Last Updated Jan 21, 2011 6:34 PM EST
And that's a serious problem for the deep discount dotcom darling that pushes deep discount deals to customers. Even if Groupon expected Google to clone its model after the rejected acquisition, Google has the cash and the search platform that Groupon and like-minded competitor Living Social can't begin to match. With Groupon regrouping after the Google acquisition talks and Living Social still getting its footing, there wasn't either company could do to prepare for this worst case scenario and, at the moment, not much they can do to fight it.
The Google Search Advantage
Groupon works by emailing its members a daily menu of discounts to use for restaurants, vacations, and other services. While Google Offers will use the Groupon model as a base -- asking users to sign up for a daily deal newsletter -- in the future it could do more targeted emailings and have millions of customers come to it via search. Say both Groupon and Google Offers show a deal with a tire company. Groupon would send out a mass emailing. Google Offers will do the same, but as it ramps up, it could use Google search to target people who've recently search phrases such as:
- how to fix a flat
- buying tires
- how to prepare a car for snow
Google already has a major advertising network through AdWords and AdSense, but it isn't focused on local. Still, it's a very good starting point for launching a daily deals business. By integrating daily deals into its advertising network, Google can quickly and easily gain exposure with businesses. In fact, it probably could get enough local businesses to sign up just through word of mouth.
Buying its way to the top
Of course, Google's killer app in any competition is its bank account. It could pull retailers away from Groupon by subsidizing their costs and minimizing risk. In the Groupon model coupons usually cut in half the price of a service or product, and the retailer or service provider eats the difference. Ironically, a very popular coupon can seriously hurt the company's bottom line. Groupon tries to use built-in safeguards by limiting the amount of coupons, but these don't prevent companies from being overwhelmed by demand, as happened to cash-strapped American Apparel recently.
With virtually no limit to the up-front cash Google could invest this way, it could catapult to the top of this market.
Google Offers does face some of the challenges already confronted by Groupon and Living Social. The most basic: is there a business model that will make money for the retailers and service providers, and not just the coupon companies?
But here too Google Offers has the advantage. It can give bring businesses into the Google ecosystem and help promote them through search and other features. Google has made it clear that it wants to be king of this business, and there doesn't seem to be anything that others can do to stop it.