Groupon announced on its blog yesterday that it’s going to obfuscate the numbers shown in its Deal Counter, which shows how many of each deal sold. It’s the right move for Groupon.

I noticed this in action several weeks ago when I looked at a few deals. I didn’t write about it because it didn’t seem like a big deal to me. Groupon is just preventing competitors from getting competitive intelligence on its business and the media from jumping to inaccurate conclusions based on faulty interpretation of data collected by third parties like Yipit.

A tipping point for this likely was all of the crappy coverage around Yipit’s revenue data claiming that LivingSocial’s revenue grew five times faster than Groupon’s in September.

That makes for a great headline and it’s technically true. But in every meaningful way, it’s not true.

Unfortunately, too many journalists don’t know the nuances of statistics and the intricacies of the business models behind the companies. TechCrunch got it mostly right in the details of its story, but the headline was largely linkbait.

There are two fundamental problems with the 5X number:

• LivingSocial’s September revenue growth was largely driven by the Whole Foods deal, a deal in which I believe LivingSocial sold Whole Foods gift cards for about half what they paid for them. Of course people  bought it! It doesn’t reflect the fundamental value of the LivingSocial product. If you back that out, LivingSocial’s growth rate drops from 32% to less than 10%.
• It’s harder to grow percentage wise when you’re a lot bigger to begin with. Groupon’s August revenues were 3x that of LivingSocial’s. In actual dollar terms, a 1% growth in Groupon’s revenue is equivalent to a 3% growth in LivingSocial’s revenue. If you believe in the Daily Deals space*, Groupon is unquestionably the better company.

Beyond the problems with the number itself, there is the fact that Gross Revenue Numbers Don’t Matter.

This is a problem that I’ve been harping on for more than four months. I even cited selling cash equivalents for half of cost as a potential problem. Reporting gross revenue encourages the kind of stupid revenue buying that LivingSocial has engaged in. The fact that media keep playing along with such tactics makes it even more worthwhile.

Groupon was recently forced by the SEC to restate its financials based on the amount of revenue it gets to keep, not what it charges consumers. That’s what really matters.

If LivingSocial booked revenue according to those same rules, it would have shown a reduction in revenue of $10 million due to the Whole Foods deal instead of an increase in revenue of $10 million. (More likely, they would have called it a marketing expense, booked $0 as revenue and $10 million towards marketing.)

Unfortunately, the media gravitate toward the Yipit numbers because they are the only numbers that are available. Groupon reports numbers only quarterly (or whenever CEO Andrew Mason feels like writing an email with unaudited numbers). As a private company, LivingSocial hasn’t reported any numbers other than vanity statistics.

Tying back to my piece on Groupon and incentives yesterday:

• Media outlets have an incentive to write stories with big but bogus numbers because they generate clicks. LivingSocial sells 1 million in one day! LivingSocial growing 5x faster than Groupon! Groupon is the fastest growing company in history! etc.
• Yipit has an incentive to publish data because it gets it name out there. I wasn’t privy to the conversations they had with journalists. I’ve met Yipit COO Jim Moran and I suspect that Yipit provided all of the right caveats, they just fell by the wayside as the story circulated. Unfortunately, Yipit isn’t in a position to provide better data — just to explain the constraints of their methodology.
• Groupon has an incentive to stop putting out data that will be misused by people to make its business look worse than it is. Unfortunately for them, I suspect that people will just use the lower numbers because that’s what’s available and make the asterisk on the data’s validity slightly larger.
• I have an incentive to not write about the other data I wouldn’t publish if I were in charge of Groupon because that data is helpful in my reporting and analysis.

*On the off chance that you haven’t read any of my previous analysis, this is by no means an endorsement.