It's easy to laugh at the just released report from British advertising watchdogs scolding Groupon for selling snake oil after the company helped peddle an anti-aging serum last October.A complaint reviewed by the London-based Advertising Standards Authority scolded the Chicago-based deals site's U.K. affiliate, MyCity Deal, for falsely promoting the effects of "Wrinkle Killer Snake Serum" that the ad copy said offered "temporary freeze-like effects on the face muscles" and "leaves the skin looking younger." After what sounds like a pretty scientific study of the snake oil's effects, the ASA deemed the ad "misleading" and subsequently forbade Groupon from running it again.
This is funny for a couple of reasons. The first one is simply the idea that snake oil salesmen still exist in the world and still attempt to sell snake oil. It was over a hundred years ago that the Food and Drug Act regulated the sale of medicines, and while using snake oil as an anti-age serum is not the same as using it cure diseases, it's still a pretty lame way to take advantage of consumers.
But the really hilarious thing about Groupon getting busted for advertising snake oil medicines is the fact that Groupon itself is peddling snake oil of a sort. To be more specific, a number of stories have surfaced in the past year or so that frame the site as a peddler of fake or over-hyped solutions for small businesses. It's important to note that Groupon itself does not sell products, but rather offers marketing services for other companies, leading to criticism for unintentionally sabotaging these business rather than helping them. When a Groupon sales rep goes to a local coffee shop owner to talk them into using Groupon's service as a way to get more customers, we imagine the pitch sounds very compelling. Rather than spend money on advertising, these businesses can actually make money upfront by agreeing to participate in selling daily deals. Then, depending on the arrangement, Groupon takes a cut of the revenue (usually half) from the coupon sales and gives participating business its share in installments. As many have pointed out now, the order of operations largely resembles a Ponzi scheme.
The troubling part about Groupon is that, like snake oil, it can do a lot more harm than good. One of the most outspoken critics of Groupon's marketing strategy, local marketing expert Rocky Agrawal, wrote a four-part series about Groupon's misleading marketing solutions. In one of them, he interviews cafe owner Jesse Burke who calls Groupon "the single worst business decision [she] ever made." Burke estimates that participating in a Groupon deal ended up costing her about $10,000, without actually winning many new customers. "What was the saddest part of it for me was that this had happened to a lot of businesses but because no one had ever said anything we all just assumed (and myself included) we just assumed we were bad business people -- that we just didn’t know what we were doing," she told Agrawal. "If everyone loves Groupon so much, we must be wrong.”
Groupon has since made its initial public offering. It all looked great at first, as the stock price soared in the first few hours of trading, but analysts must've suspected something was amiss, because its stock price plummeted the next day, sinking well below the IPO price. Currently, Groupon is still trading below that share price, and the British investigation into both its ad practices seems like it's far from over. Oh, and if investors unload their shares and want to invest in a serum to freeze their faces, Groupon has some deals on Botox every now and again.
This article is from the archive of our partner The Wire.