Google and Groupon: Someone is seeing Green
December 4, 2010 1 Comment
There are a couple interesting things to note on this topic and other articles written on the Google-Groupon deal. For Google, the deal represents the cost and speed it would take to be #1 in the Daily Deal phenomenon, take out a competitor, etc. If I am Groupon, I want to move on something fast, whatever that deal is – just make it fast. Also, it is important to note that Groupon’s sales indicate a $2 billion “run rate” which means that they could only be on that trajectory just recently, and it is not seasoned – let’s remember it is not a 50% gross profit margin either once COGS are factored in. Groupon’s board/founders could not have had a better PR campaign, assuming Google does not up its offer, to go for an IPO and maybe double their take. Big gamble though, because Groupon has lots of competitors (we have all seen the Living Social ads recently all over the place I’m sure) now and any of them could be scooped up by Google and plugged into the BIG G and supercharged for your consumption.
It’s a fine line between ballsy and stupid and you never know until afterward which type of move you made and whether you paid for bad advice. The dot bomb and many other similar models have taught us that rapid sales growth like this can evaporate just as quickly. However, nobody loves irrational exuberance like the United States small investor who just read a blog post. Wall Street has certainly been waiting for the IPO wave they predicted/have been hoping for for well over a year. I bet I could not count on two hands the number of members of the investment banking team advising Groupon. Demand Media had been preparing the world for their IPO for a while (to get the price up), and a recent article about their earnings would seem to indicate that an injection of speculation and not financial common sense desired. If I am Demand Media, I am pissed because this analyst says my company is worth less than $2 billion, and I have all sorts of content under my control, proprietary business systems, multiple business lines, etc. Groupon just turned down $6 billion and would be looking at an IPO of at least $10 billion (my guess), and their entire business model is predicated on the face that business owners will continue to slash their prices by as much as 50% in short bursts as loss leaders to attract new clients even after the economy recovers. Loss leaders have always existed, but historically they have never been 50% as far as I know. Many business owners I have spoken to hate the fact that they have to do it because of the devaluation of their product or service in the eye of the consumer if they do it too often. I’m just sayin’….
It’s Game On either way!
I just added (1) smoke, (4) mirrors, and (1) box of dominoes to my shopping cart. Check please!