Google Inc. (GOOG-Q555.71-26.40-4.54%) appears poised to make the biggest acquisition in its history, a proposed $6-billion (U.S.) purchase of what is, by some measures, the fastest-growing Web firm ever.
Citing unnamed sources, a number of news outlets reported this week that Google is in talks to purchase Groupon, an online discount coupon site that matches groups of subscribers with local deals. The purchase price, originally reported to be around $2.5-billion, now stands at between $5-billion and $6-billion, according to reports in The New York Times and The Wall Street Journal.
Representatives for both Google and Groupon refused to comment on Tuesday.
The Groupon purchase would give Google strong footing in the rapidly expanding local Internet advertising market, which tailors deals and discounts to users based on their current location. While Google still leads the world in traditional Web advertising, rivals such as Facebook have made significant gains in new and lucrative areas such as social and location-based marketing – two areas where Groupon operates.
“[Group discounts are] a new form of advertising that leverages social media,” said Chris Nguyen, founder of Toronto-based group discount site TeamSave. “And the best part about it is that it’s completely measurable marketing.”
The group-discount business model is fairly simple. In Groupon’s case, local businesses in more than 160 North American cities use the site to offer steep discounts and special offers, usually for 50 to 90 per cent off regular prices. However, the offers don’t materialize unless a certain minimum number of customers sign up, and users can only sign up for a limited period of time – deals typically expire after 24 hours. Basically, the site offers Web-based coupons to consumers, and exposure and economies of scale to businesses. In turn, Groupon takes a roughly 50-per-cent cut from all revenues.
At just under two years old, Groupon is growing at a quick clip. A funding round last April pegged the company’s worth at more than $1.3-billion. Unlike many other Internet services, which rack up millions of users but are unable to translate that following into profit, Groupon is already making money. In a recent cover story, Forbes magazine described Groupon as “the fastest-growing company … ever.”
A number of companies have launched similar services – this year, Canadian site Red Flag Deals launched its “Deal of the Day” service, which is similar to Groupon’s business. Facebook also recently launched a deals service in the U.S., tied to its Places feature, which lets users “check in” from various physical locations, such as coffee shops or university campuses.
Indeed, some analysts have cited the technical ease of creating a group discount site as a potential downside to Groupon’s business model. However the company continues to lead the burgeoning market, with more than 300 employees, many of them salespeople and copy writers, rather than technical staff.
Google’s own experiences with online coupons have been mixed at best. The company previously tried to use its maps service to let local businesses advertise special deals to users. However, the service required users to print and cut out actual paper coupons, and it never gained much traction. An attempt to buy local recommendations site Yelp last year also fell through.
For Google, the potential advantages of such a purchase are clear. Despite having the biggest presence of any company on the Web, Google falls behind competitors such as Facebook when it comes to social experiences – mostly, visitors to Google’s website simply find what they’re searching for and move on, whereas Facebook users spend a lot more time interacting with one another on the site. Groupon, through its knowledge of users’ shopping habits, gives Google a better look into consumers’ lives.
But Groupon’s most important asset is its presence in the local shopping market. Because the site essentially exists to cater to users in specific locations – by offering them discounts on nearby products and services – it has built close ties with local merchants. Those relationships are of great use to Google, which has largely refocused its strategy to the mobile Web, delivering services to users based on proximity – something that GPS-enabled smart phones have made much simpler in recent years.
But any $6-billion deal is bound to produce at least some regulatory headaches for Google. This week, the European Commission announced it would launch an antitrust investigation of the site. In the past, many of Google’s acquisitions have attracted attention from federal regulators, and a Groupon purchase may well do the same.
Sourced: http://bit.ly/g4ZLUk
Tags: deal of the day, facebook, google, groupon, places, red flag deals
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