Groupon's secret - Page 2

Are misleading online ads the secret to Groupon's success? And is Google implicated?

A lawsuit alleges that Groupon uses illegal bait-and-switch tactics to hook new customers.

Even though Google has not been sued in this instance, Eric Goldman, an associate professor at Santa Clara University School of Law and director of the school's High Tech Law Institute, said that much of SCTF's complaint is as much an indictment of Google's platform as it is of Groupon's practices. "Even though Google hasn't been sued, I wonder if Google has or will make changes to its ad platform in response to the allegations in this complaint," Goldman said.

Google spokesperson Diana Adair told the Guardian: "Unfortunately, we're not able to comment."

Williams claims that Groupon is gaming the algorithm that underpins Google's AdWords program, which uses a combination of the number of click-throughs to a website, the closeness of an ad's wording to an Internet user's search terms, and the amount of money businesses are willing to bid on specific keywords to rank search results on Google.

"Groupon can't say it's just an AdWords problem," Williams said. "It's a manipulation."

In its suit, SCTF claims it successfully bid on keywords such as "San Francisco tours," "Alcatraz tours" and "Napa wine tours" for years. Then, in September 2010, Groupon started bidding on these terms as well — and though it rarely offered any discounted Alcatraz tours, it began to rank high in search results, driving up SFCT's ad costs.

The suit notes that one time, in response to the keyword "Alcatraz tickets," Groupon's ad copy read "Alcatraz tickets — one ridiculously huge coupon a day: Do Alcatraz CA at 50 to 90 percent off." Groupon's actual ad that day was for discounted acting lessons.

"But they don't care because they are trying to direct as many people as they can to their website," Williams claimed.

Williams said he believes he can show that from the moment Groupon started placing ads for tours it didn't sell, SFCT has suffered financially. "For someone like the plaintiff who is not about to put out an IPO, the frustration is that Groupon is funneling people into their direct mail campaign to develop huge databases and monitor what people like to buy so Groupon can target those people in future," he said.

Williams told us he thinks he knows how Groupon will try to defend its strategy. "They'll probably say that there is nothing wrong with what they are doing because if a business want to attract people to its product, it can talk to them about other products," he said.

But he doubted they would try to blame it on Google. "Google would say that Groupon is taking advantage of AdWords," Williams explained.

He sees Groupon's strategy as a "bait and switch" tactic that's illegal under the federal Lanham Act and California's unfair competition and false advertising laws. "If I did this in a newspaper's classified advertising section, it would be wrong. But the way Groupon looks at it, the normal rules don't apply because it's doing this online," Williams said.



Williams also noted that Groupon hasn't disclosed all the other lawsuits it's facing. "They view this as a pesky little thing. But most companies, unless the suits are patently without merit, will err on the side of caution, believing it's better to disclose than fail to disclose," he said. "Or maybe they are thinking, 'Soon we're going to be making $30 billion, so who cares?'<0x2009>"

Goldman notes that SFCT's class action adds extra complexity for its lawyers. "Groupon will likely try to prevent the class from forming in addition to attacking the substance of the arguments. This is not a quick-and-easy win for the plaintiffs. In many cases, companies like Groupon decide to settle rather than fight because it's a costly defense, even if they ultimately win."