Google Bids $6 billion for Groupon

Google has offered to pay $5.3 billion plus $700 million in management bonuses–a total of $6 billion–for the online coupon company Groupon. If the deal goes through, it would be Google’s biggest acquisition ever. From the New York Times:

(Groupon) would help Google get into local advertising and give it specific insight into consumer spending habits. Local online advertising is expected to grow 18 percent, to $16.1 billion, next year, according to the advertising research firm Borrell Associates.

As important, the viral aspect of Groupon’s business could give Google a much-needed path toward social networking. Google has been frustrated in its attempts to create a social network and it fears the growing power of Facebook’s advertising machine, which produces higher ad responses because friends in the network recommend products and services.

Google has big ambitions for local services, which include listings of businesses alongside its mapping service, although Google has had only modest success with the program after years of trying….Google fears the damage rivals could inflict if they acquired Groupon instead. Facebook, which has become a larger threat in recent years, could use Groupon to enhance its formidable position in social networking, (Search Engine Land editor Danny) Sullivan said. Meanwhile, Microsoft could use Groupon to erode Google’s dominance in search.

Combining Groupon’s user credit card information with Google’s Web navigation data could help the company evolve its ad targeting and localization systems. Google, an engineering company, must see good potential to build smarter systems by integrating Groupon’s data.

Groupon, which gets 50% of every coupon sold, has an estimated yearly revenue is $500 billion and 35 million subscribers around the world, according to the NYT. The company was valued at $1.4 billion in April, making Google’s bid inflated according to investors, writes the NYT.

Google would also help Groupon evolve. The company recently unveiled plans to expand, offering a coupon feed, multiple deals a day, user capability to list Groupon buys on Facebook, and a storefront where merchants can register and list coupons without having to wait (backlog has been a problem, according to the WSJ article that reported this). Groupon also just announced three acquisitions in Asia. Google’s technology and engineering know-how could be a boon to Groupon.

But Google needs to tread carefully with this deal, writes
Business Insider
:

Groupon is all about sales and marketing and improv-comedy writers, and Google is all about engineering. Specifically, if the Google brains come charging in and try to “optimize” Groupon or some crap like that, the most talented of Groupon’s 3,000 employees will flee and all Google will be left with is a gigantic sales force that no longer has any interest in selling anything.

Google should provide some back-end infrastructure support to lower Groupon’s technology costs. And Google should obviously help Groupon “buy” millions of AdWords for free, thus removing one of Groupon’s biggest costs. And Groupon’s brass should fly out to the Googleplex once a quarter or so and tell their Google bosses how Groupon is doing.

If Google “integrates” Groupon that way, this deal has a chance of being a home run, even with a $6 billion price tag. If Google tries to insert its brilliant Google brains into the Groupon mix, though, look out.