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Summary:

So Google is launching Groupon-style discount program for small businesses known as Google Offers. But does Google have what it takes to build up that kind of service on its own? Probably not. Which is why the company should still think about buying a Groupon clone.

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Google is launching — or at least beta-testing — a Groupon-style discount program for small businesses known as Google Offers, something that was first reported by Mashable and then confirmed by Google in an email to Search Engine Land. The program appears to be identical to those run by Groupon or one of the dozen smaller group-buying startups, in that it allows merchants to offer a discount that only gets triggered if enough people sign up for the deal. But does Google have what it takes to build up that kind of service on its own? Probably not. Which is why the company should still think about buying a Groupon clone.

The web giant, of course, made a highly publicized bid to buy Groupon late last year, but its $6-billion offer was rebuffed and the group-buying startup decided to pursue an IPO, which could value the company at more than $15 billion. In the aftermath of the failed acquisition bid, Google executive Marissa Mayer — who has moved on from being in charge of search to take responsibility for the web company’s local and mobile efforts — suggested that Google would likely try to put together its own group-buying service. At the time, I argued that the company should just buy a clone instead.

That’s not to say Google needs to buy a Groupon competitor because there’s any kind of special technology or secret methods involved in this business — if anything, it has virtually no barriers to entry whatsoever, which is why some are skeptical about Groupon’s $15-billion valuation. All that is really required to make such a business work is scale: lots of sales reps making contact with local businesses, lots of people sending out emails and making sure orders get filled, etc. Groupon has more than 3,000 employees, and is continuing to hire at a rapid pace in order to get that kind of scale, and it has built up an email database of more than 50 million subscribers.

Google, by contrast, may be a gigantic search company with billions of dollars in revenue, but it has very little presence in local markets and very little pull with small businesses. It has made some inroads into that area with its Place Pages feature, which allows companies to claim their location and then add information to it, but it’s not clear just how successful that has been. And building scale in hundreds or even thousands of small cities and towns, and reaching out to hundreds of thousands of merchants and retailers, isn’t something you can just generate overnight. Google would be better off making some acquisitions to help it achieve that kind of scale quickly.

That’s because it’s not just Groupon that is in this game: LivingSocial has some significant backing from Amazon, thanks to a $175-million investment, and the company just finished demonstrating the power of that partnership with a massive offering of Amazon gift cards, selling more than one million in 24 hours (although it has been suggested that not all of those purchases were legitimate). Amazon has the buying power, the connections to millions of consumers and the marketing heft to be able to give LivingSocial a substantial leg up in the race for scale in this business.

The bottom line is that Google needs to get the same kind of scale quickly, and there’s no indication that it has what it takes to do that, even with a brand-new CEO.

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  1. Sales team argument Friday, January 21, 2011

    This is an argument for buying a sales team, not a site. As LivingSocial’s Amazon gift certificate deal demonstrated, the brand name of the seller is secondary to the brand name of the deal. Buyers care about savings themselves, not the coupon company.

  2. Google has had some clunkers, but I think this one has a chance. However they should leave the Google brand to search and come up with new brands for stuff like this. The same way Android and YouTube have their own standalone brands

  3. Mike Langford Friday, January 21, 2011

    I disagree. Beyond Google’s millions it has something that Groupon and all of its clones lack. Distribution.

    Google has built an amazing pipe for delivering targeted ads. Everything it does supports this model of serving the right ad to the right person at the right time. AdWords, AdSense, GMail, Maps, YouTube, Android and so on are all part of one big pipe.

    Companies of all sizes user AdWords and AdSense to serve up ads. This includes local restaurants, hair salons and stores. Now, those same vendors will have the option of creating a Google Offer in lieu of or in addition to their current ad buy.

    Google also has one other thing that Groupon, Living Social and the rest lack…near 100% brand recognition. Ask your Mom or the person standing next to you in line at Target if they’ve ever heard of Groupon. Then ask if they have heard of Google.

  4. Matthew, as usual you pick an interesting topic and make an interesting case. And as usual, I disagree…

    If scale is Google’s problem, and acquisition is the answer, then which specific firms should Google think about acquiring? Are there “local offers” shops out there that have already achieved significant scale?

    If there is even one such firm, can Google be confident that it wants to be acquired? Or will it use interest from Google as a means of publicity on the way to an IPO?

    My own recent post on local offers is:
    http://changingway.org/2011/01/21/offers-offers-everywhere-google-groupon-and-living-social/

  5. It’s a bogus statement. Google has everything to make it a success – brand, technology, scale and the spine of everything – adsense, adwords and maps. The only company that can counter that is Facebook but it’s still way off reaching the SMB market.

  6. Google has offices in most big cities and has pull from small and medium businesses throgh the sales and customer service of AdWords and Adsense. Perhaps they are not present in some cities, but they have a big commercial apparatus they can use and adapt to fit Google Offers’ needs.

  7. (Less Than) A Month In The Life of Tech: Tech News and Analysis « Friday, January 21, 2011

    [...] them and instead went ahead and raised almost a billion dollars and are getting ready to go public. Google launched Google Offers. And Amazon, the stalwart of e-commerce used LivingSocial to hawk a lot of Amazon gift cards. Now [...]

  8. Let’s not forget that Google has presence and offices in many large cities. They focus mainly on comercializing and offering customer support to customers using the Adwords and Adsense services. Many of them are small and medium local businesses. So adapting those offices or expanding them to include staff to handle Google Offers could mean the rapid growth Google needs to compete and perhaps beat Groupon.

  9. SearchCap: The Day In Search, January 21, 2011 Friday, January 21, 2011

    [...] Why Google Still Needs to Buy a Groupon Clone, GigaOM [...]

  10. I disagree. Look at the mile wide lead the term “groupon” has over similar terms such as “deal of the day” or competitors like livingsocial http://www.google.com/trends?q=groupon,+deal+of+the+day,+livingsocial (courtesy @deekay). Groupon is now a category defining ‘brand’ (think Mobile Oil or Xerox or walkman) and as long as they execute, they will present a big challenge to #2, 3 and others in that category. Google was right to bid 6, just not aggressive enough to bid 10 and own it. They were bold when they pursued YouTube, not bold enough it seems on this one.

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