Blog Post

Groping For Groupon: Local Deals Powerhouse In Play?

Stay on Top of Enterprise Technology Trends

Get updates impacting your industry from our GigaOm Research Community
Join the Community!

Groupon is having a double-barreled day in the spotlight, slammed on the tech side thanks to a Nordstrom Rack offer and an Oprah mention, and on the business side by speculation that Google (NSDQ: GOOG) has its eye on a different kind of deal with a much bigger price tag than $25 for $50 in merchandise.

One price being kicked around: $3 billion, thought to be the top of the range Yahoo (NSDQ: YHOO) is thought to have discussed earlier this year. But Kara Swisher says the sources who told her the search company and the local deals company were talking. put the amount “well above” above that.

Groupon, founded by Andrew Mason in 2008, has raised nearly $170 million, most of that in a $135 million round earlier this year led by Yuri Milner’s DST, joined by Battery Ventures. That funding, meant in part to fuel global expansion, was reportedly at a valuation of more than $1 billion. The profitable Chicago-based company’s 12-month revenues could be around $600 million, if the roughly $50 million a month in revenues kicking around is right. Its directors include Ted Leonsis and 37Signals co-founder Jason Fried.

Groupon grew out of The Point, a site that allows people to start campaigns for fundraising or action as a group but relies on hitting a tipping point. Eric Lefkofsky, who founded The Point with Mason, said, in a well-timed interview with the NYT, that the site was a failure until they combined shopping and social in what became Groupon. It has more than 300 employees in the Chicago office and, according to Lefkofsky, more than 2,700 around the world. He told the NYT: “Now, Groupon is a very well-run business with great operational control and a metrics-driven culture. As a result we have revenue, profits and cash flow.” It also has considerably more competition, with social shopping and local coupon sites cropping up like weeds after a good rain.

Competition for Groupon: Of the other companies that might be interested, Google and Microsoft (NSDQ: MSFT) have the most cash on hand, while eBay (NSDQ: EBAY) and Amazon (NSDQ: AMZN) could handle it without much trouble. Google also could have the toughest time getting regulatory approval, since every big deal the company makes these days gets the kind of scrutiny once reserved for Microsoft and this particular combo would have a lot of local market power. Once upon a time, this would have been the ultimate Barry Diller buy, but as much cash as IAC (NSDQ: IACI) still has on hand, it’s too expensive — and as someone reminded me this afternoon, he’s too cheap.

But the biggest competition could be Groupon’s own ambitions. The company has potential IPO written all over it. Google — or any company that gives it a real shot — would have to ante up with that in mind.

Yahoo went in a different direction, instead partnering with Groupon this week to offer deals. (The social coupon company already has programs in place with some of the portal’s partners in the newspaper consortium.) That makes much more sense than an acquisition, matching the way Yahoo has been paring down non-core assets and then partnering on the services.

Site slammed: Meanwhile, Groupon was slammed today, literally taken down at times by a $25 for $50 deal from Nordstrom rack and an on-air mention by Oprah Winfrey. Users were still being frozen out as recently as late this afternoon. Details from Amy Martinez at the Seattle Times.

Update: What does Groupon want? Citing people “familiar with the matter,” the WSJ says the company is looking for strategic investors that might help with distribution rather than another investment round or a flat-out sale.

More as warranted.

One Response to “Groping For Groupon: Local Deals Powerhouse In Play?”

  1. There’s only one company that benefits from these rumors, and that’s Groupon, so they’ve got to be the one pushing them. Why would Google buy something that it can easily replicate? Google’s probably making $10MM/month on AdWords related to daily deals, so it can sit back without work and make $120MM/year, or it can go a ton of billion in the hole in a game with decreasing margins.

    Groupon knows its competitive advantage has a short window, and it wants to get out while it can stick someone else with the burden.