Wednesday, December 01, 2010

Groupon is not Googly

It is being widely reported that Google is bidding as much as $6B for Groupon. From an article in the New York Times:
Google has offered Groupon $5.3 billion, with the promise of $700 million in performance bonuses for management.

It could ... give Google access to a large sales force ... Groupon has 3,100 employees ... [and] 35 million [Groupon] subscribers worldwide, with 17 million in North America.

11 months [ago] ... Groupon ... [had only] 200 employees ... [Now] about 1,000 people work in the Chicago office and some 2,000 more are spread across its sprawling worldwide network, which includes the employees of its recent international acquisitions, ClanDescuento and Citydeal.de — group-buying sites in Chile and Germany. According to Groupon, the company is adding more than 200 employees a month.
It is unclear to me why Google is so interested in this company, so much so that it is willing to pay nearly twice what it paid for DoubleClick.

Google helps people find information. It's mission is "to organize the world's information and make it universally accessible and useful." In advertising, Google helps people find millions of interesting small businesses and sort through billions of products to get what they need.

Groupon is very different. Groupon runs one deal per day per market. There is no technology at Groupon, no information finding, no long tail, no massive data stream. What there is is a large (but very recently hired) sales force, significant revenue, and a decent subscriber base. Those are the kinds of things that looks good to MBAs building spreadsheets and empires, but are not deeply aligned with Google's mission of organizing information and making it useful.

It looks like this is a done deal at this point. But Groupon is not Googly. I fear these cultures are not going to blend well when mashed together. I wish these two luck, but this looks to be more like the kind of union where the bride walks away with the house and the dog in a few years than one where both sides thrive.

Update: It appears it was not a done deal after all.

13 comments:

niraj said...

- Google has $30B of cash sitting there doing nothing. Groupon will atleast get >1% returns.

- Besides Groupon is where google is ability to handle scale. Deals at large scale.

Chris said...

Hi Greg,
Really enjoy reading your blog. I agree that Groupon isn't consistent with other Google acquisitions that relate to technology. So I guess they are buying loyal users and hope to add better targeting. As you mentioned "There is no technology at Groupon".

Frankly, I'll be glad once basic targeting is used on Groupon. As a man, I'm tired of seeing deals for facials and day spas. But I have bought deals for snowboarding lessons and golf tee times.

mrg said...

e.schmidt has been talking local for the last year. Investments in mobile are starting to fructify and this play is aligned.

The brin/page koolaid is only one tentacle now. Look through alot of the patents granted in the last 24 mo. and its apparent that there's a whole 'nother game of being the market maker/owner for adverts.

Elko said...

Not the first time I've seen Greg take a swipe at MBAs. Over half the MBAs I know are geeks. LOL. I'm sensing a complex.

Google is a publicly traded company and its management wants to grow the share price. Adwords and Adsense aren't going to float the ship forever.

Offshore wind farms sound awesome, but shorter term ROI in emerging market niches might help keep share price rising, which in turn keeps employees rich and happy, and offers new applications of existing technology.

God forbid they dividend out the cash instead.

The good news is that if the marriage works, we all win. If it doesn't, there are hundreds of groupon clones for us to take advantage of.

Greg Linden said...

@niraj Google can get 1% returns risk free by keeping their cash in the bank. It doesn't make sense to exchange a risk free 1% return for one with lots of risk.

@Elko I have an MBA and know many MBAs. Like niraj, I think you're missing the risk in your discussion of the potential return on this deal. And, I think the risk of buying a company outside of their mission and with a different culture is substantial. As for dividends, as a public company, if Google cannot find a better use for the cash, they are obligated to issue dividends, though I agree that there should be better uses for the cash. I'd recommend spending their cash investing internally in their own employees and buying small startups with strong developers, interesting technology or data, and well aligned cultures.

Dinesh Vadhia said...

It does appear misaligned with Google's core depth but it could be the largest signal to date that a shift has been taking place at Google for a while.

Mobile and mobile commerce appears to be where Google is heading. They've ramped up their shopping site. The next Android includes support for Near Field Communications which will make purchases at brick and mortars a snip. Marissa Meyer's move to the local search cum recommendations cum serendipity engine group. And, probably other events.

Another angle could be to keep Groupon out of the hands of Facebook, Yahoo! and Microsoft. But, like you said, how difficult would it be to replicate Groupon. Maybe, Google wants a head start.

Interesting times.

Anonymous said...

I think you are missing the main point here. The culture might be different but the business goal is the same. Both companies sell advertising except that Goupon to businesses has a better ROI than Google. So Google is not trying to buy Groupon because they feel like spending money but because Goupon (if left alone) could take a big chunk of Googles bread and butter. That's what this is all about.

Anonymous said...

@Dinesh Vadhia
"But, like you said, how difficult would it be to replicate Groupon. Maybe, Google wants a head start"
If it was that easy, Google would have been successful in duplicating twitter and facebook. The market is very different. Once you have the customer base, treat them well and continue to innovate, you make it hard for duplicate to succeed. So the fact that Google has a lot of money doesn't mean they are successfully duplicate it. From their track record in relation to duplication, I will say they will fail at duplicating GoupOn unless GroupOn screws up.

Greg Linden said...

Hi, Anonymous. I'm not missing the point, I just disagree with it. In particular, I'm suggesting that the difference in culture and mission makes this big deal very risky. Most big acquisitions fail to generate value, and it seems very likely to me that this one will fail to generate value too.

But, sure, it's worth looking at other points of view here too. Here's a few other good opinions on the deal, the first two mostly positive, the last two mostly negative.

http://blogs.reuters.com/felix-salmon/2010/12/03/why-googles-groupon-buy-makes-sense/

http://dealbook.nytimes.com/2010/12/01/googles-bid-for-groupon-is-seen-as-a-bargain/

http://techcrunch.com/2010/11/30/why-google-groupon/

http://searchengineland.com/google-would-be-crazy-to-spend-5b-for-groupon-57275

Dinesh Vadhia said...

A thoughtful analysis:
Groupon is Google’s $6 billion Facebook hedge at http://venturebeat.com/2010/12/03/groupon-is-googles-6-billion-facebook-hedge/

Greg Linden said...

Another good article:

http://www.businessinsider.com/googles-groupon-bid-signals-desperation-loss-of-confidence-2010-12

Dinesh Vadhia said...

It appears that the deal is off for now but then again it could be back on next week.

It is a totally odd acquisition to pursue because Google could build a similar service within a few months which would have higher branding power than Groupon. But, it is mostly odd from a strategic sense by moving so far away from its core.

Perez said...

Groupon’s current $25 billion pricetag is flawed for a number of reasons!
Groupon Priced at $25 Billion