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The value of an acquisition is (simplifying) a product of how easy it would be to replicate the target without buying it, that is itself a combination of (agai

The value of an acquisition is (simplifying) a product of how easy it would be to replicate the target without buying it, that is itself a combination of (again simplifying) how big a first/early mover advantage they have, and the technical lead they have, in terms of software, data, infrastructure, etc. Groupon obviously has an early-mover advantage, although it doesn't seem insurmountable, but their technical advantage doesn't seem enormous. I don't mean to undersell what they've done and fall into the "I could build X in a weekend" trap, but what they've accomplished technically seems easily repeatable in a year by a company of Google's talent, if not less. Their early-mover advantage has established them as the definite leader in the area, but again, it does not seems insurmountable. There isn't significant vendor lockin (the vendors are constantly changing), nor customer lockin, (other than having to sign up for a new site). There is a clear avenue for competitors to break in, by offering better terms. Basically, they are printing money by being a middleman. Funny, i thought the internet was supposed to eliminate that kind of business. They are certainly worth billions, as they are enormously profitable, but 6 billion seems excessive. What this says to me is that Google sees locally-based commerce that occurs online (bad phrasing by me) as a critical space in the coming years, and they would rather significantly overpay and jump ahead rather than risk being lapped.

gkoberger 16y ago
Does Google have the technical skills? Of course- after all, Groupon started out as a mere blog. That being said, imagine a Google-made version of Groupon. It would be horrible. Google may not get it when it comes to making products similar to this- but at least it seems to know it doesn't. Google isn't in it for the technology. They'd be buying it for the community and the atmosphere- something they can't reproduce. After all, nobody will care about "Google Coupons", the minimalistic Groupon knockoff with that big blue "Buy now!" Google Checkout button.
Mystalic 16y ago
This is not about the technical aspect at all or about being an early mover. Great companies solve the technical problem and the distribution problem. Groupon's value is in its distribution and its ability to scale that to the moon. Don't think just any company could replicate that.
fookyong 16y ago
If you've had no experience in E-commerce it's often overlooked just how hard it is to get people to come to your site and open their wallets. This is part analytical, part marketing and part secret sauce. Groupon has figured it out and they are scaling it up. This is not something that anyone can replicate. Anyone can build a group-buying site and hire a sales force to do deals. Acquiring the members and getting them to buy stuff to the point where you are doing $50MM in sales p/m is a vastly different set of challenges that I think most of their competitors are incapable of.
- enjo 16y ago
  I wonder what Living Social is doing these days in revenue? It may be difficult, but you can't convince me it can't be replicated for far under $5 Billion. In my small sample Groupon hardly has a ton of brand loyalty and they certainly haven't penetrated the larger mindshare in the same way companies like Google or Facebook have. Google surely knows something that I don't... but I just can't imagine them shelling this type of money out for something like this.
  - vladd 16y ago
    Google could build it for sure, but they can't have any guarantees that it won't turn into a failed Wave or Lively. They already have coupons for local listings ( http://www.google.com/local/add/coupons http://www.google.com/local/add/coupons , Google sign in required) and I don't see that anywhere near as popular as Groupon. On the other hand, their ad business could benefit greatly from a coupon/promotion system that actually works. They already have advertisers pouring in billions of dollars, just imagine the leverage of owning the world's leading coupon platform as well --they just need to improve revenue by 10% or so and you have 0.5 billions more each year, which is enough to justify the 5 billion price tag.
- stevenj 16y ago
  Ya, scale can be a powerful competitive advantage. "The social proof phenomenon which comes right out of psychology gives huge advantages to scale—for example, with very wide distribution, which of course is hard to get. One advantage of Coca-Cola is that it's available almost everywhere in the world. Well, suppose you have a little soft drink. Exactly how do you make it available all over the Earth? The worldwide distribution setup—which is slowly won by a big enterprise—gets to be a huge advantage.... And if you think about it, once you get enough advantages of that type, it can become very hard for anybody to dislodge you." -Charlie Munger [1] [1] http://ycombinator.com/munger.html http://ycombinator.com/munger.html ----- On a somewhat related note, if there's anybody out there that wants to build a Groupon clone, or sell excess inventory of some product, or provide daily deals for anything, and you don't want to build the tech, check out http://cajoots.com http://cajoots.com (a project of mine).
mwerty 16y ago
What you say eerily reminds me of the argument Ballmer made to not buy Google in 2003 (the amount being spoken of was 10 billion - not too far there either). My hypothesis is this: mind-share and network-effects are hard/impossible to value.
webwright 16y ago
"Basically, they are printing money by being a middleman. Funny, i thought the internet was supposed to eliminate that kind of business." Have you MET the internet? It's one huge lead gen contraption (ads, groupon, kayak, google, the app store, itunes, etc). One of my all time favorite blog posts on the topic here: http://blog.redfin.com/blog/2007/08/the_web_is_becoming_a_gigantic_lead-generating_contraption_for_business-as-usual.html http://blog.redfin.com/blog/2007/08/the_web_is_becoming_a_gi...
bl4k 16y ago
online ad spend: $12B p.a local ad spend: $170B (US only) /thread
alexophile 16y ago
There's also the factor of brand recognition - "Groupon" is becoming the "Kleenex" of daily deals. Having worked for another deal site which had an entirely different model, every time I explained it to people, I had to make clear the differences between it and Groupon. Any new player, besides the technical and sales aspects, would be saddled wtih the burden of differentiation.

gkoberger 16y ago

Does Google have the technical skills? Of course- after all, Groupon started out as a mere blog. That being said, imagine a Google-made version of Groupon. It would be horrible. Google may not get it when it comes to making products similar to this- but at least it seems to know it doesn't. Google isn't in it for the technology. They'd be buying it for the community and the atmosphere- something they can't reproduce. After all, nobody will care about "Google Coupons", the minimalistic Groupon knockoff with that big blue "Buy now!" Google Checkout button.

Mystalic 16y ago

This is not about the technical aspect at all or about being an early mover. Great companies solve the technical problem and the distribution problem. Groupon's value is in its distribution and its ability to scale that to the moon. Don't think just any company could replicate that.

fookyong 16y ago

If you've had no experience in E-commerce it's often overlooked just how hard it is to get people to come to your site and open their wallets. This is part analytical, part marketing and part secret sauce. Groupon has figured it out and they are scaling it up. This is not something that anyone can replicate. Anyone can build a group-buying site and hire a sales force to do deals. Acquiring the members and getting them to buy stuff to the point where you are doing $50MM in sales p/m is a vastly different set of challenges that I think most of their competitors are incapable of.

enjo 16y ago
I wonder what Living Social is doing these days in revenue? It may be difficult, but you can't convince me it can't be replicated for far under $5 Billion. In my small sample Groupon hardly has a ton of brand loyalty and they certainly haven't penetrated the larger mindshare in the same way companies like Google or Facebook have. Google surely knows something that I don't... but I just can't imagine them shelling this type of money out for something like this.
- vladd 16y ago
  Google could build it for sure, but they can't have any guarantees that it won't turn into a failed Wave or Lively. They already have coupons for local listings ( http://www.google.com/local/add/coupons http://www.google.com/local/add/coupons , Google sign in required) and I don't see that anywhere near as popular as Groupon. On the other hand, their ad business could benefit greatly from a coupon/promotion system that actually works. They already have advertisers pouring in billions of dollars, just imagine the leverage of owning the world's leading coupon platform as well --they just need to improve revenue by 10% or so and you have 0.5 billions more each year, which is enough to justify the 5 billion price tag.
stevenj 16y ago
Ya, scale can be a powerful competitive advantage. "The social proof phenomenon which comes right out of psychology gives huge advantages to scale—for example, with very wide distribution, which of course is hard to get. One advantage of Coca-Cola is that it's available almost everywhere in the world. Well, suppose you have a little soft drink. Exactly how do you make it available all over the Earth? The worldwide distribution setup—which is slowly won by a big enterprise—gets to be a huge advantage.... And if you think about it, once you get enough advantages of that type, it can become very hard for anybody to dislodge you." -Charlie Munger [1] [1] http://ycombinator.com/munger.html http://ycombinator.com/munger.html ----- On a somewhat related note, if there's anybody out there that wants to build a Groupon clone, or sell excess inventory of some product, or provide daily deals for anything, and you don't want to build the tech, check out http://cajoots.com http://cajoots.com (a project of mine).

mwerty 16y ago

What you say eerily reminds me of the argument Ballmer made to not buy Google in 2003 (the amount being spoken of was 10 billion - not too far there either). My hypothesis is this: mind-share and network-effects are hard/impossible to value.

webwright 16y ago

"Basically, they are printing money by being a middleman. Funny, i thought the internet was supposed to eliminate that kind of business." Have you MET the internet? It's one huge lead gen contraption (ads, groupon, kayak, google, the app store, itunes, etc). One of my all time favorite blog posts on the topic here: http://blog.redfin.com/blog/2007/08/the_web_is_becoming_a_gigantic_lead-generating_contraption_for_business-as-usual.html http://blog.redfin.com/blog/2007/08/the_web_is_becoming_a_gi...

bl4k 16y ago

online ad spend: $12B p.a local ad spend: $170B (US only) /thread

alexophile 16y ago

There's also the factor of brand recognition - "Groupon" is becoming the "Kleenex" of daily deals. Having worked for another deal site which had an entirely different model, every time I explained it to people, I had to make clear the differences between it and Groupon. Any new player, besides the technical and sales aspects, would be saddled wtih the burden of differentiation.