Yes, Groupon is wildly successful and has huge top-line revenues. Yes, it plugs some holes for Google and provides intriguing new possibilities for the company in terms of business models and local ad sales. But AllThingsD is reporting that the Google offer for the Chicago-based Groupon is $5.3 billion.
That would make it the single largest acquisition in Google’s history by about $2 billion. What is Google smoking?
The model and market dynamics behind and beneath Groupon argue that the company will continue to do well and that the model is sustainable over time — though almost certainly not the growth rates witnessed today.
Next year the market could look quite different than it does today. Groupon is evolving of course (e.g., Groupon Stores) but consumers and SMBs could certainly cool to “daily deals,” though consumers will almost never tire of saving money.
If the AllThingsD information is correct it would show how crazy-fixated Google is on Local, almost to the point of lunacy in offering that amount of money. It does make sense from one point of view however: if Google wants Groupon itself it has to pay a premium because of the company’s valuation and growth trajectory. But there are other companies to buy out there for less money.
If Google wants deals/offers/coupons it could acquire that for much less. If it wants a local sales channel it could build one for much less. It could buy Dex or SuperMedia for much less, or any number of other local channels. If it wants a big consumer email list it could also develop one for much less.
LivingSocial, the “Avis of group buying,” could be acquired for less than half of the proposed Groupon amount and would accomplish most or all of the same objectives for Google. I suspect, however, that Google is fixated on buying the leader in the space, as it did with YouTube. Over time, however, Groupon is likely a less valuable asset than YouTube though it has a clear and immediate revenue stream in a way that YouTube did not.
If we’re hearing rumors like this then the negotiations are very real. The question is whether Groupon wants to take the money and run or whether it sees a potential IPO in its future, where it could make considerably more.