Update 2: We’ve also learned that Google will pay out 80% of a business’ revenue share three days after its deal runs. Google will hold the remaining 20% for 60 days to cover refunds before sending the rest.
This is a pretty significant piece of the news. With groupon famous for its slow payment terms, 3 day terms may look very attractive. Cash flow management is a big portion of running many small/local businesses and with most of their vendor terms from 7-30 days the 30+ day delivery from groupon can turn a big success into a big problem. This sounds like a great sales differentiator for them.
Even if google doesn't get significant traction out of the gate, if this forces groupon to abandon their aggressive floats it could have a real effect on how good their financials look leading up to an IPO.
Imagine if Google was willing to take a significantly lower revenue share on the deals to gain market share. A big reason everyone is so breathless about the business model is how crazy the margins are. If google was willing to throw a significant amount of the $6B offer price at a promotional pricing structure they could seriously slow down the rate that the competition expanded markets.
Let's say they spend not 6 but 1 billion dollars to make this work, over the next 3 years. That means they can spend 1000000000/365/3 = 1 million dollars a day on providing awesome deals, for 3 years.
If the businesses were worried about cash flow, I think the 75% haircut would be the bigger issue. Also, they will likely be pre-paid for a large percentage of their Groupon patrons (I have many I haven't used from months ago) and not everyone ends up using their coupon.
Businesses flock to Groupon because its popular and puts them in the spotlight for a day to tens or hundreds of thousands of local people on their mailing list and twitter followers.
It seems to me that with this launch, Google has become more like Microsoft when Google was gaining some sort of ascendancy - a juggernaut that is so afraid of the upstarts that they chase the shadows of the next big thing, in this case Groupon.
The local search & commerce space cannot possibly only look like Groupon. On Hacker News, we have seen people try different models & different variations. There are some ways that doesn't even rely on deals. Just yesterday we saw http://getpunchd.com/ a mobile play on loyalty schemes.
And Google has Android, a mobile OS coupled with what was once and possibly still the best mapping site on the web. It would seem figuring out how those two combined can be the wedge into the local space should be their priority instead of being scared into creating a clone.
They tried to buy groupon, having that fall through doesn't it make a lot of sense to create a business doing the same thing you were going to do with groupon? These deals are embraced by a large number of people, why try and innovate into a new model that regular people don't get or like when there is already a perfectly good one out there with heaps of traction.
Except that Groupon is a "people business", with lots of sales and support staff. This is antithetical to Google's culture. I'm not at all sure Google is going to win this battle. Will be interesting to watch.
Google has plenty of salespeople as is and has bought plenty of companies with a large number of salespeople (Doubleclick/Admob). They were also willing to take on Groupon's thousands of salespeople with the $6B offer.
Probably Googles competitive advantage over Groupon is that they ought to be less reliant on direct salespeople than Groupon were because of their existing visibility and customer base and the vast number of external marketing/SEO/design businesses that will happily recommend their customers try Google promotions for a small commission.
just like they try to beat youtube with google video .... or Facebook with okkut..(not sure how they write it ...) ... if they cannot buy it they create a clone...so far they fail...
I don't know that the last part of that is accurate. Pretty much all successful products that Google has built have in some fashion (as loose as you are suggesting at least) been clones. Search, Adsense, Gmail, Reader, Maps, Chrome, ...
1. Gmail - The history makes it seem like an internal project that became public. Wasn't started to beat some new hot startup earning the attention of the fawning public & investors; wasn't built to muscle into the territory of some startup earning bucketloads of cash.
2. Maps - Was about building a better way to distribute maps on the web. Again, not about muscling in onto a hot new space.
I somehow doubt that Google offers is a very high level decision where the space has been thoroughly analysed by many people. What I mean is, google offers probably looks the way it does as a result of an agile process handled by engineers, this is the corporate equivalent of an MVP, and it's like this because it's easy, not because it's good.
This create a really interesting dilemma for Google. A significant portion of Groupon's subscriber base comes from the Google Ads they are running.
Now Google can either:
1. Ban Groupon from advertising on AdWords
2. Use the CTR and conversion data from Groupon's campaigns to learn exactly how to target ads for Google Offers.
Since they have massive amounts of data from Groupon's campaigns, it's definitely feasible for them to capture lots of their traffic. But will they really run Google Offers and Groupon ads next to each other?
> Now Google can either: 1. Ban Groupon from advertising on AdWords 2. Use the CTR and conversion data from Groupon's campaigns to learn exactly how to target ads for Google Offers.
These are exactly the kinds of questions that the "don't be evil" motto is supposed to answer. That phrase has been flung around over the years by people who get angry at Google for this-or-that, but during the time I worked there, I found that the most common internal usage of the phrase spoke directly to ethical dilemmas like this. I have a feeling they've kept that in mind while building this product.
They'd be sued for doing 1. plus it's unlikely given that they accept Bing which is an even more direct competitor. 2. is probably illegal. Don't think it's worth it for google to put itself into so much trouble.
If it's illegal, I suspect it's only indirectly so, by some roundabout after-the-fact fair-trade-practice or antitrust analysis, based on Google's dominance of search advertising. Which means: very arguable and not much of an up-front deterrent for a motivated competitor.
In their privacy policies – which concern 'personal information' with far more legal sensitivity than aggregate ad/transactional data – Google pretty much grants themselves carte blanche to "combine the information you submit under your account with information from other Google services or third parties in order to provide you with a better experience and to improve the quality of our services" and/or "Provide, maintain, protect, and improve our services (including advertising services) and develop new services".
I doubt it, but maybe if they did explicitly use Groupon's data directly from their campaign. If they just look at searches and clicks then all that data is surely theirs to use.
it is phony practice though it will be really hard to prove that certain decisions made by Google were based on analysis of AdWords data from Groupon campaigns.
You mean like, say, search or cost per click advertising?
Google routinely uses it's position as market maker in search and Internet advertising to gain an advantage on other participants on the Internet.
Take AdWords. Many smart people, including many people on HN, think that AdWords is an auction. AdWords is not an auction. AdWords has a price discovery strategy which is partially auction-like, but the actual ad displayed will be a) from whomever Google darn pleases at b) whatever price Google darn pleases. (In addition to being best at the world at processing large amounts of information, Google isn't too shabby at PR, so they call this Quality Score and tell people that the revenue maximization strategy for the world's largest advertising firm is in people's best interest... and people believe them.)
In addition to displaying explicit preferences for particular businesses and for/against particular business models, Google uses large amounts of proprietary black magic to determine minimum pricing. For example, keywords in a field known to be awash in money with no competition will not be priced at the systemwide minimum price, but will rather be priced much higher. The exact level is, again, wherever Google darn well pleases. They have teams of very smart people working on revenue maximization.
I love AdWords. It's the best idea any corporation has come up with in the last twenty years, and is largely responsible for me being at my kitchen table right now instead of being miserable in my cubicle. But let's not kid ourselves: Google is not a one-off gentle giant surrounded by 499 for-profit corporations on the Fortune 500.
Google is the world's largest affiliate and the world's largest search arbitrageur, and they ban affiliates and search arbitrageurs all day long. This is so that they capture a larger portion of advertising spend and do not leak it people who they believe do not add value.
(Google is an affiliate: they do cost-per-action advertising on behalf of customers. Google is a search arbitrageur: they have a large source of searches which they can acquire cheaply, a large number of pages with content which is not quite responsive to user needs, and advertisers who are willing to pay for targeted traffic. The difference between Google and other search arbitrageurs is that typically the arbitrageur outsources the search engine and owns the content, where google owns the search engine and outsources the content to its AdSense partners.)
You can redefine anybody's business to look like he is competing with anyone else. The point is, those Bing and Yahoo ads still run on Google, so maybe there is some other reason for banning some affiliates, eh?
Google has enough publicity power and local business relationships (AdWords, Places) that they will have less trouble than anyone else signing up businesses to be part of the deals. Probably even FB. Then, they also have their ad network and services (gmail, search, maps, etc) to sign up users and promote offers. This is 2 good solutions for problem #1 for a local business deals network.
Google is making a smart move. Most of the bigger deal sites share an uncanny similarity - they are called "clones" for a reason. And the way to stand out is to offer better deals. I have gotten the Groupon newsletter since they came to NYC, and I have never bought a deal. And I am usually a very compulsive shopper. There is not enough variety and nothing is that compelling. The way to stand out is to target deals better so you can make money on margins instead of volume and offer more lucrative deals for businesses. FB may have as much data, but Google has shipped better big-data targeting than anybody else. You need to acquire, sort, and analyze the data, and then have the relationships to exploit your insights. And as location, purchase history, and timing come into play, the data is going to get big if you want to target deals well.
This. The notion that Google would even need to resort to low brow tactics other people are mentioning (like snooping on Groupon advertising data or banning them outright) are pretty absurd, obviously immoral and completely unnecessary for this to work. I've also been a Groupon member and after not seeing anything compelling for awhile I'm starting to dismiss it as spam.
Google has a ton of users on the business and consumer end, and a ton of public trust despite all this recent rambling. For the price they were going to pay for Groupon they can make this work. They will be able to attract offers that can appeal to a wider audience do to their sheer volume of their current business clients who are already earning solid ROIs advertising from Google and could easily be enticed to give this new Offers thing a try.
The one question I continue to have in a situation like this is the "bytes v. beings" approach. Self-service is very compelling and certainly the "holy grail" of local advertising, but more often than not, the onramp to Google for small business is AdWords and that's hard, really hard to understand for a small business owner. I'm not sure if the small business owner is really reading through Google's AdWords University documents and watching the YouTube videos. You're going to need people to sell to people and not just bytes on a screen.
The salesforce, in the immediate term, I feel is the largest initiative Google needs to take on. Demand will always be there, especially across their widespread network. Just get the best merchants (note: quality of the deal is still important in large markets like NYC) and perfect the sales process.
> I'm not sure if the small business owner is really reading through Google's AdWords University documents and watching the YouTube videos. You're going to need people to sell to people and not just bytes on a screen.
This is so true. We've just launched a Groupon-clone a couple a months ago in an European country which has a high percentage of Internet penetration, but even though we've built a very simple online system for the business owners to be able to check the redeem-status of the coupons (once the deal is over), there's the problem that more than half of them don't have a computer or Internet connection at the POS. So right now we email them an Excel file with all the coupon codes which they can print at home. Now, asking these people to know about AdWords and such... I don't see how the situation in the States would be so much different.
I'm not subscribed to the newsletter (use fake emails to get in), but every time I've checked Groupon it's been something that is really not applicable to me. One day it was carpet cleaning, another day junk removal, and today laser hair removal. I'd think that Groupon would go for things that have a wider appeal, like food or entertainment. Oh well.
If only we could short Groupon and LivingSocial. I would prefer Google Offers to Groupon any day and I can see stores in less tech savvy areas preferring to offer deals with Google Offers versus Groupon (which they've probably never heard of) just because of the brand name.
Wow that's ugly. I don't know if the Google brand is the best thing for them to use here, maybe they could have bought a lesser Groupon competitor and kept their brand. It seems from the outside that Youtube is one of Google's most successful purchases because they kept it a little separate.
One of the reasons Google may fail at this is the support call center.
Groupon has large and professional support call centers that around the world that takes care of customer inquiries, something very distant to Google culture
This behavior is essentially what Microsoft did from 1985-2000. Companies that turned down offers saw their software cloned within 2 years, and sold at a discount or bundled with other MS products.
Exactly. I can't wait until some YC companies start being at the receiving end of this behavior so the insane level of Google worship on this site can finally go away.
I wouldn't be so quick to cede things to them. How many other areas have they entered recently and killed, especially ones that are fundamentally non-technology based?
Is it just me or does Google seem to be really bad at acquisitions and/or executing this sort of competitor-cloning operation? I don't know if they're below-average, but it seems that a year later, nothing you read about them doing has ever worked out. Except maybe Android.
They seem to bat maybe .200 with successes, but the thinking here is probably "Why not?". It costs them almost nothing, takes very minimal effort, and at worst creates another revenue stream for Google.
Google Maps was a successful acquisition/competitor clone. Google Finance is also successful (a clone of Yahoo Finance basically). Those are the only two others I can think of off the top of my head.
I don't think Google is particularly below average here though; I think it's just a risky strategy to clone something. You often miss a critical non-obvious piece of the puzzle, because only the surface of the business is visible when you're copying it.
I for one welcome more group-deal sites, I think we all win, as long as they are reputable.
I wish however Google instead had taken on PayPal more directly and more intensely and even make an ebay competitor (google base will never be ebay or even craigslist).
PayPal/Ebay is rolling in profit, I am not sure why Google doesn't want some of that.
eBay is certainly an aging service. It has had very few significant feature changes since perhaps 1998 or so. However, it does have a fair amount of competition (amazon and craigslist being the best examples). Most of the competition for eBay comes in the form of catering better to particular segments of the market. Craigslist caters more to the yard-sale segment (timeliness, locality, and just-getting-rid-of items being more important than maximizing revenue or selling/buying niche items). Amazon caters to small, niche sellers (people selling lots of used books, or trans-shipping medical supplies, etc.) More competitors will come along targeting more and more segments of eBay's current market.
Paypal is a different story. It's a very much harder business on the fundamentals. One of the world's largest financial institutions which has grown up in the blink of an eye and faces problems on a scale that no other bank in the world faces. Criticism of paypal is often fair, but sometimes it's ungrounded from perspective (of the "garsh, why don't these piece of junk hover-shoes work right?" variety). The real criticism should be toward our archaic banking systems and regulation. The services that paypal offers should ideally be built into any old bank account, but they aren't because the system is so heavily regulated and still married to outmoded ideas.
Ok, help me understand this - if Google really wanted to get into this business, and if they couldn't acquire Groupon, then why didn't they try to acquire Groupon clones like LivingSocial, and many more? What could be rational behind starting from scratch?
After Amazon's investment into LivingSocial, the valuation shot into "over $1 billion" http://techcrunch.com/2010/12/02/livingsocial-confirms-175-m... but controlling only 8% of the market, vs Groupon's 79%. It would have been a very expensive acquisition.
For everything else near 0% market share, Google can probably easily get ahead on its own brand name.
Google acquires mainly technology and talent, or in some cases it would pay big bucks to acquire marketshare.
There is not much technology behind group buying things.
And none of the Groupon competitors have the marketshare Google wants.
Thats why it makes more sense for Google to spend that billion dollars on advertising/promotion etc. to gain probably more marketshare than getting LivingSocial's 10% or whatever.
Anyone who thinks Groupon has been caught off guard here - I highly suspect this was part of the preliminary due diligence process in order to get the $6 billion figure on the table when the offer was made.
In fact it seems like it would have been one of Google's bargaining chips to get a better price. "We offer $6 billion - you'd probably better take it because our BATNA is to launch Google Offers in Q2 2011..."
With the 200+ million gmail email addresses that Google has access to, Google can instantly become a major competitor to Groupon & LivingSocial assuming a certain percentage of gmail users agree to try it.
It seems that each large internet company has its own deals site now: Google with Google Offers, Amazon with LivingSocial, eBay with Groupon, and Facebook seems to be developing its own type of daily-deals advertising.
I wonder what Apple and Microsoft will do. Both of them probably have something in the works....
If I were a Google investor I would be watching this very closely for two reasons:
a- See how Google overcome their issues in dealing with customer service and related things. They'll need to get better at this stuff at some point to have the widest possible scope for trying new things.
b- See if they can pull off another extension of their core business. Adwords is the ultimate small business advertising platform and Groupon is another part of that world.
Am I the only one concerned that Google is acting more and more like Microsoft?
Initially it was courting Groupon, and no doubt got a chance to dive deep into the bowels of the beast - and got a no holds barred look into their business and books, and because they got rebuffed or the deal fell through, they now take that knowledge and build a competitor.
This not the first time either. If I am not mistaken, that's how Google Buzz came about. They wanted to buy Twitter, kinda went through the same process (if I remember correctly) and then when it fell through launched their own version.
I, for one, am no fan of copycats - but competition is good. It keeps Groupon honest.
Kinda concerns me, though, that Google has become more bare-faced with this type of action.
Still a google fan though, and won't be migrating my gmail and Google Apps accounts any time soon.
I'd like them to integrate the business management portion into Places. That would give companies more reason to create a Places page and keep the information current.
Then I'd create a mobile application so that coupons and management could be done from phones or tablets. This would help with the small business that doesn't have a computer or internet beyond CC processing.
I think the consumer side of this should just be a way to redirect people to the Places page of a business and highlight the coupon that business has available.
Orkut may not have predated Facebook, but it predated the wide spread of Facebook--as I recall, I was able to use Orkut before Facebook expanded to my college.
FWIW I was introduced to Groupon by two people far removed from of tech circles. When I first tried it, it didn't even really occur to me that I was looking at a hot startup. I think its mindshare is plenty good among non-tech people in urban areas.
I would say Groupon is better known outside of tech circles than in. Most non-techies I talk to say "Oh, Groupon, it's so great and I love it!" Most techies say something like "Meh, nothing innovative, no defenses, it's a fad."
[Disclaimer: I work for Groupon and live in Chicago]
Classic Google. First they try to buy Yelp.com and that fails, so they build Google Places (TBD if that turns out to be more successful). Now they tried to buy Groupon and failed and now they're potentially creating a clone of that instead. I guess these are classic examples of Build vs Buy.
I think I saw a very interesting economic analysis behind what Groupon does posted here on HN awhile back. These type of offers supposedly solve certain coordination problems, but I can't remember who captured most of the surplus: the public, businesses, or both. Anyone have a link?
'With its vast reach, huge resources and brand recognition, it could prove to be a powerful player in the space.'
Yeah, just like it did with Buzz.
Though this time it actually has more shots at it.
I wonder when Groupon will become a verb for falling out of relevance due to one trick pony/smarter competition. I guess MySpace'ed or Yahoo'ed never caught on.
Google will offer local business bundled QR services. Imagine walking up to a restaurant window. snapping a QR photo, or google goggling, and having the menu displayed on your android, and maybe offers you a daily deal.
Google wins in mobile, and entrenches itself into the local ad space. Can Apple Do this?
This is a pretty significant piece of the news. With groupon famous for its slow payment terms, 3 day terms may look very attractive. Cash flow management is a big portion of running many small/local businesses and with most of their vendor terms from 7-30 days the 30+ day delivery from groupon can turn a big success into a big problem. This sounds like a great sales differentiator for them.
Even if google doesn't get significant traction out of the gate, if this forces groupon to abandon their aggressive floats it could have a real effect on how good their financials look leading up to an IPO.
Imagine if Google was willing to take a significantly lower revenue share on the deals to gain market share. A big reason everyone is so breathless about the business model is how crazy the margins are. If google was willing to throw a significant amount of the $6B offer price at a promotional pricing structure they could seriously slow down the rate that the competition expanded markets.