LivingSocial Grows Overnight… But Are Their Affiliates Using Adware To Take Traffic From GroupOn?

LivingSocial made a killing in January by offering $20 Amazon gift card for $10. The offer went out to millions of LivingSocial members across 89 markets and resulted in sale of 1.4 million vouchers, an insane amount of media coverage and a huge spike in traffic.

livingsocial_crush_groupon LivingSocial made a killing in January by offering $20 Amazon gift card for $10. The offer went out to millions of LivingSocial members across 89 markets and resulted in sale of 1.4 million vouchers, an insane amount of media coverage and a huge spike in traffic.

According to Hitwise, the Amazon deal has enabled LivingSocial to close its gap with Groupon. LivingSocial now has over half the daily visits of Groupon, as compared to Nov, 2010 when visits to Groupon outnumbered those to LivingSocial by a margin of 10:1.

LivingSocial’s unique visitors surged by 80% in a single week in Jan, where as Groupon’s visitors declined by 20% during the same time. It is highly likely that Groupon may have lost its visitors to none other than LivingSocial.

livingsocial vs groupon

Groupon Sending Users To LivingSocial

However, Amazon’s deal might not be the only way by which LivingSocial is acquiring Groupon’s users. Reports are surfacing that LivingSocial is using adwares to direct users from Groupon.com to its own site.

Pace Lattin, an Interactive Advertising Expert, digged into Alexa traffic stats for LivingSocial and found out that Groupon is amongst the top 5 referring sites to LivingSocial with 7.2% of all users coming to LivingSocial from Groupon. The other major referrals include, Google (20.67%), Facebook (17.39%) and Yahoo (7.99%).

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So is Groupon really sending its users to LivingSocial ? But why would it do so ? Lattin’s research into the matter revealed that some of LivingSocial’s affiliates are using adwares to prompt users on Groupon to head over to LivingSocial. According to Lattin:

I am mainly concerned about one thing that I’m sure you noticed. 7% of all traffic coming to LivingSocial.com is from Groupon. Is Groupon really sending traffic to competition? Highly unlikely, and not really happening (I checked with Groupon and looked myself.) Instead there is something going on here that I’m sure Groupon would love to take note legally and otherwise – the use of adware. Remember, LivingSocial has a huge CPA campaign that is all over affiliate networks that pays people per new signup. What better way to get people to sign up that pop up a signup form on a competitors website, in this case Groupon.

I confirmed with several affiliate networks that run this and they told me that some of their biggest affiliates indeed are using contextual adware to promote LivingSocial, including TrafficVance, an opt-in adware system. Whether or not you agree with adware, is one question – but the legality of popping a competitive site has been found in the courts to be an issue.

Adware Complains

If that was not proof enough, Firefox users are now reporting en-masse that they are getting spammed by LivingSocial malwares. The first complain of a LivingSocial malware was posted on Firefox support forum on Jan 18, 2010:

This website http://partners.livingsocial.com/ is harrassing me. How do I stop them??

It acts like a popup window, opening up a new window. I see no way to enter it into a blocking site so that it is not permitted to access my computer. Please help me to block it to it is not irritating my FireFox computer experience.

This is a formal official complaint against this website.

Thanks

57 more users have reported the same issue, since than. The issue is that whenever these users visit certain sites (Groupon anyone ?), they are welcomed by a LivingSocial popup that asks them to rush over to LivingSocial to participate in the daily deal running at that time.

LivingSocial Sending Users to Groupon

Although the above two reports clearly show that LivingSocial is using sneaky methods to get Groupon users. But a deeper look into LivingSocial’s Alexa traffic stats reveal that 5.49% of LivingSocial’s users go to Groupon after leaving LivingSocial.

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This means that either Groupon is also using adware to acquire LivingSocial users, or a significant number of users are now a member of both Groupon and LivingSocial and visit both the sites on a daily basis. The second scenario looks a lot more plausible. LivingSocial might be using some aggressive advertising techniques, but users going back and forth on LivingSocial and Groupon is telling a whole new story – that users have started comparing daily deals offered by both sites.

With LivingSocial getting a lot of media attention, Google and Facebook entering the market with their own offerings, people will not just hunt for deals, but will hunt around as well. This would mean that Groupon’s deals will have to compete against other deals that will result in eroding profits and a fragmented market. Even if Groupon manages to hold on to the No.1 spot, it will find it extremely hard to report profits that would justify a valuation north of $6 billion.

All of this makes me curious to know what Groupon now thinks of the $6 billion offer from Google.

[Image via Weathvest]