Inside Facebook

Groupon has signed an agreement to allow full service advertising services provider AdParlor to handle the local deals network’s entire Facebook advertising spend. The exclusive contracts represents tens of millions of dollars in spend, as Groupon uses Facebook ads extensively to drive email signups and sell daily deals.

However, Facebook’s own upcoming local group buying coupon service Deals will have placement in the news feed, so Groupon’s ads will soon have to compete with a more centrally visible competitor. This could drive up the cost per acquisition for Groupon, which could lead it to either advertise less or have to spend more with AdParlor to achieve the same conversion volume.

Groupon has been advertising on Facebook and using Facebook Connect for over a year. Now, Groupon’s API will be connected to AdParlor’s Facebook Ads API tool, which allows the company to A/B test tens of thousands of ad variants and dynamically shift budgets and optimize bids for maximum return on investment. AdParlor has one of the most efficient and sophisticated tools for attaining conversions via Facebook ads.

By relying on AdParlor, Groupon can increase efficiency and concentrate on other parts of its business. Facebook’s location, interest, and demographic targeting is crucial to Groupon’s advertising strategy, so it needs to continue advertising there even as Facebook prepares to launch a competing daily deals coupon service.

With Groupon and other daily deals providers relegated to the sidebar ad units and Facebook’s own Deals product front and center in the news feed. Therefore, the Facebook user base’s coupon needs might be met before users can notice Groupon’s ads.

Finally, the deal with AdParlor could lead other advertisers to assess their own Facebook advertising efficiency, and consider signing with AdParlor or another Facebook Ads API service provider.