amrita Groupon rejects Google’s hand in marriage and shuns $6 Billion

Google has quietly slipped from being the #1 most visited site in the world to handing Facebook the throne. Twitter isn’t far behind either. Today it is #2 most searched site and Google is panicking.

It has already struggled for a while to create a major presence in social networking – users are spending more time on the likes of Facebook, Twitter and LinkedIn. Moreover, pre-emptive search marketing tactics are taking over and Google is afraid its most prized commodity – search – will not be as valuable anymore.

Their other major gap is in local consumer data. Google had hoped to satisfy their hunger for coherent local data by trying to acquire Groupon.

Groupon is essentially an email marketing company that was first-to-market a cool new concept of delivering local deals to consumers. Groupon popularized this concept of delivering the latest (and now personalized) deals to consumers by cleverly leveraging economies of scale.

The nature of Groupon’s business dictates that they develop great local relationships. It also ensured they collect and mine as much information as possible about their users including their habits, locations, preferences, trends and other demographics.

Even with a myriad of imitators, Groupon has still retained their #1 position in this space, mainly due to their diligence in maintaining and analyzing the data they possess and also because they understood the fundamentals of getting buyer commitment. Let me explain: the Groupon deals only go through if there is sufficient demand for the product or service provided by the vendor, within a specific time period. A sense of urgency is suddenly created and Groupon is able to facilitate timely commitment from the consumer – benefiting both the vendor and the consumer.

Google recognizes this. And they want to possess that data and brand loyalty.

Groupon claims their revenue is $2 Billion a year and rejected Google’s $6 Billion bid so matter-of-factly, that even Google might be stunned. I think Groupon’s gross profit is probably closer to $800-$900 million, but even so, rejecting $6 Billion couldn’t have been easy.

But Groupon is no fool. They know how valuable a support they can be to Google’s Adwords service – allowing vendors to deepen their existing relationships with Google. Not to mention the loyalty it might bring back to Google, the same loyalty they have lost to the Facebooks of the world. Groupon also knows they would be quite complementary to Google Places as well as Google’s new service Hotpot.

Integrating Groupon with Google could be a great deal for everyone. Even us. But it would be AWESOME for Google. In such a situation, who can blame Groupon for turning their nose at $6 Billion.

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3 Responses to Groupon rejects Google’s hand in marriage and shuns $6 Billion

  1. Let me be the first to comment on this one. Prove me wrong, but with a backing of $170M, I think Andrew Mason is nuts for not accepting this offer. As he admits himself, GroupOn is not a patentable business model or technology and thus can be subject to underpricing in the near future. We all know that advertising costs are what small, local businesses are concerned about and we have heard already that businesses were concerned about the large discount GroupOn retains. IMO not a model for repeat business. Will there be a saturation point for local advertising? Most likely, but the jury is out on that.

    • amrita says:

      Markus – Good call about the possible saturation, I agree that is very possible. But so far Groupon has proven to be a bankable partner. As far as the acquisition is concerned – remember that Google doesn’t want them to ‘grow’ their existing business. Rather Google wants them for their data and what that data represents.

  2. Nishant Punia says:

    Just another view. What if this all rejection thing is a well co-ordinated move involving parties to ‘set’ and ‘anchor’ the value of Groupon in the market? I mean, if Google says $6bn, there has to be ‘some merit’ to the valuation.. Isn’t it, which means if any company now wants to acquire Groupon, they have to shell out more than that. Definitely this announcement has made Groupon books fatter with ‘Goodwill’ Assets!!

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