Groupon turns down a $5.3 billion offer from Google. What's the thinking behind the rejection? I understand that they're top dog with an international presence, with projected revenue of $500 million in 2010 (http://en.wikipedia.org/wiki/Groupon), but this seems crazy.

These coupon/daily deal businesses are popping up like zits on a teenager. I doubt there's much if any loyalty to Groupon, everyone I know just scans through the multitude of offers they get each day from various sites and buys what they want.

It's a brilliant concept, and I know $5.3 billion doesn't buy what it used to, but it just seems like quite a gamble to assume (if this is what they're assuming) that their growth will continue unabated and they're going to be worth many times the $5.3 billion if/when they roll out their IPO.

This grossly violates my Number 1 Rule of Business: "You're handing me over a billion dollars? Yes, I'll take that right away."

Well yeah, there's that. I was just wondering what I'm missing here. Maybe it's the utter confidence that Groupon seems to possess that despite the competition they're going to be just fine.

I know nothing of Groupons funda. but thats a a lot of money for a coupon company.

didn't such money existed even in the coupon industry.

I was floored by both the offer and the rejection. Then again today's SF coupon is half off a night at some place called Costanoa in Pescadero and 935 people have bought it already- that seems like one helluva response.

cool idea, looks to be the fastest online company to make a billion

Mason only has 10% apparently, so he's more in line for $600M, but I take your point.

Wow-- according to this article in Inc. they take about a 50% cut of the sales. What a business model.

http://www.inc.com/magazine/20100401...ost-sales.html

Yes, they take a huge cut. At least some of the businesses regret their deal offer on Groupon.

I think not taking this money is a mistake.

It's going to be interesting to see how their expansion plays out. They're already in about 150 U.S. cities and obviously have all the major ones covered-- how much upside could they possibly have? A similar site, HomeRun, is coming on with social media tie-ins, others like LivingSocial are up and running... at some point somebody's going to undercut Groupon's fees and start chopping up the pie, no?

I'm involved in something that takes that concept much, much further
and some of the companies we're working with see that kind of value
to come.

I think there are easily billions out there in this field.

same basic deal of the day biz model, toronto?

i wouldn't have paid $6B if i were google, bc i don't think their biz model is sustainable, but they might be able to use their current success to expand into other things.

What I am involved in is not a deal of the day type thing but more
of a system of directly targeting marketing offers (among other features)
to specific consumers based on their known preferences and experiences.

It is much more robust but essentially allows say Coke to target
Pepsi customers with offers while not wasting efforts or hurting margins
by targeting Coke customers. Other features also add value to clients.

I can't say too much because part of the code is still being written but
initial response from potential clients has been positive enough that I left my
job to work on this full-time.

lol

I haven't looked into the company itself specifically but my girlfriend is addicted to the spa coupons and probably has visited half of the spas in NJ and NYC.

I think they are going to end up regretting not taking the offer. It has been a few months since I looked at Groupon and how they run their campaigns so maybe they have changed things since then but if they haven't the company has a two years max before only very specific types of business will be willing to do campaigns.

The problem with Groupon is that while it seems like a good idea it is actually a horrible idea for most businesses. While it might get people in the door of your business the cost is very high when you consider that you have to discount your product / service usually by 30%-60% and then Groupon keeps half so you end up with 20-35% of what you normally charge minus all the credit card processing which comes out of your end. To make it worse Groupon holds the funds and releases them to you slowly over a period of time to ensure they can refund people should you shut down before the coupon expires. So while you have the expense of providing the product / service you are not going to get paid for months which for a lot of places could cause cash flow issues. For small items under a certain value Groupon keeps 100% of the money so you basically are giving your product/service away.

A second issue is the type of people who are attracted to offers like are not good customers. The hope is that they will try you and become regular customers and possibly even tell a few friends. Problem is they are much more likely to rave about how they got to try your product / service for cheap because of Groupon. All that does is devalue your product / service. No one wants to pay full price if they know a lot of people are getting it for less. The friends will sign on for Groupon but they won't become customers. The original coupon customer will also likely not return. Customers you win on price will always just go to the next person who offers a low price. As soon as someone offering the same service / product comes along they will go there.

Lastly, that Groupon either refuses to or strongly discourages a maximum number of coupons makes it a disaster for many businesses. Selling 3-4 months of capacity for 20-35% of your normal price hurts and it alienates your current customers who now have to deal with the bargain seekers clogging the business. You risk turning off your loyal full price paying repeat customers to service a bunch of people who will never come back and who are paying a fraction of those price.

Groupon has stats claiming participants are happy but I think they are mostly BS. Stats are easy to manipulate into anything you want. Unless they change their fee structure and allow for maximum coupons their service will only be valuable to certain limited kinds of businesses or coupons with limited value (free desert with full price meal over $X type). As business get burned I think it will be harder and harder for them to get participants.

this would have been one of the better posts in the "monetizing facebook" thread

An income statement item is advertising & marketing, and generally is related as a % of sales revenue. What is an optimal range for the expense, some say 3%, some say as high as 8%. If these advertising offers explode the expense, how do you manage to reign back in the numbers?

Can a groupon offer attract new customer, yes. As henry most eloquently posted though are these sales a positive or negative to the goal of any business, the bottom line profit.

This is what puzzles me as to why they would turn down a sales deal. Maybe its the facebook plan, keep control. But why, they didn't enter the arena for the culture or technology, its all about the Benjamins.

off the cuff it seems crazy but then again i thought zuck was too in 2007. i just don't have enough info to have a strong opinion either way.

Interesting. I was thinking that at least businesses were getting the money upfront to help offset the lost revenue from discounted sales, but so much for that notion. What a sweet setup for Groupon.

Impossible to comment without knowing the terms of the 5.3b deal, and what other deals Groupon is entertaining if any.

Google is likely to be aggressive with part of the money being an earn out meaning Groupon has to be acquired by G, then revenues or some other stats have to improve by X before the money is released. Also, the deal will have provisions whereby they forfeit some/most of the money if certain events happen and maybe this was seen as too risky.

regardless, it's not like G walked up to groupon and said "here's a burlap bag with a '$' sign on it and there's five billion inside, wanna sell?"

As to the actual value, Google can probably extract more valuye than most/any other company so I'd be surprised to see anyone else offer more in the near future of ever. Furthermore, the # of companies that can do M&A deals in the billions are not too many so it's not like Groupon has a lot of other potential suitors, maybe a dozen at most probably fewer.

Unless the deal was totally ******ed with most of the $ being tied to an unreasonable earn out, I think Groupon is a little crazy.

I admire all companies that turn down deals. Why would a company want to buy you? Seems like internet companies are going back into bubble.

It's especially crazy to think about when you remember that Google paid ~2b for YouTube.

It's not as bad as you make it sound Henry. While Groupon takes a huge cut I'm sure most businesses have a good idea of what they're getting into and they structure deals accordingly. Many businesses only offer deals during their slow season, so they get customers to come in and offset the fixed costs they'd have to pay anyway. And a lot of deals are only up to a certain dollar amount, say 50% off of the first $60, when the final bill might come out much higher, so the discount is often not as huge as you made it sound.

I'm not sure the rejection was good but the competition is going to have a tough time breaking through Groupon's moat. Network effects are serious business.

It is still possible that it was a bad decision in 2007. Sure the results played out in Zuckerberg's favor, but at the time myspace was still bigger and people were using it.

FB of course went on to dominate myspace and no one else even got started but taking the money in 2007 wouldn't have necessarily been a bad move.

The groupon deal isn't as close a comparison though because the coupon sites aren't driven by network effects nearly as much as Facebook. I am probably only going to use one social network, but I can sign up for several coupon sites and I'll only use the best deals. Groupon can only be as compelling as it's advertisers allow it to be.