Even if many might have predicted it, Andrew Mason announced that Groupon will not be going to Google.
Despite the rampant takeover gossip which sometimes took absurd proportions in the last weeks, Exciting Commerce has decidedly taken a back seat on the matter. We just found it extremely unlikely that Groupon was so unconvinced of their successful model that they would feel it necessary to bind themselves with Google at such an early stage.
While Groupon would have been a strategic asset for Google, the best argument in Google’s repertoire was simple cash. But what is a rumoured $6 billion and quick exit compared to a (live shopping) idea which could really change the world?
By now its clear that Andrew Mason and the leaders at Groupon weren’t swayed by the charm of Marissa Mayer, who was recently put in charge of location based services at Google.
Groupon stays independent and has decided to go it alone (at least for now). An IPO next year still remains an exit option for the investors.
Albert Wenger from Union Square Ventures has published one of the more substantive analyses of the situation (“Google Buying Groupon is a Flawed Idea”)
"On one hand I can understand Google’s aggressive interest in Groupon. Groupon appears to be one of the few companies that has cracked the code on making money from local businesses. But there are at least two fundamental compatibility problems.
First, Groupon is a feet on the street business employing over 3,000 people globally. So at $600 million in annual revenues, that amounts to only $200,000 of annual revenue per employee. Google on the other hand does about $30B in revenues with around 25,000 employees, which works out to $1.2 million in annual revenue per employee and that’s including all the employees that work in Google businesses that produce no revenues at all.
In other words, Google is a technology company and Groupon is a people company. Business Insider made this point when the acquisition rumor first surfaced."
Many still categorize Groupon as a “local deals” company and miss the fact that Groupon has significant infrastructure assets in the form of a worldwide sales network. Even today there is practically no other online company operating at the same level. In the first step they have aggressively expanded their sales force, next they are converting to a form of self-service system with Groupon Stores.
As a deal platform, Groupon is the eBay of the next generation.
With the aggressive rollout of Groupon Stores and the related Deal Feeds, Groupon in the best case will be able to generate a lock-in effect with merchants which will help block potential competitors. If successful, the added value for the users should also not be underestimated. Besides the significant revenue potential for Groupon, this could also be one of the motivations for Groupon to move in this strategic direction.
Groupon plans (and has begun to) build a two sided market from its service, where increasingly more merchants are pulling in more customers and vice versa.
Success with this Groupon strategy is connected to a big “if”: Groupon needs to control the newly created dynamic.
As was discussed in Exciting Commerce’s German blog, the new subscriptions in the form of Groupon Stores could in the worst case result in merchants simply handing out deals to regular customers instead of generating new ones.
In the best case, the Groupon merchants will build a stable consumer loyalty and provide impetus for continual reactivation of their customer base.
For now, Google will find it hard to establish a foothold in this market. Amazon has already laid its stake in Groupon’s biggest competitor, Living Social. Google may need to roll out its own sales infrastructure to make contact with the local businesses.
Underlining the potential of the live shopping market: According to the latest speculations, Groupon will by the end of the year have turned over $2 billion worth of Groupons.
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Originally posted in German by Jochen Krisch and Marcel Weiss, adapted for excitingcommerce.com by Jason Soo.