Google acquiring groupon with no discount?
by Mario Cruz Cabrera ~ December 1st, 2010. Filed under: Reviewing articles, Uncategorized.I recently came across an article reviewing the current bid that google has made to acquire groupon.
http://blogs.hbr.org/cs/2010/12/groupon_is_google_making_a_6_b.html
The article makes a very good argument about the contrasting effects that groupon has had on the companies using its services. I, for one, have several accounts of friends working at businesses or owning businesses that have incurred huge loses on account of their groupon “shananigan”.
The article, however, doesn’t address the fact that google’s bid for groupon seems quite disproportionate to its real value. With close to ~200 million dollars in equity, and a fair amount of debt, Groupon’s added value seems to come from the name it has created for itself and its steady customer base (myself included). Their brand, however, has come under fire in recent days. More and more costumers realize that there are catches for the coupons of businesses that designed their groupon strategy well. The bargains for the consumer, however, come from businesses that have not strategized the use of their discounts.a As more of these companies realize the losses associated with the discount, there will be less “bargains” for the consumer.
In my opinion, Groupon has had a boom in the last two years and has experience tremendous amount of growth (hence google’s overly enthusiastic 6 billion dollar bid to acquire them). However, as the implementation of the idea behind groupon is refined, its costumer base will stabilize as less people will take advantage of their services and less businesses will post their coupons online. Furthermore, as competitors like livingsocial, gilt city and buywithme enter the race, groupon’s market share might be affected. The service is easily replicable at a local level, which would hurt groupon’s expansion into new areas (and the biggest cause for it’s rapid growth rate).
If I were groupon, I’d take the bid before google comes back to its senses and make a more conservative offer.
December 1st, 2010 at 4:29 pm
Mario,
I think a lot of business owners have a bad perception of Groupon because they are looking at it in the wrong way. Groupon is a form of advertising. There will always be a cost/risk associated with any advertising (Groupon in particular), but it should be a measured and calculated risk. Check out this article from NYT, it articulates what I’m getting at:
http://boss.blogs.nytimes.com/2010/11/23/doing-the-math-on-a-groupon-deal/
It’s a new way of advertising that business owners are still feeling out, but I think consumers and business owners can benefit greatly when used properly.
Paul
December 2nd, 2010 at 6:01 am
Paul,
I agree completely. I think the idea behind it is novel and quite appealing for users (both business and costumer-based). The article you posted is quite interesting, I read it when it first came out (I actually think it came as a NYT response for the huge number of hits for a previous published article on groupon (http://www.nytimes.com/2010/06/13/business/13digi.html?_r=1&scp=10&sq=groupon&st=cse). This topic has definitely sparkled a lot of debate and with good reason.
Summarizing: I think you are right…Groupon is a new way of advertising your product locally, to an extent that people could have only dreamed a couple of years ago. As you mention, however, this is something consumers are only starting to feel out. As awareness increases, both businesses and costumers will choose to continue or stop using this method according to the product or need they are trying to target. I still think it will be a profitable business model in the future, my point is it has been over priced by Google. From a strategic standpoint, Groupon’s business model is easily replicable (particularly for incumbents with potentially high capital and web-based investments), thus unable to remain a competitive advantage for too long. And the newly released article on NYT that features an insider speaking on anonymity, who claims revenues for Groupon were well over the billion dollars last year seems quite suspicious.
December 1st, 2010 at 9:02 pm
interesting article!
didn’t think groupon would worth that much
i’ll try to utilize concepts from strategy to see where this fits……
December 2nd, 2010 at 9:18 am
I have seen in the last two months at least 4 offers from photographers, 2 from artists and a few more from other freelance professionals / artists. So perhaps medium / large businesses are not taking the bait anymore? I have not seen one Rogers / Safeway / Coca-cola offer yet. If there strategy is to go for the small business = niche appeal then they have lots of growth potential. If in the other hand they were aiming for the big companies then ouch.
Also, it’s not only groupon, it’s livingsocial and a few more I get in my inbox every day. AND the green offers one is coming online soon. Yay one more into the fray.
I agree with you Mario, groupon should be so happy to be bought by google before it’s too late…then again, imagine a groupon plus google maps or google earth with offers in real time as you browse the maps…juicy stuff…
December 4th, 2010 at 10:52 am
http://www.marketwatch.com/story/groupon-reportedly-spurns-google-merger-2010-12-04
It just got better!!!