Google’s bid for Groupon makes perfect online business sense

Details: Thursday, 14 April 2011 19:38; Hits: 911

As I am writing this we are just a day away from the formality of the announcement of the buying of Groupon by Google. A merging of two ‘G’s which have managed to dominate their respective markets in a very short space of time.

On the face of it when a tech company which is global in nature and works hard to maximise value per employee to the tune of $1.2 mil per person per year (plus change) goes for a people company which works hard to get barely $200,000 profit per employee per year you can see that there might be a certain amount of potential conflict which will disrupt both and help neither.

Google’s $6 billion bid for Groupon seems to fall squarely in this category and already pundits are busy crying wolf in fear that Google will wreck Groupon because it somehow “doesn’t get it” and its culture plus it will affect its own unstoppable march towards web dominance by creating a $6 billion hole in its coffers.

Delve a little deeper and with a little more patience than the superficial examination might give up. Groupon, in the face of stiff competition and a business model which is easily copied (and has, indeed, been copied widely already) has managed to create a multi-million dollar business out of thin air (much like Google did on the web). It has used its precise understanding of local markets and local business owners to create a dominance which is hard to challenge. With a sales force of 3,000 plus which grows at the rate of 200 employees a month Groupon has a grip on local advertising which Google wants and cannot afford the time to create from scratch itself.

There are other considerations which make this deal a logical one and, perhaps even, imperative: Google is aware that one of the biggest threats to its growth are closed ‘garden wall variety’ sites which provide everything within one niche. Facebook’s ability to seemingly satisfy the needs of most of its netizens and make an increasing amount of money from advertising which is powered by social media practices has been an increasing cause for concern. Were a Google competitor, like Facebook, to acquire Groupon, for instance, it would have all the ingredients necessary to overtake the search giant, without ever needing to spend the untold millions of dollars and countless manhours necessary to build a better search engine.

Groupon’s acquisition, overpriced as it may be is both a defensive and aggressive move for Google. First it locks out competitors who by acquiring Groupon would suddenly have had the means to make Google irrelevant.

Secondly it ads to the Google arsenal local know-how and people-selling skills its engineers sorely lack. It then provides two additional benefits Google needs: first it gives it a hands-on foothold in the local advertising market which it has not yet cracked. Second it gives its first active social networking community. Groupon users typically employ Twitter and Facebook to themselves promote the great deals they unearth.

By acquiring Groupon Google opens up opportunities and closes down potential threats. If it cracks local advertising using Groupon knowhow the $6 billion it spent will look like small change. If it doesn’t it will at least have ensured that its potential competitors cannot yet lock Google out of any market and themselves in.