function that brings timely deals to users based on the time of day and their location. If users opt to share through the Groupon app, the company will track user location and be able to share it with several sources. Groupon also changed its definition of "personal information" to include habits and interests and how it shares that personal information with partners and merchants. Essentially, Groupon is collecting more information from its users from a variety of sources and sharing it with more outlets. What does Groupon's aggressive use of customer data mean for the daily deals company and the marketing industry as a whole?
Fundamentally, Groupon is an Advertiser
One way to think of Groupon is that it is the biggest thing to happen to advertising since Google. In a recent conversation with Chris Tolles, CEO of local news aggregator Topix, he told me that "Groupon is the first truly American form of advertising ... the ability to buy marketing opportunities on credit."
To understand what Tolles means by that, you need to know the fundamental way that Groupon contracts with the merchants it uses for daily deals. Rocky Agrawal wrote a great series on Groupon's business model for TechCrunch and gives a synopsis of how merchants get cash up front from Groupon and then money in intervals thereafter. Agrawal describes Groupon as a "loan shark" and he may not that far from the truth.
Yet, Groupon is a loan shark that is also fundamentally a marketing firm. Merchants turn to Groupon for brand awareness or a quick bump in revenue, just like they would turn to advertising or traditional marketing channels for the same results.
What do advertisers crave the most? Data. As granular as possible. The more Groupon knows about its users the more it can share that information with its partners (and thus acquire more lucrative partners). So, for example, geo-location information taken from users of mobile phones can be shared with partners like travel site Expedia. In the case of Groupon Now, the company can help merchants by showing them how many potential customers are in a given area.
Privacy Concerns and New Era of Advertising
Groupon is controversial. Many merchants that have tried it do not like it and swear against it. What privacy experts and regulators should note is that Groupon is a new type of player in an old game. Groupon is not concerned or influenced by the American Association of Advertising Agencies (the "4A's"), a political action committee of advertisers that often acts as a self-regulatory wing of the ad industry.
Groupon and other daily deals services are in the same market as traditional advertisers - third-party customer acquisition for businesses and merchants. It is a matter of time before the Federal Trade Commission starts taking a closer look at how Groupon or Living Social interacts with the consumer environment and what kind of data it uses for "customer acquisition," whether for itself (through search or email marketing), its partners or the merchants providing the daily deals.