What Would a Groupon Acquisition Mean for Google?
Groupon’s stock price soared Friday on speculation that Google, its onetime suitor, might make an offer for the troubled local commerce firm. Bloomberg added fuel to the fire late Friday afternoon, quoting a Telsey Advisory Group analyst who called the deals firm a “takeout candidate” and said that a deal was a “possibility” — an endorsement of the feasibility of an acquisition, not the rumor itself.
It’s unfounded speculation, but an interesting thought experiment nonetheless: How could Google leverage Groupon’s assets to solidify its local commerce offerings?
Making Google the Operating System for Local Business
So what does Groupon have that Google wants? Reach and not the kind you might think of. As I’ve argued before, Groupon’s massive email list is more illiquid and less valuable than immediately apparent, particularly when it comes to the nuts and bolts of an acquisition. The company’s sales force and the structure that underpins it, however, could provide Google with something remarkable. Here’s why.
A Groupon buy begins and ends with Google’s mobile commerce business. That’s where Google Offers currently lives and where Groupon would likely be housed after an acquisition. The search giant has poured a ton of cash into the division, building out a fairly robust stack of businesses around its mobile wallet through internal projects and an aggressive acquisition strategy. The division’s latest move came in late November, when it acquired coupon-targeting platform Inventive Targeting to strengthen its proposition to retailers.
Before evaluating the logistics of a Groupon fit, it’s important to run down some of the basic thinking behind Google’s (and others’) mobile commerce plays. First there’s the concept that mobile payments will eventually drive the interchange rates — how payments companies traditionally made money — to marginal fees. This is what LevelUp‘s Seth Priebatsch calls “interchange zero.” In place of the traditional fee-for-service model, the transaction itself will serve as a loss leader that drives merchants to purchase a handful of value-added services like CRM and marketing built on top of that transaction data.
Calling this mobile commerce is a bit of a misnomer. The mobile payment is a linchpin, but its value comes from the deep network of services that live outside the mobile device. Those using the phrase “mobile commerce” often confuse e-commerce on the phone with local commerce using the phone. One involves the use of an additional portal to access the traditional e-marketplace, and the other is a cog within the structure of a newly emerging system, the local marketplace. It’s in the context of building of a local commerce business that Groupon could provide some value for Google.
Acquiring Groupon Means Buying a Sales Force
Groupon’s sales force is an impressive beast. With more than 5,000 salespeople in over 500 markets, it’s a major asset and one that could provide Google with a pipeline to begin dialing up its local commerce products.
For a technology company like Google, it’s the sales and CRM network that are going to determine the margins for its local commerce business moving forward. The company has traditionally relied on channel sales and resellers to tackle the SMB market. That might continue to work, but the amount of up-selling needed to maximize the local commerce opportunity (which I outlined above) may mean a larger need for direct sales.
In addition, two other big factors play into why a direct sales force may be worth the cost. The first is that payment is a two-sided market, meaning that the richness of the consumer experience relies on the ubiquitous adoption of the service on the merchant side. But even more important, introducing an entirely new operations and marketing ecosystem to small business owners requires a lot of hand holding and one-on-one education that’s just not available through a self-serve dashboard.
Google’s opportunity in mobile local commerce is massive, and Groupon provides the technology giant with a point of entry into the commerce space that doesn’t begin with a face-to-face showdown with Amazon. If the price were right, an acquisition could make a lot of sense.
Steven Jacobs is Street Fight’s deputy editor.