Google wants Groupon, but is the feeling mutual?

By Kevin Kelleher
November 19, 2010

Kara Swisher at AllThingsD is hearing that Google is in talks to buy the online-deal-of-the-day startup Groupon, citing multiple “sources close to the situation.” It’s easy to imagine why Google would be interested in this acquisition. Groupon not only stands at the intersection of the social web and local commerce, two areas Google is eager to expand into. It’s also a bonafide success, with 20 million users in hundreds of U.S. cities.

What’s harder to imagine is that Groupon is just as eager to put itself on the block just yet. Two months ago, Swisher reported a similar conversation happening between Yahoo and Groupon, with the former bidding more than $2 billion for the startup. Groupon may be shopping itself around for a number of reasons—one of them could be that it’s not interested right now in an actual deal, but generating press with high valuations of $2 billion, $3 billion or more is very handy when negotiating a new round of private investment.

For successful web companies right now, it’s clearly a seller’s market. Google, Microsoft and others may be sitting on tens of billions of dollars in cash, but at the same time, private equity is so abundant that another round of venture capital always remains an option. And if you’re cash-flow positive, why deal with the scrutiny and regulation an IPO would bring, or the culture clash and loss of independence that comes with an M&A deal?

Of course, there are clear risks associated with Groupon biding its time. Its daily-deal offering is easy to replicate. Already there are 180 companies offering them, although all but a handful have offered more than 1,000 deals and only one site – LivingSocial.com – comes close to the 27,800 deals that Groupon has offered to date.

But Groupon has enough of a headstart that it’s lining up deals with bigger retailers, such as American Apparel and Nordstrom Rack (which was so popular that it overwhelmed Groupon’s servers after Oprah touted the deal on her show). The company is also showing it’s prepared to fight upstarts with patent infringement suits, filing suit against Los Angeles-based MobGob for violating a patent that sets the size of a coupon’s discount according to consumer demand.

Groupon may be following the example set by Yelp, which walked away from a $550 million bid from Google late last year. Yelp’s traffic has only increased since then, as its valuation surely has in a web industry oversaturated with venture investments.

In the end, though, holding out from buyouts is like playing a game of chicken. The broader financial markets may slump again, cutting off a lot of venture money from web startups. Or Groupon may see its popularity peak. If either of those were to happen, Groupon might find out too late that the deal Google is offering wasn’t so bad after all.

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Sure seems like a deal may go through. Yahoo is the biggest loser here, they blew a chance to vastly improve their future by acquiring groupon. More on it here: http://www.dailydealmedia.com/groupon-an d-451google-jungle-drums-are-beating/

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