New Social Media Players Have No Use for Madison Ave.

The daily deal service Groupon, which quietly started in Chicago in November 2008, is a sensation.

In less than two years, it has grown to 29 countries and 230 markets and boasts 17 million subscribers who get daily offers on everything from leg-waxing sessions and amusement parks to restaurants.

The company is estimated to be on track to record $500 million in revenue this year and perhaps double that in 2011. Forbes has christened Groupon “the fastest-growing company ever,” boasting a $1 billion valuation.

Such success can be attributed to several factors—and traditional advertising is definitely not one of them.

Groupon, in fact, whose marketing is essentially built into the product, has done all this without the machinery of Madison Avenue, either to build its brand with deal-seeking customers or to entice businesses to its marketing platform.

The company’s approach “reflects a bit of the transformation of markets and the way in which advertising agencies have to respond,” said Ed Cotton, director of strategy at Butler, Shine, Stern and Partners.

Because the marketing appeal is built into Groupon’s product, he explained, it doesn’t have much need for what Madison Avenue specializes in: the creation of brand images and strategy, and distributing them through paid media.

Groupon, which takes a percentage of the revenue generated, boasts an advantage in the world of branding: the social aspect of its service.

Each day, a Groupon editor chooses a bargain at a steep discount that’s e-mailed to subscribers. The deal “tips” (or goes into effect) only when a critical mass of people buy it. This helps encourage viral pass-along (although the service has grown so big that its deals tip more than 95 percent of the time). The offers themselves are often for social activities—eating out, renting bikes, going to a comedy club—that also tend to promote sharing.

Aaron Cooper, svp of marketing at Groupon, says there’s no need to hire traditional marketers, as the firm believes it knows how to market itself better than agencies.
“When you deeply understand your customer and product, you’re going to be better, there’s no doubt. There’s no way that can be communicated by weekly phone calls. You just miss too much,” said Cooper, who arrived at the company two-and-a-half months ago following five years in online marketing at Orbitz. (Groupon is growing so fast that Cooper notes he’s been there longer than most of his colleagues.) At Orbitz, Cooper also focused on building in-house marketing capabilities without relying on outside agencies.

But unlike the wave of Internet juggernauts built on communication, like Google and Facebook, Groupon has not shied away from advertising, and its ads are ubiquitous on Google’s ad network. According to Nielsen, Groupon served more than 600 million U.S. display-ad impressions in August. (The company won’t reveal its online advertising spending.)

Cooper, who calls Google “a huge partner,” says they are not relying on a spray-and-pray ad network approach and self-service ad platforms. Groupon has also inked deals with sites like IAC-owned Evite, which shows a Groupon deal when users respond to an invitation. And it courts national deals, such as a Gap promotion in August that saw 400,000 coupons redeemed and netted the company $11 million in revenue.

It’s also riding the wave of earned media with a formidable PR operation that includes its “Live Off Groupon” challenge, which came from CEO Andrew Mason.

The winner,  Josh Stevens, is trying to live off Groupons for an entire year. He’s garnered 1,900 Twitter followers, nearly 8,000 Facebook Likes and, more importantly for building Groupon’s brand outside the Web crowd, appeared on a Today show segment in May. The idea is to not only help build awareness of the service but also further cement its quirky brand image, said Cooper.