
Sources: Groupon rejects Google’s offer; will stay independent - zone411
http://chicagobreakingbusiness.com/2010/12/sources-groupon-rejects-googles-offer-will-stay-independent.html
======
apinstein
No doubt, Groupon prints cash. However, as far as I can tell (and I have
actually done significant research and thinking about this type of business)
they are far more lucky than anything else.

Not to say they didn't execute well, clearly they did, but there have
literally been hundreds of companies both before (restaurant.com, 1999, val-
pak, Entertainment Book) and after (Facebook, Google, Yelp, FourSquare, AOL,
LivingSocial, DailyCandy, Zip2Save, + thousands you've never heard of) doing
nearly or exactly the same thing.

IMO Groupon was indeed crazy to pass on this deal. I agree with others saying
that there is a high risk that they will be worth far less in a few years.

Why?

Their model is not strategically defensible, and there are very few barriers
to entry. Look around, anyone with a mailing list or customer base is entering
the deals space.

Besides that, in the end, Groupon makes money by giving away other people's
money. It's great work if you can get it, but this type of business gets very
hard to scale past a certain point. While it's great for certain kinds of
businesses, it also incites a race to the bottom. I think that over the next
few years businesses will get wise to the model and revert to more sustainable
discount levels for the majority of situations.

In the meantime Groupon will continue to print cash but in the long run there
will not be one winner in this category, it will end up very fragmented and
very competitive (read: high costs and low profit margins).

~~~
puredemo
You've summed up precisely what I haven't been able to put into words about
this.

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vaksel
idiots...2 years from now, when all the businesses know what a bad value
proposition Groupon is, they'll look back and kick themselves for not taking
the offer

~~~
chunkbot
Your analysis is wrong; here's why. The founders, employees, and other
insiders of Groupon have already been handsomely paid off. For them, Groupon
represents a free option. If it sells for $6 billion, great! But what if in 12
months it could be worth $10 billion? That's _$4 billion_ more! And, compared
to a site like YouTube, Groupon looks like a much more stable deal. They're
already immensely profitable (something YouTube never was, and still isn't).
The $5.3 billion offer, as a multiple of revenue and profit, was a
surprisingly _cheap_ offer for Groupon!

Maybe Groupon will look back in 2 years with regret. Or maybe they'll have an
offer of several billion dollars _more_. For the people in the position to
make the decision, the risk is worth it.

Do you know somewhere else with as good a chance as Groupon of making several
_billion_ more dollars in a year?

~~~
erikpukinskis
TechCrunch reported they'll do 50m in profit this year, so it's not exactly
_cheap_. If they were to stop growing it'd take 100 years for Google to get
their investment back in cash.

The question is when they'll stop growing.

------
phillian
Groupon could have taken a lesson from my grandma:

"A bird in the hand is worth two in the bush."

$6BB today invested in AAA bonds for ten years will be more than their
corporate valuation after their deal hawk coupon site's novelty wears off.
Eventually Facebook, Twitter or Google will create better 'hyperlocal'
business models and monetize the long tail of local search with their massive
reach.

Good luck bros.

~~~
maxnucci
"A bird in the hand is worth two in the bush."

And said bush is surrounded by a ring of fire. And explosives. And zero
humidity.

Regardless, we don't have all of the data - hard to tell from outside

~~~
chunkbot
True, we don't have all the data, but we do know that those two bush birds are
already producing millions of dollars in profit a _week_.

------
sachinag
This was smart. Let's be clear: Google needed Groupon's local advertising
smarts more than Groupon needed anything from Google. It's not like free
AdWords would change the limiting factor on the Groupon model - the limiting
factor on the Groupon model is the speed with which Groupon can add cities and
salespeople: two things where Google can't help one iota. And, to date,
Groupon has shown an ability to expand faster into new cities/countries than
LivingSocial and all the also-rans.

I also don't think group buying is going away in, say, 20 years. It's such a
ridiculously perceived risk free way (no cash upfront? _fuck yeah_ ) for local
businesses - really, any businesses - to get additional visits/customers that
it'll be a part of the marketing mix forever.

~~~
slapshot
> Google needed Groupon's local advertising smarts more than Groupon needed
> anything from Google.

Except cash.

This was by far the best possible hope of returning money to the investors and
shareholders. Their fiduciary duty is to return money to investors. They
failed.

It was an absurd home-run valuation that any venture firm would be happy with.
And they are all but begging Google to compete head-to-head. Remember that
Google knows everything about you already (Gmail, Google Checkout, Google
Maps...); it would be easy for Google to target a buying service not only to
your city, but also to your exact buying habits.

~~~
drgath
"Except cash."

Like Twitter & Facebook, they have access to all the money they could ever
want. Plus, Groupon's revenues are through the roof right now, right on par
with Facebook's.

~~~
slapshot
"Cash" to return to investors, not to take from new investors. Taking new
investors (especially at such a crazy valuation) just raises the expectations
even further and makes Groupon have to take ever bigger risks.

I mean, seriously, a $6 billion valuation (if real) is $20 in _profit_ from
every man, woman, and child in the United States. Not revenue, not EBITDA, but
true profit returned to investors in 2010 dollars. That is a through-the-moon
valuation.

------
c2
I see a similar sentiment in this comment section that I saw around the time
Facebook rejected the 2 billion acquisition offer from Yahoo.

The fact is, this company has executed well enough to reach a large revenue
number very quickly. It's easy to say if you don't work there that they should
have sold, but putting myself in this company's shoes, I think their growth
potential is actually much higher not being a Google subsidiary.

~~~
earl
Yeah, but where's their moat? Contrast to FB -- the value of the network
increases as more people are in it. How does groupon build a moat? Just
because more people groupon, does it make competitors less valuable? Is it a
barrier to have emails from livingsocial _and_ groupon arriving in your inbox
every day? Groupon is almost the complement of fb -- fb had huge lockin, but
no obvious monetization method. Groupon has obvious monetization, but no
lockin that I can see.

I also question in the long run how many businesses have large enough customer
LTVs that selling stuff below cost is worth it to hook customers. Hearing from
eg hair salons that groupon people aren't customers but are bargain hunters
isn't promising.

My prediction -- in 3 years, groupon will regret this if they haven't found a
different sucker. Maybe comcast?

I'd be happy to be wrong -- it's always awesome when people succeed.

~~~
browser411
Groupon has a great network effect. They have 25MM users and tens of thousands
of local businesses. It's not as good of a moat as FB but still damn nice.

Also, I'd argue that FB has a very obvious monetization: advertising. They
supposedly generate $1B+ in ad rev.

~~~
notahacker
25 million members of a mailing list is not a $6 billion defensible advantage.

------
uberuberuber
For a company with no unique technology or equipment to turn down an offer
that ranks them as a mid-cap company is mind boggling to me.

Delta Air Lines has a market capitalization of 10B! And they have 725 freaking
jets!

Dr. Pepper has a market cap of 8B! And they have the pepper song!

CarMax has a market cap of 7B! And they have fleets of cars!

~~~
uberuberuber
And almost more than the GDP of the The Bahamas (7B)!

------
uptown
Groupon just earned themselves massive exposure. The media coverage of these
negotiations elevated their profile beyond their existing user-base and
solidified their reputation as the preeminent group-buying site.

------
nwmcsween
I really hope they understand that a large in use medium such as google itself
or facebook will simply clone functionality of groupon and tweak it for it's
user base ultimately killing groupon. Groupon has no 'stick' some person in
rural anywhere won't have a clue what groupon is or will use it but will know
what and might use google or facebook, and that's what counts - worldwide
recognizability with everyday use.

------
zone411
I think this a bad move by Groupon. I don't think they have the critical mass
yet to win over potential competition from Facebook or Google plus its AdSense
network. I see their margins getting smaller. If the numbers that were quoted
by the press were correct, it seemed like they had a good offer on the table.

~~~
drgath
A $5 billion buyout for a company with $2 billion revenues is not a good
offer.

~~~
zone411
I saw this $2 billion number in one report, but nothing close to it in the
others. I hope this one report doesn't count gross merchandise sales as
revenue. Anyway, EBITDA would be much more relevant and I didn't see anyone
claim that it's close to $2 bil.

~~~
foobarbazoo
Supposedly they are at $0.5B/quarter, so the $2B is an annual rate.

------
krosaen
Whether or not this pans out, I'm happy to see someone hold out on an
acquisition. _someone_ has to resist the temptation of an acquisition to be
the next huge thing, and this means groupon has a chance at being the next 100
billion dollar company. Plus, there in the midwest!

------
grandalf
Can anyone make the case for why this was a smart idea? The only argument I
can think of is that the founders would rather continue the fun of growing
their own business rather than having to hand it over to Google right at the
peak of its hype.

~~~
qeorge
The founders are already going to be super-rich. This isn't Twitter, Groupon
is already profitable and raking in the dough.

That gives them the freedom to ride this thing out and see where it goes.
Truckloads of money are great, but this is a chance to build a legendary
business.

~~~
edanm
"The founders are already going to be super-rich. This isn't Twitter, Groupon
is already profitable and raking in the dough."

Is there any chance that the founders of Twitter _aren't_ going to be super-
rich? Even if in 2 years Twitter is completely gone, I'm guessing that the
founders are already incredibly wealthy.

~~~
seunosewa
Groupon is profitable in just two years of operation. Twitter is still
figuring things out.

------
mlinsey
I'm not sure if this is the decision I would have made if I were on Groupon's
board, but as an outsider I am delighted to see this, because now we get the
chance to see if Groupon transcends being a mere coupon site and succeeds at
fundamentally changing the nature of commerce. How they grow into new areas
and defend their (from the outside, apparently) vulnerable turf will be
fascinating, and as an entrepreneur there will be a lot more to learn from the
Groupon story watching them be independent than seeing them become part of
Google.

------
ecuzzillo
Honest question: How many companies have had multi-billion dollar acquisition
offers from large public companies and then NOT gone on to have valuations
much higher than the offer? Obviously the ones off the top of my head--
Google, Facebook, whatever-- could be entirely survivorship bias.

Even so, my instinct when reading this article is that Google was stupid not
to double their offer, assuming they were going to be competent enough not to
ruin Groupon once they bought it.

------
mcarrano
I feel Groupon has had great success so far due to the economy.

Businesses are looking to make any kind of money while consumers are looking
to save as much as possible. Groupon offers this to both users.

I spoke to a family friend that owns a restaurant and ran a Groupon offer,
they are less than pleased with how it turned out. Never have they seen so
many "customers" come in and not leave tips for their waiter/waitress and none
are repeat customers.

------
ookblah
all you people calling them idiots, did it not cross your mind that they may
just enjoy running the business as it is and don't care for the massive
payout?

as long as they are making good margins they can do whatever they want.

~~~
hugh3
The people I feel sorry for are not the founders, who are going to be rich
whatever happens, but the early employees who _might_ have wound up rich
immediately with a Google buyout, but now have to face ongoing uncertainty.

~~~
dbrannan
I don't feel sorry them at all. Not one little bit - it's a job, you work, you
get paid, life is good.

Who I feel sorry for is people who are not employed and are trying their best
to keep their heads above water.

------
phodo
another plus for rejecting the goog: if groupon continues on and goes public /
stays independent but super-profitable, then there is _one more company_ that
can serve as acquirer to all the great stuff produced from this community and
others, especially ecommerce type startups. more fat wallets as acquirers =
goodness all around for hacker news and friends. just sayin.

------
Abid
Something to bear in mind: these Groupon guys are some pretty business savvy
dudes. They've started several very successful companies in the past and
likely have a very good idea of where they're going with this. I wouldn't
dismiss their rejection so hastily.

------
anigbrowl
Lucky escape for Google if true. This is not the long term shopping model
you're looking for.

------
olalonde
You know what's cooler than six billion dollars? Nothing, you idiots, take the
money.[1]

[1] <http://twitter.com/#!/DavidKaneda/status/10857535430983680>

------
jfb
Balls of brass.

~~~
mogilny
brains of ass

------
asianmack
Just read this to understand why.

[http://37signals.com/svn/posts/1927-the-next-generation-
bend...](http://37signals.com/svn/posts/1927-the-next-generation-bends-over)

------
olalonde
I don't get why Google doesn't simply clone Groupon. The barrier to entry
seems very low and I can't imagine how they couldn't replicate their business
for 5B$.

------
jdavid
Does anyone else think this dance was just to get a baseline valuation from a
serious buyer before they IPO'ed?

It seems like there is too much resolve in this decision to pass.

------
ck2
The photo on that article is surreal.

Looks like a smug teenager in a t-shirt surrounded by old men in suits,
grinning (at how much money he's making them?)

------
taphangum
Groupon has just missed their bebo moment.

------
okeumeni
You're making a mistake Groupon!

------
mkramlich
Rule of thumb I have: never never never never never _ever_ turn down a $6
billion buyout offer. (If I don't already have FU money in the bank.)

So much about software buyout valuations is based, directly or indirectly, on
speculation and fads that you're taking a huge gamble to turn one down.

------
inscitekjeff
Another damn student of the Jerry Yang school of acquisitions. #fail

------
duffbeer703
That CEO guy looks as douche-y as the Facebook guy.

