Update: Groupon has reportedly rejected Google's offer.
Everybody's waiting to find out if Google will really buy Groupon. We may find out very soon, as Groupon's board is supposed to be meeting today to come up with an answer. Groupon is all about local, and that's something Chris Tolles, CEO of local news powerhouse Topix knows a bit about. He offered some of his insights on a possible Google Groupon acquisition to WebProNews today.
First off, Tolles has some thoughts on Google's larger local strategy. "This is the largest area of online advertising growth, and expansion here is one of the few areas that's fragmented and still rife for disruption," Tolles tells us. "They are going to need to expand local sales efforts and staffing, as well as create products and partner for local inventory."
On why Google is looking to buy Groupon rather than build this type of product internally, Tolles says, "It's pretty clear from the hundreds of unsuccessful Groupon clones that building one of these things is not as easy as all that."
"Plus, Groupon has a $600M local sales run rate," he adds. "It's not obvious that Google is making that much from local advertisers. Plus, Google has always been about the algorithm and when they need to build outside of their core experience, they have done a great job in acquiring companies to help them in products like maps, Android, YouTube etc. While they've not succeeded in everything, they're successes are pretty impressive."
Tolles says Google could help Groupon reduce its operating costs. "Groupon's growth depends on their building out email lists, and they use Adwords from Google for a big portion of that," he explains. "Presumably getting the wholesale rate on that kind of advertising, or creating new ways of integrating Groupon signups into search results, Gmail or Places would be a potential huge economy of scale for Groupon to tap into."
There's no question that Google could greatly help Groupon expand internationally, although the company has gradually been doing this on its own. "Groupon is going to have to expand internationally to continue the kind of growth that we've been seeing from them, and being able to leverage Google's existing international infrastructure is a potentially game changing time to market advantage," says Tolles.
"While I'm sure Groupon could soldier into countries where they have no presence, having native speaking staff on the ground in as many companies as Google is operating in would be a big asset," he notes.
Google is doing all it can to own local and that will continue for the foreseeable future as long as Marissa Mayer is in charge no doubt. The company's been doing some interesting things in the local space, from adding a great deal of emphasis on local to its regular search results, and introducing a social recommendation engine (Hotpot). All of that said, local is too large a space for any one company to dominate, according to Tolles.
"Local advertising is a $100B year business - 2/3 of the ad spending in the US," he says. "You'd have to control billboards, TV, radio, online, mobile and email lists to be able to 'dominate local'. While I think Google is on a path to have a major part of that ecosystem, I don't see them dominating local advertising anytime soon."
To me, there are clear advantages for Google if they acquire Groupon (particularly as it battles with Facebook, which recently encroached on Groupon's model). Some think the acquisition would be a mistake on Google's part, however. We'll see what happens. We should find out soon whether it's going to even go through or not.
Meanwhile, Groupon has been making acquisitions of its own. TechCrunch reports the company has acquired Ludic Labs, the local marketing services startup behind offerfoundry.com and diddit.com. The company has also acquired Asian sites uBuyiBuy, Beeconomic and Atlaspost. In addition to all of this, Groupon just announced some major features for local businesses.
Do you think Google should acquire Groupon? Share your thoughts in the comments.