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Was Groupon’s Rejection of Google the Right Move?


Groupon knock –offs breathed a huge sigh of relief as they category maker in online deals rejected the lavish offer of around $6 billion in total that Google put on the table last week.

According to a Bloomberg article

Groupon Chief Executive Officer Andrew Mason, who started the company in 2008, had concerns about the strategic direction it would take under new management and what could happen to his employees if he sold to Google, according to a person familiar with the matter, who declined to be identified because the discussions were private.

If there was ever a chance to ‘take the money and run’ this one was it. Why? In my opinion, it’s because although Groupon has the lead in the online deal space right now, it is more about being first rather than being better or, more importantly, hard to replicate.

Let’s face it, everyone and their brother is going to put together their own version of a deal ‘section’ for their brand or family of brands. Why would they do it on their own rather than through Groupon? Money. Groupon takes a lot of money from its customers and brands are not likely to give up cash that easily if they can do it themselves.

Of course, you may be thinking that the Groupon mentality is for the SMB. That’s true but there are many questions about the kind of ‘customer’ a Groupon deal attracts AND whether many Groupon offers are from companies who are just desperate to bring anyone through the door. I have had plenty of experiences without Groupon where I have tried out a businesss due to a deal that was offered and quickly found out why they were willing to give away their services: it was because they were not good at their job and they were looking for some quick traffic and cash. Do I really need Groupon to facilitate bringing me more bad businesses to try out?

If Groupon had suddenly received a mountain of cash from Google and they would have access to even more, who knows what might have happened. Right now, though, they are vulnerable despite their success. This whole deal side of the Internet is so new that there is plenty of room for the category’s version of Friendster (the original social media / networking high flyer) to happen as a ‘first to market’ casualty. (Friendster still exists today mostly in Asia but not like everyone including Time magazine thought it would way back when)

You probably already know of several Groupon knock-offs that are designed to be run by the merchant on their site for a flat monthly fee that doesn’t require the merchant to give up half of its revenue for the business it generates through the service. As Groupon works to get away from the “Deal of the Day” mentality with its Store and Feeds features it could get more cluttered and could start to look like any other coupon engine especially if each store is running as many deals as they want. That’s not very original and not an idea that will get $6 billion at any other point in the future.

Of course, I am no venture capitalist and this is just my own opinion as to how this might play out. I am also reminded thought that VC’s make many more bad calls than they do good ones so maybe my guess is as good as theirs?

Do you think that Groupon’s model will survive in the face of so many deal sites coming on board due to a relatively low barrier to entry technologically? Of course, Groupon’s current scale and its sales force can be hard to replicate but these could also be their Achilles’ heel. Many a company has used a hard driving sales force to sell something before the competition gets in but then was spurned by its ‘customers’ because of those very same hard selling tactics.

Jut thinking out loud here but I have to believe that passing on the money from Google at this point in time (just two short years into the business) has a better than 50/50 chance to be a big regret by the Groupon management in the rear view mirror.

As for Google, maybe they need to set up their own deal mechanism and tie their Place Pages together in a neat recommendation and deal offering machine that will give all businesses a low barrier to entry (SMB’s can already offer deals for free on their Place Page listing). Google has something already that few, if any, could replicate: a huge data repository of Place Pages (around 50 million). The trouble with Google is that they are an engineering company and not a marketing company. This could be interesting if they try to go it alone without buying another player but their recent track record doesn’t bode well for this tactic.

What do you think? Did Groupon make the right move by rejecting Google’s offer? Will they dominate the space? Did they miss the gravy train? Would love to get your thoughts in the comments section.

Thanks.

  • http://www.linkedin.com/in/janetdriscoll Janet Driscoll

    I think Groupon blew it on this one. Alterra Coffee in Milwaukee had a similar dilemma with Mars and ended up selling naming rights for big $$. Let me know if you want more info on that.

  • http://www.orbitalalliance.com Simon Yohe

    Groupon may be the biggest name right now, but there are numerous other companies that offer similar services and provide a much better ROI. I actually like LivingSocial. The value for which they were offered for a buyout was in my opinion too high. They may look back at this and realize they missed out on an unbelievable opportunity.

  • http://www.linkedin.com/in/philipsegal Phil Segal

    I think they blew it, for exactly the reasons you mention (low barrier to entry, everyone and their mother soon to be playing, including massive competitors like Facebook and Google) plus the sheer immensity of the amount offered.

    The future in this area is risky; $6 billion is a miracle, a once in a lifetime opportunity. Will they ever be valued at more than that even if they continue to dominate the market? Doubtful, and it’s likely that they will not continue to dominate the market, at least not to the extent that being first has allowed them to at this point.

    This is one of those “I should have walked away while I was up at the Blackjack table” type of moments, in my opinion.

  • http://marketingtechblog.com Douglas Karr

    Groupon is going to wake up with one hell of a headache after they get blown by. Do they know how many companies are after them and how simple it is to build what they have?

  • Trisha Owens

    You know they should have really looked at the SAAS security market as a model. It first started out as a very exclusive space. Now everyone is helping themselves to the cake. Google bought Postini out and Symantec bought MessageLabs. They should have taken the money and run. They are so screwed…

  • leigh79

    More recent news on this fast-growing industry – http://blogs.forbes.com/quickerbettertech/2010/12/06/online-group-buyings-need-for-speed/

    While Groupon’s strong presence in the market is impressive, it is estimated that only 15 percent of Americans are presently visiting group-buying sites. It remains very early in the game, and there is still tremendous room for consumer usage and category growth by multiple players in this space.