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When Groupon goofs, everyone notices

Sure, it's a young company, but unlike many of its peers in Silicon Valley, the mistakes of its youth are visible to average consumers.

Few companies have changed the e-commerce world in the recent past as much as Groupon, a local-deals broker that has gotten the nation hooked on half-price massages, discounted restaurant bills, and packages offering rock-climbing and yoga combos (though, ideally, not at the same time). It's earned rave reviews for customer service, thanks in part to its hiring of underemployed comedians as copywriters and service reps.

Yet Groupon has taken a beating in the past few weeks--not in terms of traffic, and not from the rise of any of its several dozen smaller competitors--but just because of a few bonehead moves. Its much-talked-about television ad campaign, kicking off with a Super Bowl spot, used C-list celebrities to mock charitable donation ads, and was seen by many as so tasteless that the company pulled the plug on it. Then, Groupon users nationwide were furious when a Valentine's Day-themed deal with an online flower retailer redirected users to a site with jacked-up prices, rendering the discount useless and raising concerns that Groupon isn't properly vetting its partner retailers.

The problem for Groupon isn't that it's making these mistakes. It's that it's making them as a company that, while barely over the age of two years old, sends deals to more than 60 million e-mail in-boxes, has sold more than 39 million "deals" according to new internal data, and plans to file for an initial public offering later this year. To put things into perspective, when Facebook was this age, not only was it a year prior to the social network's landmark launch of its developer platform, it wasn't even possible to register for Facebook unless you had an e-mail address from an approved school or business.

The rise of Groupon has been unlike anything else we've seen in the recent boom in tech companies for a lot of reasons, not the least of which is the fact that it rocketed smack into the mainstream without much time in the domain of insidery early adopters.

They say the Bay Area's technology culture is a bubble--not necessarily in terms of overvaluation, but in terms of isolation. It's more like a cocoon. Companies that grow there are, typically, entitled to a period of quasi-gestation in which they can screw up, and people will be vocal, but those who are actually noticing and listening are a relatively restricted set. Twitter's servers used to go haywire on a near-daily basis, but the service was so restricted to tech enthusiasts that pundit Robert Scoble was its most popular user. Facebook, though founded in a college dorm on the East Coast, kept its numbers low with the e-mail address requirement and was well ensconced in Valley culture by the time it opened up the gates.

Groupon, firing out e-mails to the Deep South and Mountain West and Mid-Atlantic from its sprawling headquarters in Chicago, was not afforded that privilege. It certainly has a quirky start-up attitude--but that's exactly what clashed with the "real world" when the offbeat humor of its Super Bowl offended the mass market. And it seems to be grappling with the tech-industry vision of being a platform rather than a media company, connecting advertisers with customers while remaining the universally appealing brand humming away in the background. The heavy publicity surrounding the bogus flower deal last week might hint to some that Groupon is focusing too much on being everywhere and losing its focus on the quality of its content.

In contrast, when Facebook released its disastrous Beacon advertising product--in late 2007, when it had roughly the same number of users that Groupon does now--its users largely didn't notice. The product was launched at a small press conference in New York, subsequently ripped apart by the press, and was watered down within weeks. The average Facebook user likely never even saw a Beacon ad; true mainstream interest in the company's inner workings didn't take off until well over a year later. Facebook was still very much in the cocoon.

Groupon's got a bit of a catch-22 on its hands. It's big and obviously proud of its choice spot in the mainstream and outside-the-Valley attitude--could you ever see Facebook, Twitter, or LinkedIn buying a Super Bowl ad? And Groupon is big enough for the occasional slip-up to have truly visible reverberations. Still, it's not so big that a PR crisis could be swallowed up by the sheer size of the rest of the company. Google's launch of Google Buzz was disastrous, but the fate of the Mountain View, Ca., conglomerate was hardly resting upon the lightweight, experimental product. Caught in between these two phases of development, Groupon is like a kid who grew too tall too quickly and now finds that everyone notices when he trips or hits his head on things.

Research firm YouGov's measurement of Groupon's 'brand buzz' around the time of its Super Bowl ad. YouGov

The good news for the company is that its loyal users seem to have gotten over the Super Bowl revulsion pretty easily, and that CEO Andrew Mason's frankness about pulling the ad campaign seems to have helped. YouGov, a research firm that measures "brand perception," plotted the positive and negative buzz about Groupon on its scale of 100 (very positive) to -100 (very negative), and found that in the days following the Super Bowl ad, Groupon's score fell from 14.4 to 5.3 but then shot back up to 26.6 after Mason wrote an apologetic blog post.

YouGov hasn't yet measured the change in Groupon brand perception in the wake of the botched flower deal.

Both follies are high-profile shortcomings that customers ought to forget about the next time they see a killer deal that they simply can't pass up. One of Groupon's many competitors, LivingSocial, might have something to say about that: While it has never put forth an explicit "we're better than Groupon" message, it's proven remarkably savvy at weaseling its way into situations where it's getting pitted against the bigger site. On Super Bowl Sunday, LivingSocial purchased a pre-game ad--something that probably wouldn't have happened if Groupon hadn't been advertising during the game.

Previously, LivingSocial had raised a bucketload of funding from and then, perhaps thanks to the new business relationship, offered a killer deal and attracted plenty of new members in the process. In late January, traffic firm Experian Hitwise reported that after the Amazon deal, LivingSocial went from pulling in one-tenth the traffic of Groupon to nearly half.

But in aiming straight for Groupon's market, LivingSocial is in the same spotlight. The moment it messes up on something--and knowing young technology companies, it will--that's going to be Groupon's gain.

Either way, it's a rare look at the rise of a Web company that's grown outside the industry's famed bubble, or cocoon, or whatever you want to call it.