In effort to dominate local online advertising and emphasize their move into social networking, Google’s current endeavor consists of acquiring Groupon, an online coupon company. Groupon offers enormous discounted coupons from restaurants, local stores, and other services. Groupon was founded in 2008 and has attained significant growth in the past two years. Analysts have estimated that Groupon has annual revenue of more than $500 million.
Recently, Google offered an aggressive $5.3 billion bid towards Groupon. If the deal follows through, Groupon will stand as Google’s largest acquisition, easily peaking Google’s $3.1 billion purchase of DoubleClick in 2007. With the acquisition of Groupon, Google’s net value should benefit in the long run. Maintaining a strong emphasize on local advertising and striving for a lead position in social networking will be essential for Google to benefit to its full potential. Although Google has had an optimistic outlook towards this acquisition, investors are worried that the $5.3 billion bid might have been a bit too aggressive. Groupon currently holds a valuation of approximately $1.4 billion, which is significantly lower than Google’s proposed bid.
Google’s aggressive bid reflects their fear of the potential damage rivals could inflict if they acquired Groupon instead. Main competitor, Facebook, has become a major threat in recent years due to their potential expansion in social networking with the acquisition of Groupon. When considering competition among leading companies, gaining a competitive advantage over rivals is a foremost priority.
Local online advertising has been projected to increase by 18% next year, according to an advertising research firm at Borrell Associates. With big ambition for local services, Google has recently prioritized their effort to gain exposure into local advertisement and social networking. It will be very interesting to see the impact that Groupon poses on Google’s attentiveness to local advertisement and their long sought exposure into social networking.
Resources: http://dealbook.nytimes.com/2010/11/30/googles-gambit-for-groupon-raises-concerns/
** Posted before in-class discussion.