by David Kirkpatrick Info
David Kirkpatrick writes about technology for the Daily Beast. A former Fortune reporter, he is the author of The Facebook Effect: The Inside Story of the Company that is Connecting the World.
Buying the discount email company Groupon—for a staggering $5.3 billion, no less—would only reinforce the feeling that Google, the company to beat in tech, is suffering a crisis of confidence.
The astonishing reports that Google might buy Groupon for $5.3 billion or more have everyone in Silicon Valley scratching their heads. How could this immature company possibly be worth anywhere near that amount?
In an era when the Internet is increasingly about mobile and social, there are undeniable appeals to the Groupon story for a company like Google, which has utterly failed in social software. But if Groupon were to sell for the reported figure, it would be the second most expensive sale in history for a private venture-backed company, only exceeded by the bubble-driven sale of telecom technology firm Cerent to Cisco in 1999, for about $7 billion.
Groupon isn’t so important that it merits such rarefied company. Sure, the popular coupon site is showing astonishing growth, with a reported $500 million annual run rate in revenue after only about two years of operation. But what is that revenue composed of?
The company works by letting advertisers direct discount deals to consumers, mostly via email. The advertiser typically gives 50 percent off the retail price of his product or service. Most deals are only valid if a certain minimum number of people accept them. Then, once a deal is completed, Groupon itself keeps half the purchase price. That leaves the merchant with a mere 25 percent of the list price of his product or service.
Groupon is talked about as an effective way to reach new customers and promote a business. It surely is. But there are plenty of other good ways to do that in today’s Internet marketplace, and Groupon is by no means the best.
AP Photo
I would ask any Groupon merchant whether, before he considers offering such a huge discount, he has considered, for example, running a targeted ad on Facebook that features a discount, albeit a lower one. Advertisers there rarely offer discounts, but there is no reason they shouldn’t work. Facebook enables a merchant to target ads to people in a certain geographic area, of a specific age, or using a vast range of other specific parameters. My gut experience, and I’ve talked to many, many Facebook advertisers, is that a discount offer of 30 percent for almost anything would yield a dramatic response in Facebook environment. And whereas Groupon spam-emails its members without much targeting other than by geography, on Facebook a merchant can target to those it really believes most likely to be its long-term customers.
While Google is the world’s dominant Internet company by far, in revenue and profit, it seems to have lost faith in itself.
There is a possible rebuttal to this argument. The business of selling coupons has a dirty little secret: Many coupons are never redeemed. It may be that for some Groupon merchants, even a 75 percent discounted sale is thus profitable. But if the reason Groupon is useful to a merchant is because of this, how would that square with Google’s corporate goal of avoiding being evil?
Google’s interest in Groupon appears driven by a sort of odd desperation. While Google is the world’s dominant Internet company by far, in revenue and profit, it seems to have lost faith in itself.
Even showing such dramatic interest in a discount email company inherently makes a statement that Google’s core product—the AdWords advertisements that accompany consumer searches on Google’s search engine—isn’t working well for local advertisers. If it were, there would be little need for something like Groupon. And for many categories of advertising, local merchants have little chance of achieving any useful advertising placement in Google search results.
12 December 2, 2010 | 5:02am Twitter Email Share $(function(){ var share_object = SHARETHIS.addEntry({ title: unescape('Google%27s%20Desperate%20Groupon%20Gambit'), summary:unescape('Buying%20the%20discount%20email%20company%20Groupon%26mdash%3Bfor%20a%20staggering%20%245.3%20billion%2C%20no%20less%26mdash%3Bwould%20only%20reinforce%20the%20feeling%20that%20Google%2C%20the%20company%20to%20beat%20in%20tech%2C%20is%20suffering%20a%20crisis%20of%20confidence.'), content:unescape('Buying%20the%20discount%20email%20company%20Groupon%26mdash%3Bfor%20a%20staggering%20%245.3%20billion%2C%20no%20less%26mdash%3Bwould%20only%20reinforce%20the%20feeling%20that%20Google%2C%20the%20company%20to%20beat%20in%20tech%2C%20is%20suffering%20a%20crisis%20of%20confidence.'), url:'http://www.thedailybeast.com/blogs-and-stories/2010-12-02/googles-groupon-bid-signals-desperation-loss-of-confidence/' }, {button:false, embeds:true}); var element = document.getElementById("sharethis"); share_object.attachButton(element); share_object.attachButton(document.getElementById("sharethis_1")); share_object.attachChicklet("twitter", document.getElementById("twitter_1")); share_object.attachChicklet("twitter", document.getElementById("twitter_2")); share_object.attachChicklet("email", document.getElementById("st_email_1")); share_object.attachChicklet("email", document.getElementById("st_email_2")); }); var OutbrainPermaLink=document.location.href.replace(document.location.search, '').replace(/\/\d+\/$/,'/').replace(document.location.host, 'thedailybeast.com'); if(OutbrainPermaLink.search(/blogs-and-stories/)>=0){ OutbrainPermaLink += "full/"; } var OB_Template = "The Daily Beast"; var OB_demoMode = false; var OBITm = "1255455386150"; var OB_langJS ='http://widgets.outbrain.com/lang_en.js'; if ( typeof(OB_Script)!='undefined' ) OutbrainStart(); else { var OB_Script = true; var str = ''; document.write(str); } Technology, Adworks, Facebook Ads, Living Social, Telecom Technology, Cerent, Social Software, Google Groupon, Internet Companies, Facebook Places, Groupon, Cisco, Social Media, Silicon Valley, Google, Amazon, Facebook (–) Show Replies Collapse Replies Sort Up Sort Down sort by date: sternie
A fool and their money are quickly parted. Congrats to groupon though, it looks like they hit the lottery! Now if only Google would let that giggling Tech Princess advise us on their next move. I need a good laugh.
Flag It | Permalink | Reply 6:21 am, Dec 2, 2010 JohnnyRocksItWouldn't paying $5b for Groupon elevate the brand and advertise the service offering in a way that would put a serious damper on the "me-too" competitors?
Flag It | Permalink | Reply 10:03 am, Dec 2, 2010 drstevebrulei seem to remember people second guessing the purchase of youtube...
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X Close Suicide Deepens Chasen Mystery Annette vs. Natalie: The Oscar Battle!The company works by letting advertisers direct discount deals to consumers, mostly via email. The advertiser typically gives 50 percent off the retail price of his product or service. Most deals are only valid if a certain minimum number of people accept them. Then, once a deal is completed, Groupon itself keeps half the purchase price. That leaves the merchant with a mere 25 percent of the list price of his product or service.
Groupon is talked about as an effective way to reach new customers and promote a business. It surely is. But there are plenty of other good ways to do that in today’s Internet marketplace, and Groupon is by no means the best.
AP Photo
I would ask any Groupon merchant whether, before he considers offering such a huge discount, he has considered, for example, running a targeted ad on Facebook that features a discount, albeit a lower one. Advertisers there rarely offer discounts, but there is no reason they shouldn’t work. Facebook enables a merchant to target ads to people in a certain geographic area, of a specific age, or using a vast range of other specific parameters. My gut experience, and I’ve talked to many, many Facebook advertisers, is that a discount offer of 30 percent for almost anything would yield a dramatic response in Facebook environment. And whereas Groupon spam-emails its members without much targeting other than by geography, on Facebook a merchant can target to those it really believes most likely to be its long-term customers.
While Google is the world’s dominant Internet company by far, in revenue and profit, it seems to have lost faith in itself.
There is a possible rebuttal to this argument. The business of selling coupons has a dirty little secret: Many coupons are never redeemed. It may be that for some Groupon merchants, even a 75 percent discounted sale is thus profitable. But if the reason Groupon is useful to a merchant is because of this, how would that square with Google’s corporate goal of avoiding being evil?
Google’s interest in Groupon appears driven by a sort of odd desperation. While Google is the world’s dominant Internet company by far, in revenue and profit, it seems to have lost faith in itself.
Even showing such dramatic interest in a discount email company inherently makes a statement that Google’s core product—the AdWords advertisements that accompany consumer searches on Google’s search engine—isn’t working well for local advertisers. If it were, there would be little need for something like Groupon. And for many categories of advertising, local merchants have little chance of achieving any useful advertising placement in Google search results.
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A fool and their money are quickly parted. Congrats to groupon though, it looks like they hit the lottery! Now if only Google would let that giggling Tech Princess advise us on their next move. I need a good laugh.
Flag It | Permalink | Reply 6:21 am, Dec 2, 2010 JohnnyRocksItWouldn't paying $5b for Groupon elevate the brand and advertise the service offering in a way that would put a serious damper on the "me-too" competitors?
Flag It | Permalink | Reply 10:03 am, Dec 2, 2010 drstevebrulei seem to remember people second guessing the purchase of youtube...
Flag It | Permalink | Reply 1:02 pm, Dec 2, 2010 $('#c_total span').html('3'); $('#c_total').show(); Share this comment on FacebookThank you. As a first time user, your comment has been submitted for review. It can take anywhere from a few hours to a day or two for your comment to be reviewed, depending on the time of week and the volume of comments we receive.
Please log in to leave comments.
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by Leslie H. GelbInfoLeslie H. Gelb, a former New York Times columnist and senior government official, is author of Power Rules: How Common Sense Can Rescue American Foreign Policy (HarperCollins 2009), a book that shows how to think about and use power in the 21st century. He is president emeritus of the Council on Foreign Relations.
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by David KirkpatrickInfoDavid Kirkpatrick writes about technology for the Daily Beast. A former Fortune reporter, he is the author of The Facebook Effect: The Inside Story of the Company that is Connecting the World.
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by David KirkpatrickInfoDavid Kirkpatrick writes about technology for the Daily Beast. A former Fortune reporter, he is the author of The Facebook Effect: The Inside Story of the Company that is Connecting the World.
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