Google Fails to “Tip” their Deal with Groupon

Last week, Chicago-based website Groupon declined a $6 billion acquisition offer from Google. It was also rumored that Groupon rejected a $3 billion acquisition offer from Yahoo! last month. Did Groupon make a stupid move or was this a smart move which may result in an incredible revenue gain in the future?

Groupon is a website that partners with thousands of local businesses (retailers) in the U.S. and across the world to offer “deal-of-the-day” specials. Launched in November 2008, Groupon’s business model involves requiring a minimum number of people to sign-up for an offer before the deal is on (tipped). If the minimum amount of sign-ups are not reached, then the deal is off. The retailer benefits from this model because nothing happens when the minimum is not reached. When there are enough people that sign-up, it assures the retailer will receive a specific number of customers through their door. Groupon makes money by receiving a percentage (typically 30-50%) of the revenue gained by the retailers. In its two year existence, Groupon have saved consumers over $800 million and generated millions for the retailers it has featured.

Groupon is one of the fastest growing company ever with revenue expected to exceed $500 million this year. That’s one of the main reason Google was so interested in the company. There’s no question Google has the money and man-power to develop a Groupon-like clone. Incorporating Google products such as Maps/Places, they can potentially create a more complete commodity. But will it gain traction and grow at the same rate as Groupon? Probably not. In the growing arena of e-commerce, group buying, and location-based deals (e.g. Facebook and Foursquare Deals), Groupon is quickly positioning themselves as a leader in this ever-changing industry.

Groupon and Google are a lot alike. They both depend on others to make money (Groupon: businesses/consumers – Google: ad-clicks). They both live in an uber-competitive online space. And both their names start with the letter “G” (haha). That being said, essentially they are both competing against each other going after valuable ad dollars spent by businesses.

When Google made the offer, all eyes were on Groupon’s leadership team led by Andrew Mason — founder and CEO of Groupon. Since Groupon declined the offer, it looks like Mason is looking to follow the footsteps of Facebook Founder/CEO Mark Zuckerberg. In 2006, a 22 year-old Zuckerberg declined a $1 billion acquisition offer from Yahoo!. Four years later, Facebook is reportedly valued at $50 billion — making Zuckerberg the youngest billionaire on earth. Zuckerberg, now 26, took a risk and it paid off. Four years his senior, 30 year-old Mason  is taking that same risk. What’s different though is his intentions to go public early next year.  According to Lise Buyer — founder of IPO consulting firm Class V Group in California —  the initial public offering (IPO) market is very healthy right now for “companies that have proven business models.” Buyer continues to say Groupon “clearly fits in that category.”

Groupon’s valuation can potentially skyrocket if they go public next year. But can they continue to sustain growth in the competitive and ever-changing e-commerce industry? Facebook thrives on maintaining their core mission yet reinventing themselves to remain a leader. Can Groupon do the same? Did Mason make a huge mistake in declining the multi-billion dollar acquisition offer? Only time will tell.

“Groupon” image courtesy of Flickr, smemon87
“Andrew Mason” photo courtesy of Flickr, TechCrunch

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