Why Groupon’s Gmail Problem May Be a Good Thing
When Groupon’s third-quarter revenue missed analyst expectations, CEO Eric Lefkofsky finally acknowledged the obvious: Recent changes to how Gmail filters marketing emails were hurting the deals company. The changes arrived in the second quarter of 2013, when Gmail began automatically placing promotional emails, such as Groupon’s, in what is essentially a separate inbox called “Promotions.”
Lefkofsky didn’t give detailed numbers, but said that the rate at which email recipients opened Groupon’s Gmails declined by a low double-digit percentage as a result of Google’s changes. That’s a big deal for a company that built its business through email marketing.
Now, as the company gets ready to report earnings for the holiday quarter later today, Wall Street analysts will be looking to learn more about how Groupon is dealing with the Gmail effect.
“We will continue to look for any color around the Gmail inbox update,” RBC Capital’s Mark Mahaney wrote in a research note. Several others that landed in my inbox this week included a similar refrain.
Analysts are expecting, on average, earnings per share of two cents, excluding some items, on revenue of $718 million for the fourth quarter.
There are some indications that Groupon may have seen a similar drop in the fourth quarter. According to Sailthru, an email marketing firm, Gmail open rates for its customers decreased 12.8 percent and 7.5 percent, respectively, on Black Friday and Cyber Monday in 2013 compared to the same days in 2012.
Still, while the Gmail changes may be damaging in the short run, they may be responsible for pushing Groupon away from a reliance on email marketing more quickly than might have occurred otherwise. And that’s probably a good thing.
The company has been talking since early 2012 about its desire to build a giant searchable database of deals that would give shoppers a reason to come back to Groupon on their own without being prompted by email.
Recent moves indicate the company is finally serious about bringing this marketplace to life in a meaningful way. The company introduced a search-heavy redesign of its website in November. And this month Groupon unveiled a new self-service tool to help small businesses create their own Groupon deals in an automated way. The hope is that this addition will vastly increase the number of long-term deals in the searchable marketplace, reducing the reliance on time-sensitive email blasts.
The company has also said recently that it is increasing investments in mobile, where it is already strong, in part to cut back on email dependency. Some recent acquisitions point to that strategy, including the company’s purchase of Korean deals company Ticket Monster, since less than 10 percent of the company’s sales come through email messages, CEO Eric Lefkofsky said in a previous interview. Groupon also recently acquired Blink, a European competitor to the Hotel Tonight hotel booking app.
As a result, it wouldn’t be surprising to see some mobile-centric acquisitions here in the U.S., where the Gmail effect is felt the most.