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HOT TOPIC Google buys Groupon for $2.5 billion

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Sid23

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Talk about Fastlane...Groupon was founded in November 2008.
 

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andviv

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So... is it true or still speculation?
 

TaxGuy

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BTW are any business owners here using GroupOn for marketing?

I like the idea of offering group buy discounts, thus you add value to the customer in providing a limited-time "buy now" discount and the customers provide a TON of value in encouraging more customers to sign up in order to get the deal.
 

Darkside

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Wow, that's a 10X revenue valuation. Talk about an explosive wealth equation ...

Actually, it's justified. They're taking into account future growth prospects. Keep in mind that Groupon was founded at the end of 2008 so within just two years they've reached about 600 million in revenue so 5 years from now they should be making several billion a year in revenue, especially when they integrate with Google's huge resources, so Google will make it's money back in no time.
 

Russ H

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Actually, it's justified. They're taking into account future growth prospects. Keep in mind that Groupon was founded at the end of 2008 so within just two years they've reached about 600 million in revenue so 5 years from now they should be making several billion a year in revenue, especially when they integrate with Google's huge resources, so Google will make it's money back in no time.
This assumes constant growth, or at least that sales will continue.

Buzz in the merchant community for those who have done groupon is not good-- most would never do it again, as their costs were astronomical.

That being said, if google integrated their great explanation/rationale approach to groupon, and let businesses know what they were getting into, I could see this improving the value equation substantially.

-Russ H.
 

Russ H

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This news has not been confirmed yet.
Agreed.

Here's the latest from the other side of the globe:

"UPDATE 2AM 11/30: Now Kara Swisher reports that Google has offered $5.3 billion for Groupon with a $700 million earnout, which means if the deal goes well, Groupon’s investors do better. She says the deal could be struck as early as tomorrow."

-Russ H.
 

Russ H

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I just spent the past 2 hours looking into Groupon for our B&B.

What Groupon says in their (excellent) tutorial videos: 97% of businesses want to do groupon again.

What a biz School study revealed: 40% said they'd never do social coupons again, ever.

That's quite a difference.

How it works:

-You develop your groupon deal (e.g., $75 worth of food for $35)

-You set a minimum for the deal to work (have to sell 500, or 1,000 minimum, or else NO ONE gets it). This encourages people to send the deal to their friends, so they can get the minimum. Clever, that. :thumbsup:

-On the day of, you answer the phone like crazy, your website is busy, and you have to deal w/Groupon forums questions.

-As you sell groupons, you see the $$$ go to your account. I honestly don't know if they pay you for ALL groupons sold, or if it's promisary, and only paid when the person comes in. Likely the latter, as it would capitalize on breakage in groupon's favor.

-Groupon takes 50% of your revenues (easy to see how they generated $600 million in sales, eh?)

-Your offer has to be anything from 50-90% OFF.

Examples:

Spend $10 to get $100 worth of groupons for tanning services. The tanning salon gets $5 total, Groupon gets $5 total, and the customer gets $100 worth of tanning services.

Spend $50 to get $100 worth of groupons for hotel accommodations. The hotel gets $25, Groupon gets $25, and the customer gets $100 worth of lodging.

So in that last example, you get $25 for a $100 booking.

************

If the person only books a $100 room, you lose money.

If they book $200 (let's say that's our cheapest room), then they pay $150 (the $50 groupon + $100), and we get $125, and Groupon gets $25.

At that point, it starts to make sense.

Very interesting concept. The whole key is to structure the deal so it's enticing to customers, and to make sure you can supply the demand.

-Russ H.
 

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Darkside

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I just spent the past 2 hours looking into Groupon for our B&B.

What Groupon says in their (excellent) tutorial videos: 97% of businesses want to do groupon again.

What a biz School study revealed: 40% said they'd never do social coupons again, ever.

That's quite a difference.

How it works:

-You develop your groupon deal (e.g., $75 worth of food for $35)

-You set a minimum for the deal to work (have to sell 500, or 1,000 minimum, or else NO ONE gets it). This encourages people to send the deal to their friends, so they can get the minimum. Clever, that. :thumbsup:

-On the day of, you answer the phone like crazy, your website is busy, and you have to deal w/Groupon forums questions.

-As you sell groupons, you see the $$$ go to your account. I honestly don't know if they pay you for ALL groupons sold, or if it's promisary, and only paid when the person comes in. Likely the latter, as it would capitalize on breakage in groupon's favor.

-Groupon takes 50% of your revenues (easy to see how they generated $600 million in sales, eh?)

-Your offer has to be anything from 50-90% OFF.

Examples:

Spend $10 to get $100 worth of groupons for tanning services. The tanning salon gets $5 total, Groupon gets $5 total, and the customer gets $100 worth of tanning services.

Spend $50 to get $100 worth of groupons for hotel accommodations. The hotel gets $25, Groupon gets $25, and the customer gets $100 worth of lodging.

So in that last example, you get $25 for a $100 booking.

************

If the person only books a $100 room, you lose money.

If they book $200 (let's say that's our cheapest room), then they pay $150 (the $50 groupon + $100), and we get $125, and Groupon gets $25.

At that point, it starts to make sense.

Very interesting concept. The whole key is to structure the deal so it's enticing to customers, and to make sure you can supply the demand.

-Russ H.

The best point made in that article is that the type of people who use Groupon are typically cheap; they're not the kind of people that will purchase additional items or services along with their coupon nor will they be likely to come back for full price.

It seems to me that the whole point of having Groupon promotions is to attract new customers who could potentially become repeat customers. You will take a loss on the Groupon promotion but you hope to get repeat customers to make up for that difference.

However, that's not happening because as I said, the type of people who come in for those promotions are bargain hunters aka cheap; they won't be coming back. This aspect will be the downfall of Groupon. They're smart to sell now before their house of cards collapses.
 

TaxGuy

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After reading that Russ I have almost given up on the idea of utilizing GroupOn for our business as it would most likely attract the wrong type of client base, however, from preliminary discussions we have found that some of our worst clients have actually led to getting some of our best(i.e. one non-paying deadbeat who has family/friends that utilize our services, pay promptly and come back year after year)

Very interesting concept. The whole key is to structure the deal so it's enticing to customers, and to make sure you can supply the demand.

-Russ H.
I wonder how many of these "deals" use the psychological pricing that most eBooks/internet products(i.e. WordPress Direct or other 30 Day Challenge upsells), "Going Out of Business" Sales or even Black Friday sales use in raising the perceived price above average retail and slashing that in half, thus only giving the customer a 10-30% discount instead of the required 50-90% by Groupon standards?

You know- This product usually sells for $100, buy it now and get it for $50, when in reality it probably sells for $60 ;)
 

TC2

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There are many advantages to use Groupon for your businesses

1. Get your name out very quick
2. Reach out to mass potential customers
3. Free viral marketing over social network
4. 15% people bought the ticket will never or unable to show up. You will still get the money
5. NO Front Cost!

Disadvantage
1. The deal will drag your business for 3 months to a year
2. It will take you a long time to schedule appointment (if it's required by your business type) or remind them to come before it's expired, in case you got 9000 people buying into your deal. You don't have time to deal with real loyal customers.
3. People tend to forget the ticket and try to use it before the due day. Most complaints happen at that time.
4. You are offering 75% OFF discount. You are losing money if you can't up-sell.
5. Most people buy into the deal will not come back unless you post the same or better deal in 6 months or later. Why come back to you while there are many cheap deals out there everyday.
6. You are giving impression that you can offer cheap deal once, you can do that twice and so on.
7. You are giving impression that you will either markup the price before discount or reduce the quality of the products or services.

The following type of business gets the best out of Groupon, because up-sell membership or subscription to bring the customers back.

Luxury Salon & Spa, Laser Hair Removal, Chiropractor, Dentist (Teeth whitening), Massage, Weight lose program. They make more money by converting them into members or subscribers.

If you are running restaurant, you can up-sell your gift card or offer VIP program when they claim their ticket. Again, most people just come once.

There are few key points to drive Groupon's success
1. Social & Viral marketing - You get $10 if you bring your friend onboard
2. It's so cheap that everyone can afford to buy
3. Huge commission to the sales person

vr4playa:
Of course, sneaky business doing sneaky thing. For example, there was a deal to offer $60 deal for unlimited hot yoga class for a month at value of $120. So it's 50% OFF.

The Yoga place got $30 per ticket from Groupon. However, most people only visit the Hot Yoga place twice a month. This is equal to $15 per visit for the Yoga place, but $30 for the customers.

Guess what. You can just stop by and pay $15 every time you visit the Hot Yoga place without any coupon or certification. So what is the discount you are getting? -$0 (You actually pay double, if you are like most people who only visit the place twice a month).

Group buying is not an innovation, but Groupon really nails it at the right time with right strategies. There are lots space for all of us to drive on fastlane.
 

TaxGuy

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Terence- I wouldn't quite say it's "sneaky" it's like a gym membership... you pay $40/mo, if you only use it once a month it's $40/trip as opposed to using it 10-20x/mo

What I meant was stuff like WPD that has the "$49/mo package for a limited time only deal of $19/mo" or Sign up for 30DC+ by tomorrow for the limited time price of $29/mo before it goes up to the regular price of $99/mo, you will never see a price like this again. And of course if you have a friend they can sign up for the 30DC and get the same "one day only" deal on a different day ;)

It's much like the Time-Share presentation we went through yesterday, they gave us the one day only pricing for foreclosed upon and bank owned timeshare points when in reality we could get at any time. Needless to say we didn't buy, but we did use the $100 in free resort credit for a nice dinner and plan on using the 4 free nights in Hawaii considering a RT ticket from PHX runs about $250/ea in late April(just after our busy season ends :))

In fact, I wonder if Russ can employ some of the same tactics with the bed and breakfast by making it like a time-share where guests can buy a one-week a year stay package for life at a discounted price and pay yearly maintenance fees OR as far as Groupon goes have a one-week package with the discount being off of what a 7-day stay would cost if purchased night by night.
 

LightHouse

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Interesting break downs of the service guys. I left some rep speed for some of you. On the other side of the article...

These rumors have been floating for weeks in the VC area, when the recent wave of articles came out a few were wondering if the rumors were there or if they were planted to start a bidding war. Early hearsay mentioned that yahoo or some other big company was considering a deal with them as well when the 2.5B price came out as that was only 4.5x EBITA. which is $50MM a month or something.

I tihnk its an interesting tactic, drop some well placed rumors in the media, spook the other companies to get going on some sort of bidding war/auction over control. You get press and drive the price of your company up... "unexpectedly".
 
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Guest3722A

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Agree.

It's just like the bidding war over 3Par between Dell and HP back in August. currently it is only rumor though... and as they say -"buy the rumor". The only difference here is GroupOn isn't public so ever since the rumor hit, GOOG has been selling off. Perhaps a case of sell the rumor?
 

CommonCents

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I'd like to see more data on the value of groupon for businesses. Someone posted a study that 40% of businesses would not repeat, so that means 60% would? Sounds pretty good. It depends on type of business and how much they spend on advertising already, which mostly is very hard to track, until a pay for success type like groupon. I think that part is a huge obstacle overcome in approaching businesses to 'advertise'. There will be hundreds of challengers to groupon, what good to consumers and businesses to have a major national player like groupon? Most businesses are local/regional anyway. There will be niche groupons in certain industries and demographics(why do I as a guy want to get spa offers weekly?).

There will be a big opportunity for a groupon aggregator site. Why get 12 different offer emails a day? I want to get one, with narrowed offers based on my preferences, that shows me all the various deals.

I think w/ today's technology there will be more and more opportunity w/ pay for success business opportunities.
 

supraman

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Is there opportunity for a better opposition?
Focus on getting a better deal for the supplier?
Which could lead to better deals for consumers?
 
G

Guest3722A

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Groupon REJECTS Googles 6b offer! Wants to ipo next year.

Groupon reportedly spurns Google’s billions
Google bid for Chicago start-up was said to have reached $6 bln


SAN FRANCISCO (MarketWatch) — Groupon Inc. has walked away from a Google Inc. acquisition offer worth as much as $6 billion, according to reports late Friday, appearing to set the stage for a Groupon IPO as soon as next year.


Chicago-based Groupon, launched barely more than two years ago and offering deep daily group discounts via online coupons, has opted to remain independent, ChicagoBreakingBusiness.com reported.

ChicagoBreakingBusiness, operated by the Chicago Tribune, reported that Groupon may yet choose to pursue an initial public offering but will not make a decision about an IPO until 2011.

Representatives of Groupon and Google (GOOG 573.00, +1.18, +0.21%) did not immediately respond to MarketWatch requests for comment.

The tech-business site AllThingsD characterized Groupon as having “pull[ed] a Facebook.” See full item at MarketWatch sister site AllThingsD.

Groupon, which combines an online social-networking aspect with steep one-time discounts at local retailers, would have represented the largest-ever purchase for Google, which is in the midst of an acquisition spree.

Google is seeking to bolster its location-based and localized online services and advertising.

Speculation had grown recently that Google would raise its bid for Groupon in an increasingly aggressive effort to buy the firm — with reports reflecting a bid acceleration from roughly $3 billion to as much as $6 billion in a matter of days.

A tweeted message by venture capitalist David Pakman earlier Friday had seemed to cast doubt on a merger, however. Pakman, without citing any sources, wrote that the “hold up” on the deal stemmed from Google’s inability to offer a large breakup fee to Groupon, should antitrust regulators intervene in any planned merger or the pact otherwise fall apart.

Google has drawn increasing regulatory scrutiny, as its market power has flourished.

The Mountain View, Calif.-based company’s effort to acquire travel-information software firm ITA Software Inc. is now being subjected to an extended antitrust review by the U.S. Justice Department, for example.

Groupon reportedly spurns Google
 
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Guest3722A

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Agree.

It's just like the bidding war over 3Par between Dell and HP back in August. currently it is only rumor though... and as they say -"buy the rumor". The only difference here is GroupOn isn't public so ever since the rumor hit, GOOG has been selling off. Perhaps a case of sell the rumor?


NOW, seeing that Google was, I believe, a "sell the rumor", I'm interested to see if they become a "buy the news" when the bell rings on Monday.

Will be interesting.

Also, seeing that I'm giving my opinion here, (why stop now!) I think Groupon is foolish for rejecting this offer. I guess we'll see come early next year.
 

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Russ H

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Why can't GOOG just buy a smaller, less successful (but similar) competitor to GROUPON and then bury GROUPON?

I'm being serious. MJ? Anyone?

-Russ H.
 

TOLDUSO

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That rejection has to be the all time dumbest move. Somebody is a little too proud of their project to have told Google no concerning that amount of money. I mean, are you kidding me? I can't see their revenue reaching that mark in a long time to come, maybe even a lifetime, and likely now, never at all.

I would have been fresh dressed and chilling in the Hamptons with my family the very next day whilst penning checks to charities left and right from my Shiatsu chair.
 

Russ H

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That rejection has to be the all time dumbest move. Somebody is a little too proud of their project to have told Google no concerning that amount of money. I mean, are you kidding me? I can't see their revenue reaching that mark in a long time to come, maybe even a lifetime, and likely now, never at all.

I would have been fresh dressed and chilling in the Hamptons with my family the very next day whilst penning checks to charities left and right from my Shiatsu chair.
Read the details.

There were strings attached. And anti-trust concerns.

They could have wound up w/nothing. Or, a LOT less than purchase price.

Plus, google wanted to guarantee performance-- that they'd do like 795M next year-- for them to get this.

If they are just a one hit wonder and will crash and burn next year, this also would have killed them.

It aint always as simple as it seems.

-Russ H.
 

Darkside

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Read the details.

There were strings attached. And anti-trust concerns.

They could have wound up w/nothing. Or, a LOT less than purchase price.

Plus, google wanted to guarantee performance-- that they'd do like 795M next year-- for them to get this.

If they are just a one hit wonder and will crash and burn next year, this also would have killed them.

It aint always as simple as it seems.

-Russ H.


The public just gets the sensational headlines about Google offering 6 billion to purchase Groupon but of course when you read the fine print it's not that simple since there are usually a lot of strings attached and always the risk that the deal will fall apart, as you pointed out.

For those who invest in stocks what would be the total worth of Groupon if they were to go public considering that their revenue is about 600 million right now?
 

Darkside

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Why can't GOOG just buy a smaller, less successful (but similar) competitor to GROUPON and then bury GROUPON?

I'm being serious. MJ? Anyone?

-Russ H.


Why can't Microsoft buy a small competitor to Google and bury them? I'm not trying to mock you but it's not as simple to unseat a market leader as you think it is. Right now Groupon commands about 85% of the social coupon market; it's next biggest competitor Living Social only has 8% of the market. What are the odds that you can grow that 8% into the market leader? Not very good, especially when you consider that Groupon already has established relationships with local vendors and a huge sales force so Google would have to devote a ton of resources just to make a dent on their customer base. It's much cheaper and easier to just buy them out.
 
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Guest3722A

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For those who invest in stocks what would be the total worth of Groupon if they were to go public considering that their revenue is about 600 million right now?
Valuation is tricky when underwriting.

This is fairly informative info to get a basic understanding:

Initial public offering - Wikipedia, the free encyclopedia

This will give an idea of methods used by underwriters:

http://www.bowne.com/securitiesconnect/details.asp?storyID=1851


And for me, it will be interesting to see if Goldman underwrites this one.
 

Icy

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That rejection has to be the all time dumbest move. Somebody is a little too proud of their project to have told Google no concerning that amount of money. I mean, are you kidding me? I can't see their revenue reaching that mark in a long time to come, maybe even a lifetime, and likely now, never at all.
From your perspective they may be a little too proud of their project, but from mine you care a bit too much about money.

Do you really think the amount gotten from the deal would change their lives dramatically? Investors would be happy, but the founders would also lose control of their 'baby'.

It's evident money isn't their motivator. They want to keep growing upon what they have. You don't create such massive things without growing attached. Heck, I've become attached in the past to tiny projects of mine...
 

LightHouse

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