While respected analysts question the soundness of deal-based social buying, Google has reportedly offered a staggering $5.3 billion for industry leader Groupon.
The deal -- which sources tell BoomTown could go down as early as Wednesday -- "will move the search giant instantly to the top spot in local commerce online and give it huge troves of data about consumer buying habits and merchant information across the globe."
As such, "It is a killer move for Google--despite the high price-given it has long tried to enter the local advertising space, with decidedly mixed results."
"Industry observers say Groupon's ability to straddle the worlds of online retail and brick-and-mortar commerce makes it attractive to a range of companies" -- and Google in particular -- notes the Chicago Tribune.
"If Google buys Groupon for $5.3 billion ... it would go down as one of the most spectacular venture investments since, well, probably Google," writes The Wall Street Journal.
No doubt, combined with its pending acquisition of travel data leader ITA Software, a Groupon grab will send government regulators and antitrust lawyers into a tizzy.
Antitrust concerns aside, Search Engine Land's Greg Sterling says Google would be crazy -- with a "capital C" - to drop $5 billion on Groupon.
"Google is sitting on more than $30 billion in cash so maybe $5 billion isn't so much in that context," writes Sterling. Yet, despite a strong revenue stream and immediate control of the local deal space, he suggests: "Just as we now see 'check-in fatigue' with Foursquare et al, there is what I will call 'deal fatigue' emerging."
On the contrary, "It would be worth every overpriced penny," insists Mashable. "Groupon has an asset that Google covets so highly that it's willing to pay billions: local advertisers."
As TechCrunch reasons, what seems clear is that "buying Groupon would be a very risky $5 billion bet for Google in an unproven area outside its sweet spot of search."
COMMENTARY: I think that Groupon's success is more evidence that the Great Recession has created legions of frugal consumers looking for a deal. You see this not only online (I just got email offers from Borders, Amazon, Verizon and Toshiba today) but in red tag sales at retail merchants stores everywhere. It is Black Friday and Cypher Monday every day now. Whether consumer's will eventually get tired and get deal fatigue remains to be seen.
I joined Groupon and now get a daily deal in my email box like clockwork, but most of those offers are worthless to me. Deal relevancy is a big problem with Groupon. Their revenue model appears to be simply to send its members as many offers as possible, with the hope that enough consumers will take the bait and participate in the group buying promotional offer. They really don't appear to be too concerned with what kind of offers their members want. I do eat out frequently, but I hate shopping, so it may be that they don't have sufficient information about my purchasing behaviors to target me with relevant offers.
Getting back to Google's acquisition of Groupon. This is just another case of Google's desperation to get into social networking at any cost. It's much cheaper (supposedly) to acquire a social group buying company like Groupon, than build one from the ground up. They tried the social networking bit on their own with Buzz, and it failed miserably, and Google Me, their top secret social network has been delayed until April 2011. If the rumors are true that Groupon has several suiters, this is only going to drive up Groupon's sales price, and at the reported $5 billion price tag Google is willing to pay, then Groupon has succeeded in driving up the price from the original $2 to $3 billion range.
I will say this for Google though, Groupon is a great fit with Google Places, which offers Google users promotional deals from local merchants. Groupon is also making a killing on their cut of each group buying promotional deal. Groupon has also pissed off 40% of its merchants, who claim they have lost money on the promotional deals they ran through Groupon. This brings into question, whether the Groupon revenue model is sustainable, since it may not lead to future incremental sales and attrition levels are too high to maintain a large loyal following.
God, I hope Google knows what they are doing.
Courtesy of an article dated November 30, 2010 appearing in MediaPost Publications Around The Net
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