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Is Google Offers a Threat to Groupon? Um, yeah!

Posted January 26th, 2011 by Andrew Goodman

Since Google leaked the news that Google Offers is in the works to compete head-to-head with GroupOn, people have been rightly wondering if this news is big enough to hurt GroupOn’s momentum; big enough, even, to put a big dent in GroupOn’s rumored target IPO valuation of $15 billion (let alone GroupOn’s ability to bail out for $1-2 billion in the world’s most overpriced fire sale)?

Um, well of course this is going to hurt GroupOn, even if Google absolutely buggers this up, it’s going to be part of a channel-jamming, noise-creating nuisance for consumers… and that will cause GroupOn to ultimately recede into the background rather than continuing to benefit from consumers’ interest in deals and willingness to pay attention to GroupOn’s interruptions based on the novelty effect.

To be sure, Google has a history of failing to break into verticals using its size and influence alone, as this analyst suggests.

The bigger question becomes, what is the business that GroupOn has found itself in, anyway?

I’ve been mulling that over, and before the Google Offers leak came out, talked with some business owners who had successfully run big promotions through GroupOn and LivingSocial.

To build such a big revenue business so fast is astounding. It’s astounding because every media company wants to offer this type of access to customers so they can charge advertisers/businesses for that type of access. Old content companies did it with old-school controlled distribution and expensive content. New media companies have come up with rare breakthroughs in the degree of permission consumers were willing to give them: Google as a huge aggregator of other people’s content; AOL to Facebook as digital environmnents; etc.

GroupOn? Sudden growth into being identified with deals; opt-in email that people sign up for.

The barrier to entry? Well, at first maybe it might have seemed like the brand name might help GroupOn stay on a permanently elevated plane.

But if others are willing to spend and shout and bully their way into consumers’ minds and inboxes too, then GroupOn becomes a flash in the pan, drowning in noise.

One analyst compared GroupOn to other flameout companies; most amusingly to those in the tech sector, Iomega.

Google may or may not be serious about winning in this space for the long haul. Regardless, Google needs to spend relatively little on PR, banner ads, and other creative methods of promoting Google Offers, to potentially drive a stake into the heart of GroupOn’s aspirations for a quick IPO. A couple hundred million dollars less in GroupOn’s IPO coffers is that much less competitive banner advertising, competitive hiring, business development, etc. that Google would need to worry about.

Worse, GroupOn and the other first movers will face severe pressure on the arrogant revenue shares they’ve demanded from businesses in return for access to their deal-happy customer lists. Google, and others, will undercut them. (This is one of Google’s primary segment-entry tactics. It kept AdSense ad revenue shares high for publishers, which made it hard for similar display ad networks to woo publishers; it undercut Paypal rates with Google Checkout.) This makes GroupOn’s business — and the whole deals sector — less profitable in a hurry.

Does that mean Google will win or lose here? Well, it’ll be an expensive win if they get there.

Google may have consumer attention in general, but consumers will still need to willingly opt into this service and then and pay attention to the deals. Google has had notable success in gaining (eventual) GMail adoption and even Chrome browser adoption, so if it’s in something for the long haul, it can gain mass adoption. But to get there, Google will need to promote the heck out of this to get folks to sign up, and when they do, guess where a lot of people’s Offers will go… yes, into the same spam-box they’ve set up for the other offer sites.

It’s a crowded space, with very low barriers to entry but high effort and expense required to gain opt-in, especially now that the GroupOn novelty has worn off and deal fatigue is setting in. That means an uphill climb for all players. And a win for those consumers who can put up with the deafening din.

9 Responses to “Is Google Offers a Threat to Groupon? Um, yeah!”

  1. grammar nazi says:

    Wow. was the title written by a 3 Year old?

  2. wewa says:

    The writers technology naiveté shows.
    Its written Groupon and Gmail. There is no 2nd uppercase letter.
    I’m surprised that FaceBook and IoMega didn’t show up as well. :)

  3. Bill laidlaw says:

    It has been said elsewhere that Groupon is all but unassailable because of their irreverent writing style. Huh? We are not talking Robbins or Swift here.

    Kudos, they were first to act, that’s it. Turn down six billion after less than two years in business? In a “teach the greedy a lesson world” Google takes them down.

  4. Andrew G says:

    Technological naivete? LOL… the luxury of a “non top tier, non news organization blog” is that at the end of a full day of real work, when I post, I don’t always look up all the silly capitalizations in the company names. I just write. What have you done for me lately? Feel free to post samples of your work.

  5. Bill Laidlaw says:

    They are hiding behind fictional names and non-photos Andrew. Could it be a requirement in the Groupon employee handbook?

  6. If Google treats Google Offers advertisers the same way they treat Adwords advertisers, Groupon has nothing to worry about.

  7. Sylvain says:

    Some companies may actually be much better positioned on the local business market already to compete with new entrants like Google or Groupon.
    I’m thinking of what the Yellow Pages are doing in Canada with Deal Of The Day.

  8. Sylvain, good point. Deal of the Day – from your Red Flag Deals property – is coming out of a company that has a longer history of cultivating the audience of customers seeking deals, so presumably will not turn out to be a “flash in the pan”.

    Google, meanwhile, will enable Offers for virtually any business that has a Google Places listing, so it can capture and captivate any consumer doing any local search and displaying Google Maps. (Huge audience).

    Admittedly I am a rookie to this Daily Deal, Offers, Coupons type space, but I look at the “choke points” and the cost of access to customer acquisition vs. the noise in the space and the competition for attention and profit margins.

    I see threats coming at gRoUpoN coming from many directions.

    I also see the potential for exciting evolution in the space.

    For me as a consumer I don’t feel like looking at untargeted deals. If I could just be alerted about great deals on big tropical plants, if I’m in the market for big tropical plants, it would make sense.

    Either this points the way towards a better consumer experience in the future, or the channel gets even noisier as Kijiji, Amazon, Craiglist, etc. duke it out for the same market.

  9. Sylvain says:

    I couldn’t agree more Andrew, I do get those offers for spa and hair removal services in my inbox from times to times, and I admit I am not very likely to ever buy one of those (I am rather proud of my body hair). I suppose that the whole industry is going to become better segmented and targeted as it grows and gets mature (and the least serious competitors are probably going to disappear).
    By the way, congratulation for spelling gRoUpoN with proper casing, I am sure some of the commenters here will appreciate the effort ;-)


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