My gut instinct is that this deal was never on the table. The rational minds at Google would have to be high on something really strong to even consider Groupon worth $6B. (If so, please share, people!). My cynical thinking is that these were rumors spread by people interested in seeing Groupon go public; the $6B from Google rumor makes for a nice, fat initial offering price.
Groupon has zero barrier to entry and zero technology. Unless they have a strong IP portfolio (which they don't appear to be, given the number of competitors that have sprung up), I don't see the value here, other than brand name.
I was given a Groupon for a local specialty chocolate vendor recently, so I decided to chat her up to see what she felt about it. She had tried Groupon, Townhog and a couple of others. She shrugged and said that she wasn't sure if she was going to try these again; but if she did, she'd use Townhog. It was clear that there was no barrier for her to switch. Why should merchants give Groupon 50% of the face value of coupon, if their competitor will do the same for 25%? And the next one at 10%?
Do you really think that the typical Groupon customer, who is extremely cost-conscious and willing to jump on a deal like this, won't switch to another coupon company if given a better deal?
Say Groupon offers a 50% off $10 coupon for $5, and keeps the $5. The business is out $10 (for the goods).
Now Soupon (fictitious name) comes along, offers a 60% off $10 coupon for $4; but keeps $2 and gives the business $2. Now the business is out only $8; the customer gets a better discount; and Soupon still makes money.
Don't you think most of Groupon's customers will move to Soupon in a heartbeat?
I don't, purely because local merchants are very, very brand conscious and suspicious of new brands. It is why they keep giving their business to Yellow Pages and to newspapers. It's why Google's had such a hard time cracking the local market.
Groupon is the first tech brand that local merchants have totally bought into. Sure a percentage will be adventurous and go with the cheaper groupon-clone, but the vast majority will stick with the brand name imo.
Keep in mind that the $2B estimate is the run-rate meaning the current period's sale (Quarter or Month) multiplied to estimate the entire year's rate if the same rate continues.
Their current period's revenue is extremely high due to this season (with the year ending) carries high demand from businesses to make more $.
Realistically they are said to have an estimated revenue of around $850M so with their 50% cuts, take in $425M and after wages, expense and taxes, they are probably profiting somewhere around $100-150M
Probably a wise move if you're making $0.5 billion/year 2 years after inception. They should be careful though, they don't have the kind of lock-in that many big Internet companies do. You could easily compete with them.
I get near daily emails from the local newspaper website (San Diego Union Tribune) and from a local weekly paper the Reader... both send out different "Daily deals", not the mention Channel 10's local website daily deals too..
I have never signed up for groupon because I just don't believe i can handle the deluge of daily deals from so many places.
Yeah, besides being first mover and the associated brand recognition, I don't know what competitive advantages Groupon really has. Especially when sites like http://www.sandiegosaves.net/ are able to "aggregate" the deals from all the daily deal websites.
If they are pulling in $2billion a year as the stories are saying, $6B is nearly chump change. Plus it keeps the humans involved in Groupon rather than Google trying to replace it with algorithms.
Who has said they are anywhere near $2B in annual revenue? The estimates I've heard are around $500m. That's revenue, they pay out 50% on the top, so $250m net. Not a bad amount, but they have a ton of staff (3,000+) to pay before any profits are considered.
"Currently about half of Groupon's 3,000 employees are in sales"
That explains a lot. They have a ton of telemarketers pushing onto every business with a phone number. This reminds me a lot of the "local directory" space (which the WSJ article claims they're occupying, but from the POV of the small business owner and the consumer it looks like a very different product). There was a lot of excitement and initial signups when things first got off the ground (just a bit before the bubble burst), but the churn can be horrendous.
The difference with Groupon is that the "ads" are actually accountable and produce sales compared to local directory ones. But there's been a few horror stories about dumb business owners getting fucked over with "we're losing $1 on every sale, but we'll make up for it on volume!" deals. Their own fault, but I bet the Groupon telemarketers are pushing it on them like Walmart pushes on suppliers.
What I'd like to see is the current churn rate. If Groupon and competitors keep going at the current pace and businesses keep getting burned, eventually they'll burn the market.
I doubt the $2B number too, but putting that aside, is there any verification that Google has bid $6B for Groupon or done anything with them in the past week? Isn't all of this stuff just 'sources'?
Groupon has zero barrier to entry and zero technology. Unless they have a strong IP portfolio (which they don't appear to be, given the number of competitors that have sprung up), I don't see the value here, other than brand name.
I was given a Groupon for a local specialty chocolate vendor recently, so I decided to chat her up to see what she felt about it. She had tried Groupon, Townhog and a couple of others. She shrugged and said that she wasn't sure if she was going to try these again; but if she did, she'd use Townhog. It was clear that there was no barrier for her to switch. Why should merchants give Groupon 50% of the face value of coupon, if their competitor will do the same for 25%? And the next one at 10%?