Rumors are everywhere about the possible purchase of Groupon, the well known group coupon and discount site that was founded less than two years ago. Despite this, some people are saying that If you are to believe the rumors, Google is going to buy Groupon for upwards of 5 Billion, making it one of the biggest success stories of 2010. Analyst are talking about how great this buy out would be, how this is a needed part of the Google infrastructure in its battle against Facebook. However, what those analysist don’t know and what Groupon and probably Google is hiding from them is how Groupon became so successful, so fast, so quickly: Through Cost-Per-Acquisition Affiliate Marketing.

Yes, Groupon owes a great deal of its success to Peformance Based marketing, where they have paid affiliate and CPA networks to promote their product over the internet. For those in our industry, we all known this method: pay for every new person who subscribers to your newsletter. It’s a true and tried way, and can generate enormous success for anyone who wants to grow their business fast. If you spend only $1 per new subscriber through performance based marketing, you could have a company with over 30 Million new subscribers/users for as little as $30M. In the fast paced interactive media industry, any company that suddenly has 30M users from nowhere gets attention, and can have value way over the $30M that was just spent.

They want to hide this, because although much of the market knows that Peformance Based Marketing is one of the quickest ways to get new users, a lot of the media from the NY Times to the Wall Street Journal is ignorant of this method and doesn’t understand that almost any company, with cash can generate enormous value and interest really fast. If Groupon can generate that interest that fast, it means that all of the other Coupon sites that are popping up can easily take a significant part of the market share, very fast. Take a look at companies like Living Social which were launched at about the same time as Groupon – they have taken a very aggressive CPA marketing strategy and traffic charts on Alexa show that on some days they are almost catching up with Groupon. With this realization, this means that Google’s purchase could be worthless in a a year when another company takes it over using the same techniques.

I’m not sure how much money Groupon has spent on CPA Performance Based marketing, but a friend told me confidentially that he has inside information that it was upwards of $150M since the start of the year. He told me that Groupon was being considered a monumental failure until late 2009 when they started to acquire new subscribers via CPA Advertising. A look at Alexas traffic chart for Groupon confirms that they had very little traffic until basically 2010, when they suddenly skyrocketed out of nowhere.

It is my opinion that Groupon is one of Performance Based Advertising’s biggest success stories.

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