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Google wants to do business with local businesses. And for good reason: there are a lot of them out there for, and they present a largely untapped opportunity for the search giant.

Rumors are swirling that Google's push to win over local businesses will involve a multi-billion dollar acquisition of group buying leader Groupon. According to one report, Google has put a whopping $5.3bn on the table for Groupon to mull over. If such reports are accurate, it's hard to imagine that we won't soon be hearing an official acquisition announcement in the very near future.

A Google buyout of Groupon would be the highest-profile consumer internet deal for the Mountain View-based company since it purchased YouTube. But will it be as successful?

While YouTube's popularity has snowballed under Google's tutelage, a Groupon acquisition would present some new challenges for Google. After all, the company isn't exactly known for its customer service, but Groupon is a customer service-heavy business; it must deal with both consumers and the local businesses who buy from them. It will also have to deal with the growing recognition that the group buying model, at the very least, can be problematic for local businesses to profit from (and sometimes even survive).

There are also likely to be regulatory concerns, but not for the reasons some have suggested. Far from being a viral success story, Groupon is a major buyer of AdWords ads. As are some of its largest competitors. If Google acquires Groupon, you can be sure some of these competitors will be concerned about Google's ownership of the dominant player in the market. After all, Google would probably look to integrate Groupon promotion into various properties, including search.

But ironically, a Google acquisition of Groupon is probably the best thing that can happen for Groupon's competitors. Although it's hard to imagine Google destroying Groupon overnight (it will likely keep Groupon management and key staff on board), it's hard to see Google taking Groupon to new heights. If Google is willing to pay billions of dollars for Groupon, we can be pretty sure that it has big ideas about how to scale the group buying model. But as others note, scaling won't be easy.

The big question is why Google needs to acquire Groupon at all. After all, Groupon has no real defensible technology. Group buying is already a commoditized model. There are a zillion Groupon clones and it's worth noting that Facebook didn't have to acquire to build out its own deals platform. The two things Groupon has are reach and a sales team -- two things Google already has, and doesn't need to spend billions acquiring. From this perspective, a Groupon acquisition would be a sign of desperation, not inspiration.

In my opinion, the best opportunities in the local space have yet to be realized. As successful as Groupon and other online companies that promise customers to local businesses have been financially, many local business owners will tell you that there's a lot to be desired. If Google was capable of fulfilling those desires, the world's largest search engine wouldn't need to pay a billion dollar premium for a company whose model it could just as easily copy tomorrow.

Patricio Robles

Published 30 November, 2010 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2419 more posts from this author

Comments (7)

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Rob Mclaughlin

Rob Mclaughlin, VP, Digital Analytics at Barclays

Whilst I agree that the their is no technology per se that Google would acquire they may gain the  credibility in ecommerce that they have failed to create with 'Shopping' etc.

Groupon would give the ability for Google to launch a CPA advertising model...now that would be interesting

almost 6 years ago

Rob Mclaughlin

Rob Mclaughlin, VP, Digital Analytics at Barclays

crikey - sorry for the spelling!

almost 6 years ago

Jeff Molander

Jeff Molander, CEO at Molander & Associates Inc.

I think this is actually a bad deal for Google. Here's why...

Preface: I co-founded a company in the pay-for-performance space that Google acquired (Google Affiliate Network) so I pretend to understand this stuff...

Groupon is not a real company offering **sustainable value** so much as they are a run-of-the-mill venture capital investment toy.

You see, Groupon is today's Restaurant.com -- minus the entrepreneurial sensibility. Restaurant.com burned through the restaurant market with its similar "buy a $25 gift certificate for $3" model. But they stopped when small businesses owners it served figured out the simple math. They looked at the profitability of customers. There wasn't enough to sustain participation with Restaurant.com's model.

Increasingly, qualified research is being published on Groupon's effectiveness http://bit.ly/f3Hn2N and the result is not surprising: Small business owners don't define "effective" as having anything to do with "profitable."

Groupon is advertising. But with a twist. It trains an "increasingly already trained" retail shopper to **expect** the discount, tip less and not return without receiving ANOTHER a profit-dinging discount.

Like in affiliate marketing, it's disingenuous to say, "Groupon gets paid on performance -- only when it sends customers to the door" when the facts are so stark. It sends customers who are remarkably un-profitable under this discount model.

Ironically, Chicago-based Restaurant.com got out of the short-term business just in time to re-structure its offer. The rest is history.

Bottom line: Groupon "trains" boatloads of customers to expect future discounts in a growing retail environment that breeds the same. Retail suicide is in full swing. And Groupon is not a real company offering **sustainable value** so much as they are a run-of-the-mill venture capital investment toy.

almost 6 years ago


Shane Lennon

The biggest challenge in the local advertising/promotions space is scaling the business model - it is a people intensive model, only a fraction of the business owners have the experience or exposure to handle self service CRM/Adv web portals to admin offers i.e. look at the reach for Google Local Business Center, FB, Foursquare - there is a limit they hit, let's be optimistic here 25% of 900,000+ small retailers in the US - to get to the bigger part of the market it requires an account manager/customer service to manage the admin of offers. We only have to look to the traditional players Yellow Pages, Classified Ads in newspapers at their people intensive models. Groupon gives Google a well trained sales and customer service team with existing local businesses - they can add more products from their portfolio - and add more accounts from Google for Groupon - this is great way to leverage critical mass into the local advertising market. YP, Yelp, offline classifieds etc are the ones who are most likely to feel the initial impact. I agree this help the other daily deal sites as they can fill larger niches, focus on the areas Groupon were not fulfilling and take some business as the integration pains set in for Google & Groupon.

almost 6 years ago


Data Driven Marketing

Great article and an even better opportunity for Google. It'll really help them out in the local business market. And with Google's infrastructure behind them, perhaps Groupon's site will be a little more stable and stop crashing whenever there is a good deal or a lot of publicity. I think the $6B number being discussed is a fair number given the situation, despite what they naysayers might think. Here's to hoping this one goes through.


almost 6 years ago

Susanne  Penfold

Susanne Penfold, Social Media Consultant at Susanne Penfold Social Media Consultant

Interesting article you only have to do a search on google and google places comes up with a map and links to websites, so if you are a local business just make sure you make the most of this free way to advertise.

almost 6 years ago

Doug Hay

Doug Hay, CEO at Doug Hay & Associates

Wow what a price to pay to play in that market. Maybe an integration with Google Places will rocket Google to the top dog in the local space?

almost 6 years ago

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