Why Google Should Buy a Groupon Clone

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After being turned down by Groupon, despite offering a reported $6 billion for the Chicago-based, group-shopping phenomenon, Google is apparently shopping around for a similar company to buy, according to a report in the New York Post. While the report could be a ploy on the part of some smaller competitors to bump their names to the top of the acquisition list, there are some good reasons for Google to consider doing exactly that. A marriage of local advertising and social shopping could fill a big hole in the web company’s portfolio, if it is handled properly.

The fact that Google was willing to spend as much as $6 billion for Groupon — which would have been almost twice the size of the company’s largest acquisition to date, the $3.1-billion purchase of DoubleClick in 2007 — shows that the search giant knows it has some holes to fill, and was prepared to spend a bundle to do so. Groupon chose to remain independent and continue to scale, which will probably require more funding on top of the $165 million or so it has already raised, but there’s no reason why Google couldn’t accomplish the same things with a smaller competitor.

As I argued when the Google purchase rumors first appeared, putting something like Groupon together with the web giant’s local advertising efforts — as well as its ability to fine-tune algorithms around user behavior — could produce something pretty powerful. Google has been building out its hyper-local advertising efforts through Google Place Pages and other efforts, but such a purchase could take those efforts to a new level. If there’s one thing Groupon has shown, it’s that local merchants are looking for ways to target consumers, and group-buying offers that in a very simple way. (I discussed Groupon in more detail in a recent GigaOM Pro report, subscription required).

So which Groupon competitor should Google buy? Amazon recently funded LivingSocial to the tune of $175 million, so that seems to be an unlikely choice — although theoretically, Google might be able to convince Amazon to sell, it would probably take a substantial premium. Tippr is another social-shopping engine with some potential; the company runs its own group-buying operation, but its primary business is helping retailers and website publishers set up and run their own white-label Groupon-style platforms. That might make for a good fit with Google; just as the company offers the Blogger platform for publishing and Google Apps for businesses, it could theoretically offer Tippr as a service. Also in the running are smaller competitors such as BuyWithMe, HomeRun and SocialBuy.

As more than one critic of Groupon has noted, there aren’t really a lot of barriers to entry in the company’s business, which is why Groupon is spending so heavily to try to get large enough that its scale becomes a competitive advantage. There are only a few companies that can generate that kind of scale easily, and Google is certainly one of them (Amazon, Microsoft, Yahoo and AOL are some of the others who could do this). If the web company does decide to acquire one of the smaller group-buying operators, watching Groupon go head-to-head with Google — and possibly Facebook as well — could make the social-shopping space one of the most interesting battlegrounds of 2011.

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Post and thumbnail photo courtesy of Flickr users Olaf Gradin and Groupon

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