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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.