Google goes shopping

Google’s answer to fierce competition is to spur growth by entering new market segments. Rumors are spread the internet giant is just about to perform its most expensive acquisition.

A threat of each company is that rivals take away market share and thus profitability. A recent report of Bloomberg is illustrating how Google reacts to an increasing amount of competition with Facebook, Apple, and Yahoo, to only name a few.

Google’s corporate strategy to ensure continuous growth is diversification by acquiring existing firms. Google already invested about $1.6 billion on more than 20 companies this year and for its new target Google is even willing to pay more than $3 billion, private sources of Bloomberg state.

Which company is so appealing to Google?

It is Groupon, a company offering web-based coupons and said to be one of the fastest growing new companies.

An interview, posted in a Wall Street Journal blog, explains the thriving business model of Groupon and points out factors that lure “web giants” like Google.

Summarized, Groupon’s business is simple but very successful. Daily messages are sent to users offering discounts on products and services. Deals, however, only activate when a minimum number of people agree to make a purchase, giving Groupon the possibility to offer cheap group discounts. The businesses benefit from new customers while Groupon gets to keep about 50% of every deal.

A post in a Reuters blog describes two aspects why Google is highly 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 is also tremendously successful with millions of customers.”

It is, therefore, no surprise that Groupon is not only attractive to Google. Yahoo has just recently failed negotiations with Groupon and, as Bloomberg’s private sources say, the Groupon management also has not finalized its decision whether to sell itself to Google or raise more funds instead in order to expand the business itself.

All in all, acquiring Groupon would be another milestone for Google becoming even more powerful and in control of the web. Google could use and expand its existing customer base and as people always seek savings, growth in this segment could be expected. However, as Groupon’s business model does not involve much it is also highly sensitive for competition. Thus, Groupon should seriously consider selling as Google has a lot of cash to offer.

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4 Responses to Google goes shopping

  1. rudi2020 says:

    Good post.
    The web is full of rumors on that topic.

    Andrew Mason, CEO of Groupon, gives some insights. No wonder why google is intereseted- also comes with a bunch of customers.

  2. bravenewloock says:

    Google really seems to be feeling Facebook’s breath on its neck – how else would they consider an offer as big as 100 times Groupon’s 2009 revenue of 30m dollars? Just to remind you, they did not pay more than 1.6bn dollars for Youtube!!! Check out this impressive graphic of all Google’s purchases since 2001.

  3. olexa5 says:

    Amazing! Nowadays it seems to becoming increasingly difficult to avoid certain companies if favoured. Imagine Google or others are effected by a scandal like Nestle with the babymilk a few years ago. If then customers wish to boycott this giant, one will have to ‘google’ a list of subsidiaries belonging to them at first.

    Marketwatch.com even identified Google to become an energy provider:
    http://www.marketwatch.com/story/google-applies-to-become-electricity-trader-2010-01-07

    Also, a first impression of what they actually own, can be found under:
    http://en.wikipedia.org/wiki/List_of_acquisitions_by_Google

  4. vivipre says:

    To keep you updated: Groupon did not accept Google’s enormous acquisition offer of $6 billion. Although the offer additionally included incentives that would be paid to Groupon’s managers if performance targets were met the company decided to stay independent instead and might even go for an IPO, as the telegraph reports.

    Considering, the fact that Groupon’s business can easily be copied by rivals, I doubt Groupon’s management did the right decision by rejecting such a high valued offer.

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