Launched in November 2008, Groupon “features a daily deal on the best stuff to do, see, eat, and buy in a variety of cities across the U.S., Canada, and Europe.” (http://bit.ly/BlDQG) In April 2010, Groupon raised $135 million from Digital Sky Technologies, increasing the value of the company to $1 billion. So why is Google proposing a $6 billion deal for a $1 billion company?
1) Local Advertising.
In the frenzy of local advertising and geo-location apps such as Foursquare, Facebook Places, and Yelp, Groupon has found the right formula to get people to buy deals online. Its easy-to-use interface is one thing, but what really gets people to convert are the deals themselves. Groupon has un-matched expertise when it comes to delivering quality deals, but they also have an incredible relationship with thousands of restaurants, hotels, and other local businesses. This is exactly what Google is interested in. For a search advertising giant, being able to reach highly specified audiences is great, but to also provide them with interesting deals is even more valuable.
2) Numbers
Groupon expects to create $500 million in revenue this year and is on track to being a multi-billion dollar business in a very short period of time. Google’s deal is rumored to be finalized as early as the end of this week, but there is a small chance that Groupon might hold out on the search giant. Yahoo! has also previously tried to purchase Groupon with no success. Google’s “second attempt” deal also comes with an additional $700 million earnout based on performance.
Additionally, this deal has the potential for being Google’s biggest acquisition to date, nearly doubling the price tag they paid to get DoubleClick.
Will Groupon hold out like Facebook once did or will it let Google gobble it up? Would it suffer if it didn’t?
I find all the varying takes on the deal pretty interesting. I think the WSJ did a good job covering the story in yesterday’s paper offering up some of the strategic realities that confront Google making the acquisition petty much a necessity. There are debates about the whether or not the value is too hight, and good arguments on either side. Regardless the ongoing FB / Google war along provides some good insight to product managers, developers and marketers alike. Filling in the functional gaps or whitespace of these big players breads some excellent opportunity. What else would you call a 2 year old startup with about 170M in funding going for Nealy 6 billion?
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