If you haven’t heard, Google is very, very close to acquiring Groupon for a price in the $5.3 to $6 billion range. The press has been quick to speculate what the acquisition will mean for Google, but has said little about what it would mean for Groupon (besides the cash it would put in its founders’ wallets), nor the implications for Groupon’s number-two competitor, LivingSocial.
First, the benefits. According to sources familiar with their respective marketing budgets, Groupon and LivingSocial each spend more than $1 million per month on advertising through Google alone — a huge share of their overall advertising spend. If Google acquires Groupon, the latter will have search inventory set aside for it in the same way YouTube does, effectively cutting a substantial share of Groupon’s advertising costs and, in theory, making it a more profitable business by lowering its operating costs. Groupon will also likely have more prominent placement on Google’s local search product pages, such as those under the Google Places banner.
Another benefit for Groupon is the authority that the Google brand will lend to the (comparatively small and not well-known) startup, especially given the recent stain Groupon has acquired within the small business community.
There is, however, the concern that Groupon will not integrate smoothly into Google, a frequent outcome of the acquisition process. It certainly wouldn’t be the first startup that has gone to Google to die.
That would clear the path for LivingSocial and other competitors in the group buying space. If and when Google acquires Groupon, LivingSocial would become a much more attractive prospect for acquisition or an IPO. At 10 million users (compared to Groupon’s 12 million) and $500 million in projected revenue for 2011, it’s not far behind Groupon currently.
In fact, rumors have surfaced that Amazon is now looking to make a significant investment in the Washington, D.C.-based startup with a valuation in the multi-billions; sources close to the matter have likewise confirmed that word about Amazon’s interests is circulating through the office, although LivingSocial has officially declined to comment. (Amazon currently has no investments in location-based services, although it has tested the daily deals space with the acquisition of Woot.)
There’s also an immediate benefit, as the search advertising costs for LivingSocial and similar services will fall with less competition over the same keywords once inventory is set aside for the Groupon.
Clearly, the benefits for LivingSocial don’t end here, and this startup could likely face significant challenges against a competing service backed by the Goliath of Internet companies. How do you envision the future of group buying in the event of Groupon’s acquisition? What other benefits (or downsides) do you see for Groupon and its competitors?
Reviews: Google, Internet, YouTube
More About: amazon, Google, groupon, living social
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