Group Think

30 11 2010

It’s beginning to look a lot like Christmas. There’s a chill in the air. The skies grow dark in the dinner hour. And everyone is doing their shopping.

Including Google, apparently, for the search engine giant is rumored to be very close to acquiring Groupon, the online social coupon site. Rumors have been flying as to the price of this possible purchase, starting at $2.4 billion yesterday, and now rising to somewhere near $6 billion.

Yeah, I said billion.

If you have never heard of Groupon before, you have either been living in a cave, or hanging out in Amarillo TX. Not that Amarillo is a cave, mind you. It’s just that Groupon only recently added Amarillo (as well as nearby Lubbock and Midland) to its list of cities. Basically, Groupies get an email alerting them to the local deal-of-the-day (usually about 50% off some product or service). If a certain minimum number of people commit to buying the coupon, the offer becomes reality. Groupon then keeps 50% of the already-discounted price.

Today, for example, the deal was for a $15 dining experience at Cattle Call BBQ for a low $7 (a 58% discount). Groupon keeps $3.50, which means that Cattle Call is willing to let people dine for a pittance. Of course, the hope is that Cattle Call will reap new customers; by reducing the risk of trying the restaurant in the first place, Cattle Call is darn near giving the food away just to get us to taste it.

So what’s in it for Google? Plenty. Google understands there is a huge future in social advertising, and since Google is really just an advertising company masquerading as a search engine, this is a beautiful fit.

Groupon is considered by some to be the fastest-growing company ever, worth a reported $1 billion, and has 2700 employees at its Chicago office. Lots of words and phrases come to mind when describing Groupon: Feeding frenzy. Flash mob. Viral. And with membership free and growing exponentially in each market it adds, local businesses would be remiss (even foolish) to pass up the opportunity to participate. After all, their participation is free as well. Any new business would be well-served by Groupon, because it could generate the initial trail that is so sorely needed to lift a store off its feet.

But is it wise to spend $6 buying a company valued at “only” $1 billion, one whose revenues last year were $500 million? I know…I speak of billions and millions as if they were coins in my pocket, but the ratios are still the same whether we are counting nickels or gazillions.

And my answer is a resounding Yes. Google wanted to buy Facebook a couple of years ago, but could never get Zuckerberg to given them a listen. Since that time, Google has foundered about like a fish on the beach, trying to figure out how to go social. Groupon is an opportunity they cannot afford to miss out on, because rival Facebook could just as easily be interested in the acquisition. A bidding war could get real expensive. One thing is for sure: The price is not going to go down from here forward, even if the internet, free markets, baseball, apple pie and the US economy all fall into a pit. Unless you and I and a bunch of our friends can gather up enough dollars to thwart both Google and Facebook.

I’ll trade you a $7 BBQ dinner for your share.

Dr “Get Your Group On” Gerlich



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