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Google?s alleged $6B Groupon acquisition: cash cow or albatross?

If the rumors are true and Google does pay $6 billion or so for deal-of-the-day discounter Groupon, it could either take mobile couponing and local advertising to the next level or be a huge waste of money.

If the deal goes through, it would be by far Google?s priciest acquisition to date?it paid $3.1 billion for DoubleClick and $750 million for AdMob. However, despite the popularity of Groupon?s online and mobile platforms, the benefits of the acquisition are not immediately apparent, especially given that the business model seems easy to replicate.

?I?m following [the acquisition rumors] in disbelief,? said Sucharita Mulpuru, New York-based principal analyst at Forrester Research. ?The valuation seems unreal and if it goes through, it will be to Google what Skype was to eBay?an albatross around its neck.

?I don't know why Google is considering this to be honest,? she said. ?I don't see synergies with its other acquisitions and I don't even really see how this supports its core search business.?

Mobile, local, social
Founded in November 2008, Groupon has received $173 million in total funding, and its April 2010 valuation was $1.35 billion.

Groupon?s revenue was $30 million in 2009, and it is projected to be between $300 and $500 million this year.

At the beginning of October there were approximately 25 million subscribers to Groupon?s daily emails, and it gets 10 million unique users per month.

Groupon will support 100 cities by year-end.

Groupon lets consumers purchase, manage and redeem Groupons?time-sensitive, location-based discount offers, or ?group coupons??directly from their mobile device via applications for the iPhone and Android.

Application users can browse and buy local deals, search nearby Groupons using GPS, keep track of all their Groupons by location, date and expiration, and take advantage of paperless redemption.

Typically Groupon sells anywhere from 500 to 500,000 coupon units for a local retailer.

Groupon claims there is no other model where consumers are already paying customers when they walk in the door.

In one example of a recent Groupon campaign, Gap acquired 5,000 customers in one day.

Local commerce is very social, and mobile and local go hand-in-hand.

It makes sense for online and offline retailers to be where consumers are most engaged, and that is on their social networks and mobile devices.

Groupon is primarily a new customer acquisition vehicle, but depending on the margin of the business, a Groupon campaign could generate incremental sales.

A lot of the categories Groupon deals with have very perishable inventory, which if unused is a lost revenue opportunity.

Groupon claims that it tends to see a lot of businesses at least breaking even with deal one, and generating consumer loyalty that more than makes up for that margin hit they take from the discount offer.

Google's social strategy has not been announced, so it is difficult to know how Groupon fits.

?On the one hand, Groupon has been tremendously successful at drawing millions to its deal-of-the-day service,? said Augie Ray, San Francisco-based senior analyst of social computing at Forrester Research.

?On the other hand, Groupon is facing increased competition from similar services such as Living Social and Plum District, and there is little magic to offering a single deal every day,? he said.

?Google could launch their own similar service without acquiring Groupon, which leads me to believe they are either interested in acquiring the minds behind Groupon or feel Groupon's large customer base can be leveraged to even greater effect when combined with AdSense, Google Maps, Google Places or other soon-to-be-announced Google social programs.?

Mobile local advertising
While many are skeptical about the potential benefits of Google acquiring Groupon, others see a wealth of possibilities.

Google recognizes that the future of advertising is local, which is evident given its recent initiatives such as Google Places, Boost and Hotpot.

Mobile local advertising is a huge untapped market, and while many recognize the immense potential there, few have been able to crack the nut, at least at significant scale.

?I imagine [Google] would be interested in Groupon as a way to expand its reach and capabilities into that notoriously difficult market,? said Allison Mooney, director of emerging trends and planning at Omnicom Group's Tribal DDB/MobileBehavior, New York. ?People are responding to Groupon and it has seen tremendous success in local advertising.

?Meanwhile, it is amassing a wealth of data on things like spending habits and pricing information,? she said. ?This could be very compelling to Google.

?Likewise, the data Google has would help Groupon better target their deals.?

Google will certainly be expanding its mobile coupons offering, whether this deal happens or not.

How could Groupon fit?

?Well, they already have mobile couponing through their Place pages, so they could integrate Groupon with that self-service platform,? Ms. Mooney said. ?They could surface Groupon deals in Google Maps when users are conducting local searches.

?Through Google Goggles, you could see Groupon deals by taking a picture of a store's logo, perhaps,? she said. ?Hotpot could recommend highly-targeted nearby deals based on places you've saved or rated in the past.

?Or, since Groupon is email-based, they could weave it into Gmail and make it easy to invite your Google contacts to join deals with you through email, chat or SMS.?

Final Take
Dan Butcher, associate editor, Mobile Marketer