Who knows if the rumors about Google lining up to buy Groupon are true or not but there is usually no smoke without fire in these cases. The rumored figure for “the fastest growing business ever” is around the $3 billion mark but I’m not sure this is the perfect fit and I can see problems for both sides if this deal was to go through.
When it comes to acquiring start ups Google have not always been the best at getting them integrated with their own services or backing them to the full. Just look at how long it took to get grand central turned in to Google Voice or ask the Foursquare guys what Google did to their first hot start up Dodgeball. The key to the ongoing success for Groupon is speed and how quick they can roll the service in to other cities and countries. Competitors are springing up all over the place and Groupon need to keep growing as fast as possible and having the distraction of a complicated deal might not be the best thing in terms of their growth.
The problem for this sector is that margins will get squeezed due to the fact that the business model could not be easier to copy. Competitors are already popping up all over the place with a mixture of carbon copies and more niche plays popping up in every country in the world. The margins have been great at the start but margins will get squeezed more and more as the competition tries to undercut each other. This is very much about a race to the bottom. I believe Google could be buying the company at the highest possible valuation.
Google are about to launch their new social strategy including Google me and a social gaming platform and probably think Groupon would be the perfect compliment to these other social tools. Although Groupon involves lots of people and social elements though it really relies on email as the primary point of contact with their customer. Who knows what the new social efforts from Google will look like but I’d be far more excited about the self serve deals platform that Facebook unveiled a couple of weeks ago. Google does like making money though and they could just be buying this as a standalone money making machine that has nothing to do with their other social efforts.
Google is great at numbers and technical problems but Groupon is not something that you can easily automate. It takes huge amount of sales staff to get the deals in place and it’s not an automated process like most of Google’s other products. There have been some noises about introducing self service platforms around Groupon which would make a lot of sense and allow the business revenues to scale at an even bigger pace but we know that Google’s strength is numbers and data and not people businesses.
The big question that people have to ask is why would you sell the fastest growing business? To start a bidding war? Because you knew it didn’t have the legs long term? I know people enter business for different reasons but If I owned the fastest growing business ever that had the sort of revenue and traction that Groupon has I wouldn’t want to sell it to anybody. Having said all of that $3 billion is not a small amount of cash and is more than enough for the Groupon team to enjoy the rest if their lives with.
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