In Google-Groupon talks, size matters

December 6, 2010

“Think small and act small, and we’ll get bigger. Think big and act big, and we’ll get smaller.”

I came across this quote recently from Herb Kelleher, the founder of Southwest Airlines and my namesake (but no relation). I thought of it again this weekend when reports emerged that e-coupon star Groupon had rebuffed Google’s generous $6 billion bid for an acquisition.

In the business of building the web, small companies dream of staying private, suckling the ample teats of venture capital, until a successful IPO makes everyone rich. Big companies have a ton of cash and use it to buy small companies, which then get lost inside the big company’s culture and never really realize their potential.

Groupon, in other words, is thinking like a small company, albeit one that plans to get bigger. Google is thinking like a big one. And that may explain why Google is struggling to buy its way into the local and social web.

Groupon was a quick entry into both: It’s local because it built its business on the back of small retailers and restaurants that saw its online coupons as a way to get new customers (although it’s increasingly reaching out to big chains). And it’s social because the coupons don’t kick in unless enough people sign up, prompting people to share the coupons on Facebook.

Facebook has been a bigger driver of traffic to Groupon than Google. So Groupon not only represented a way to draw users and businesses to its local service, it also was a way to get people seeing Google as social platform. And not only that, but Groupon is profitable and growing like weeds.

A year ago, Google had a similar experience with Yelp, which also left Google sitting alone at the bargaining table. Yelp was an even better fit, because of its reliance on online ads as well as the Google Maps API. The problem seems to be, Google just looks too much like a big company. And being big may be to a company’s advantage in industries like finance, but on the web it’s not seen as a good thing.

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